Fraud Concerns Boost Use of Debit On/Off Tools

Ever since the Target data breach made national headlines late last year, customers at City Bank Texas in Lubbock have been deactivating and reactivating their debit cards with much greater frequency.

City Bank is one of a handful of banks that offers customers the ability to temporarily deactivate their cards, rather than cancel them, if they are alerted to a suspicious transaction or if they fear a debit card has been lost or stolen.

Using a simple app on their mobile phones, City Bank customers are turning their cards off and on about twice as much this year when compared with the first four months of last year, says Jim Simpson, senior vice president and chief technology officer at City Bank Texas.

The tech vendor that runs City Bank's mobile banking, Malauzai Software, says that debit on/off use was up 330% from November through March at the roughly 80 banks that use its software.

"[It's] looking to be a breakout year for card management," says City Bank's Simpson, noting that the bank ran a marketing campaign to promote its card control function around the time of the Target breach.

The surge in activity shows a heightened awareness for fraud following the Target breach, which compromised the card data of some 40 million debit and credit card users.

It also signals growing appetite from consumers for sophisticated mobile tools that allow users to better control debit card use. Such tools not only let users turn cards off and on at will, they can also set limits on spending and provide regular alerts on purchases.

Lone Star National Bank in McAllen, Texas, USAA and Simple, the mobile and online banking upstart now owned by BBVA, are among the firms that have recently added debit on/off functions to their mobile banking apps.

Meanwhile, Lone Star's vendor, Ondot, announced last month that it is now selling the on/off feature to all banks and recently secured $18 million to continue its work in integrating card control features — including the on/off switch — into banks' mobile apps.

The do-it-yourself technology is positioned by financial institutions as a benefit for anxious cardholders who don't want to wait to talk to a bank agent when they fear they've lost their card or have doubts about a transaction.

Banks don't charge a fee for the service, but the benefit to them is that it could lower overall fraud costs and reduce the number of calls coming into call centers. The newer features also speak to broad consumer preferences of wanting to accomplish any task from an app, and banks realizing they need to offer consumers more bells and whistles than just the ability to pay for something to win over new card accounts.

Vendors like the three-year-old Ondot are moving quickly to meet the growing demand.

From blocking cards from working at certain retailers, to limiting the card's use to a single function, like paying for groceries, to setting spend limits, Ondot's software is designed to let consumers use their smartphones to control what their credit and debit cards can do.

Its app also includes geo-based features that let users control what physical area their cards work in. To do that, the firm uses the smartphone's GPS so that the customer will be alerted if, say, his card was used outside of a 25-mile radius of Los Angeles. The user selects the region via a map displayed through the app. In the case of Lone Star National Bank, the software is delivered as a standalone app that alerts customers about their debit card transactions and allows them to deactivate their cards, should something suspicious pop up.

Kevin Pilgrim, executive vice president and chief information officer at Lone Star National Bank, says the bank plans to roll out the next version of Ondot this summer. The update will let users add in family accounts, if they wish, among other things.

The card control features appeal to consumers for many reasons. Some prefer to keep their cards turned off until they are about to buy something. Pilgrim, a father, identifies a use case for parents setting spend limits for teenagers to let them fix their busted tires, but not blow the funds on a pizza party via an app.

"The control of the card is in each customer's hands," says Pilgrim.

To be sure, there are challenges to delivering these self-help features. For one, merchant codes — used to determine where a card could be used — might not read right, and in turn, could hinder the control feature from doing what the customer set it to do, such as prevent coffee shop purchases. Another barrier could come from issuers concerned that consumers will forget the restrictions they placed on their cards and then get angry at the issuers when their cards are denied at the point of sale, warn analysts.

"There's some caution there," says Julie Conroy, a senior analyst with Aite Group.

Still, Lone Star National Bank has so far been pleased with its early results with Ondot.

The bank, with 35,000 debit cards and $2 billion in assets, says it lost $450,000 to fraud in 2012. In 2013, losses dropped to less than $275,000 — an improvement the bank attributes to the app.

"It gives a sense of relief to customers and a sense of relief to us," says Edna De Saro, senior vice president and marketing director at Lone Star National Bank. "It's a great asset to our product line."

Certainly, not every consumer will see the need to regularly turn debit cards on and off. But for pockets of people, the security addition makes sense: Perhaps it's the drunk college student who has a habit of losing his cards or an individual who, say, has a past with fraudulent gas charges.

"It's more about identifying segments of population for whom it works," says Jacob Jegher, senior analyst with Celent.