Why US Banks Will Cut Back on Rewards as a New Way to Protect Against Fraud in 2019

ElitePersonalFinance
Last Update: February 1, 2021 Financial News

Every bank needs to ensure that its integrity is protected at all costs. They can do this by defending the financial assets that it has. This safeguarding can be done by addressing the financial institutions’ latest concern, which is bank fraud.

Bank fraud refers to the immoral and illegal operation by a person or an organization to receive funds from a bank that is not his/hers. This unlawful act has been rampant in recent years and should be addressed immediately as it is among the primary security concerns globally.

For this reason, US Banks may now think to cut back on rewards as a new way to protect against fraud in 2019.

Let’s first discuss the different categories of fraud in financial institutions that are rampant nowadays before thinking about our discussion topic.

Credit Card Fraud

Do you know that most fraudsters are using debit cards to withdraw money illegally? These thieves photocopy the critical information found at the magnetic of the debit card and use it for their financial gain. The criminals and the skills to use fake information to withdraw cash using an original card.

After losing your credit card, consider replacing it immediately as the fraudsters can use the information in the debit card to withdraw your cash. Do you wonder how they can withdraw the money without your card’s pin? Remember that when doing your purchases using a credit card, the retailers can easily duplicate your card’s information. Therefore, they can plan to steal your card later to conduct credit card fraud.

Electronic Fraud

When swindlers use the internet to obtain money from banks illegally, that is electronic fraud. This kind of scam has been rampant since the advancement of the internet. Therefore, if you are asked to provide any bank details through an e-mail, it’s better to resist. Remember that you are putting your money at risk by offering your personal information like debit card numbers, pin, and ID numbers.

Are you wondering how scammers can steal your money from the bank without your e-mail password? They may not have the password, but some thieves have hacking knowledge. They will ask for your bank details and use the information to withdraw your savings illegally.

Check Fraud

Check fraud can occur when one uses a check illegitimately for financial gain without consent. Some can also change the checks’ figures, and some make payments for large amounts while they know they don’t have the spent value in their banks.

Identity Theft

Do you know that an individual can steal your information and use it to withdraw your money from the bank? If yes, then stop sharing personal details like your signatures, bank pins, identity number, and full names used in banks with other people. Remember, the information can compromise your fund’s security as the thief can steal your identity and withdraw your cash.

What is Credit Card Reward Fraud?

Apart from these fraud types in banks, the banks’ main fraud case greatly. This fraud is known as rewards credit card fraud. This type of fraud may leave the US bank without any profit if not addressed immediately. For this reason, the US bank might now decide to cut on credit card rewards. This will be an exceptional way of protecting the institution against any fraud. Here are the reasons why the bank may ban the cards.

This is because most customers are outsmarting the banks when using the cards. Initially, US banks thought that the reward cards would earn them more interest, as they do impulse buying. But do you think this is the case? No.

For this reason, the US bank may decide to ban the use of rewards credit cards, as they are incurring huge losses when the debit cards are in drawers after having big debts. After using the card for all types of purchases, the customers want to avoid clearing the debts by discarding the card.

Some Customers Evade Paying The Interest Fee

Even though some customers will use the rewards credit cards maximally and store them later, they at some point decide to pay their debts. But do you think they pay in full? Of course no. They will only pay for what they used. If it’s $567 thousand, they will pay precisely that but exclude the bank’s interest.

How do they expect the bank to benefit from reward cards if they fail to pay the interest? Remember, the primary reason for providing credit cards is to earn the bank some interest. For this reason, US Bank may cut back those rewards cards to protect the institution from incurring the losses caused by customers.

Most Customers Fail to Pay The Rewards Cards Annual Fee

Before applying for any card, do you ask whether the card has a yearly fee? If not, you must know that the financial institution’s main objective to provide their customers with reward cards is to earn a profit. How do you think they will get the profit?

They can only profit by paying an annual fee apart from other ways. Recently, there are various cases where some people are applying for the cards, spend as much as they can with it, and pay their debts. However, after one year, most customers are canceling the rewards cards to avoid paying the annual fee. Is this helping the bank in any way? If not, don’t you think the US bank has a reason to ban reward cards from reducing fraud cases?

Merchants are Pushing to Lower The Amount They Pay to Banks When Customers Shop with Credit Cards

Do you know that retailers and merchants pay a certain amount whenever you buy from their businesses with your credit card? The fee is now under pressure as the merchants are looking forward to reducing it. The main problem is, this fee is used to fund the rewards program. Nevertheless, if these costs are lowered, the banks are bothered that the reward programs may not be stable.

If retailers like Amazon and Home Depot succeed in their lawsuit to lower their prices, all rewards ‘ stability programs’ stability will be adversely affected. For this reason, the US bank may decide to cut back their reward cards to avoid the impending problem.

Conclusion

Even though US banks established reward credit cards to earn the financial institutions more profit, this vision is currently not working. Though it was an excellent method for getting a reasonable profit for banks in the past years, customers are now outsmarting them. The customers have figured out how to play a well-planned game with the rewards cards and then disposing of them.

Some are abandoning their used cards in safes and drawers to evade paying their debts, while some want to escape paying the bank’s interest. Furthermore, credit card owners are canceling the cards to avoid paying the annual fee, which is essential for banks. Merchants are not left behind as well, as they want the banks to lower the amount they pay in banks when customers purchase goods with those rewards credit cards.

For this reason, the US bank is now on the verge of deciding to cut back some of the rewards as the profit may lower significantly in 2019, according to research. Even though the bank doesn’t plan to end the rewards, they may decide to modify them in a manner that can promote credit card usage and at the same time encourage interest repayment, thus earning them profit.

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