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

EPF January 15, 2019

It’s essential for every bank to ensure that the integrity of the institution is protected at all cost. They can do this by defending the financial assets that it has. This safeguarding can be done by addressing the latest concern in the financial institutions, 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 which is not his/hers. This unlawful act has been rampant in recent years and should be addressed with immediate effect as it is among the primary security concern 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 frauds 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 as well have 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. You are wondering how they can withdraw the money without your card’s pin? Well, remember that when doing your purchases using a credit card, the retailers can easily duplicate the information of your card. Therefore, they can simply plan to steal your card later with an aim 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 by offering your personal information like debit card numbers, pin and ID numbers; you are putting your money at risk.

Are you wondering how the scammers can steal your money from the bank without your e-mail password? Well, 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 figures in the checks, 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 any personal details like your signatures, bank pins, identity number and full names as 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, there is now the main fraud case which affecting the banks a great deal. This fraud is known as rewards credit card fraud. This type of fraud may leave the US bank without any profit if not addressed with immediate effect. 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.

To various banks, the reward cards have now turned into an economic burden.

The reason behind this is that most customers are outsmarting the banks when using the cards. Initially, US bank thought that the reward cards would earn them more interest, as the customers do impulse buying. But do you think this is the case? Of course not.

The customers are doing impulse buying yes, but what do you think happens after that? They dump their cards in the safe and in drawers. Are the cards earning the bank interest while in drawers?  The answer is definitely a big 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 its $567 thousands, then they will pay precisely that but exclude the bank’s interest.

How do they expect the bank to benefit from reward cards then if they fail to pay the interest? Remember the primary reason for providing the 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 main objective of the financial institution to provide their customers with reward cards is to earn a profit. How do you think they will get the profit?

They can only get the profit by having the customers pay an annual fee apart from other ways. There are various cases recently, 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 with an aim to avoid paying for 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 to reduce 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.Com.Inc and Home Depot Inc succeed in their lawsuit to lower the prices they pay, the stability of all rewards programs will be adversely affected. For this reason, the US bank may decide to cut back their reward cards to avoid the impending problem.

Bottom line

Even though US bank established reward credit cards to earn the financial institutions more profit, this vision is currently not working. Also, though it was an excellent method for getting a reasonable profit for banks in the past years, customers are now outsmarting the banks. 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.

Elite Personal Finance

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