Instant Debit Cards? Not So Fast -- WSJ

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (August 9, 2017).

J.P. Morgan Chase & Co. has quietly canceled a popular program that allowed customers to replace lost debit cards at many of its 5,300 branches, responding to factors including an uptick in fraud, according to people familiar with the matter.

The change means that customers who lose their debit card or have it stolen will have to wait for a new one to be mailed to them.

J.P. Morgan had machines to make the cards in about half of its branches, according to one of the people. That would be about 2,650 locations. The bank started eliminating the service in March, and finished late last month, the people said.

Other banks have also faced problems when expanding new financial technology. For example, some banks have placed more restrictions on mobile check-cashing technology to cut down on fraud, like longer wait times for a deposit to post and dollar limits on daily deposits.

J.P. Morgan was one of the first major lenders to introduce instant-issue debit cards in branches, touting the service in a 2012 news release as "a real time-saver for our customers." Since then, a cross-section of national, regional and local banks and credit unions have introduced the service, which is often used to quickly replace the cards of customers who may have been the victim of a retail data breach.

Around two years ago, J.P. Morgan's Chase branches began to experience a jump in people coming in with fake IDs that matched customer information such as name and birth date, some of the people familiar with the matter said.

The swindlers then requested new replacement debit cards on the spot, the people said. They could use the new card made in the branch to make purchases or withdraw an unsuspecting customer's money from a teller or the bank's ATM. New pins are set for new cards.

After bank officials started noticing the problem picking up, Chase started requiring customers to produce the same form of ID they had used to open their account, such as a driver's license or passport.

"We found the issue and fixed the process almost two years ago, virtually eliminating the issue," said bank spokeswoman Anne Pace.

The more-recent decision to discontinue the service reflects numerous factors, she added, including a fresh push to cut costs and customers increasingly migrating to other payment options, like mobile banking. Ms. Pace said the fraud issues covered less than 1% of all consumer-related fraud at the bank.

Not every bank agrees that these types of machines pose a security risk. TD Bank and PNC Financial Services Group Inc. still offer instant-issue debit cards, publicizing them as a way to get cards replaced faster. Companies that produce the instant-issue technology also have said it is as a way to reduce theft through the mail.

A PNC spokesman said the service is "extraordinarily popular with customers."

In May, TD Bank released a new ad touting its instant-issue cards. In the ad, a young woman leaves her wallet in a taxi, walks right into a branch, and has her card replaced instantly.

As of March, TD Bank had rolled out machines to produce full-function debit cards for all its U.S. retail locations. "We have not seen an increase in fraud related to these machines," said TD Bank spokesperson Lauren Schmidt.

Other big banks, like Bank of America Corp., Citigroup Inc., and Wells Fargo & Co., offer temporary replacement debit cards in some branches, in part to reduce the possibility of fraud. J.P. Morgan is now offering a temporary ATM card at the branch, but not one that can be used as a debit card at merchants.

Some bank customers questioned J.P. Morgan on Twitter with sad or puzzled emojis after Chase removed the service. "Chase really lost me with that one," complained one customer, Diron Gipson, last month. "I need my debit card the same day! Not 5 days later."

J.P. Morgan offers rush delivery of a new debit card that takes two or three days, but that can also carry a $5 fee.

Financial institutions using the technology are forecast to grow by about 65%, by 2021, according to a June report from research firm Aite Group.

Still, others have voiced concerns besides J.P. Morgan. Entrust Datacard Corp., which manufactures the machines that the bank used in branches for the instant debit replacement cards, co-wrote a 2015 white paper that advised companies using the machines to "tighten know-your-customer protocol," while "training employees to recognize in-person fraud schemes."

(END) Dow Jones Newswires

August 09, 2017 02:47 ET (06:47 GMT)