But also banks take on all the liability for misuse. Customers aren’t liable for fraudulent charges, that’s why America has lagged behind Europe on rolling out chip cards, customers don’t demand it because they don’t pay the price for card fraud.
Everyone pays the price of fraud and it's probably one major reason that explains high interchange fees in the US.
The EU caps the interchange fee, does that mean the networks exit the business because they can't make money? No. Does it mean they've eliminated fraud? No. But it does mean they can't pay Karen 5% "reward" so they don't. There aren't any cards like that in Europe. For everybody else it makes the system cheaper.
Yes, rewards cards are paid for with interchange fees, but that doesn’t mean that’s the only thing they pay for. Most people pay more interest than they earn in fees per year anyways shrug
We pay for fraud with increased transaction fees.
If the bank has calculated that extra fraud costs less than the price mitigating it with additional security measures, and it is the one bearing the cost either way, then power to them!
Even for me--someone who has multiple payment cards, primarily uses credit (instead of debit), a healthy savings account, and a flexible job--cleaning up from a stolen credit card number takes two or three hours at a minimum. For someone who does not have those things, particularly for people who primarily use debit cards[0], the impact is far worse.
If we swapped our cards to simply require a PIN that's validated by the chip on the card (so that in-person charges without the proper PIN cannot complete, even if the card is shimmed), that removes the bulk of in-person fraud attempts. But US banks are, largely, so fearful of customers switching away from them at even the slightest provocation, we don't get PINs. So I'm forced to ask what other "basic" measures (like 3D Secure for online transactions) we lack.
0 - I don't want to hear the rebuttal that "well, people should just use credit cards." There are a hundred different reasons why people don't use credit cards--don't qualify for one, have an objection to debt, past bad experience, and so on--and we cannot write off people who "only" use debit from security measures.
You could also make an argument that by continuing to allow this fraud to happen we're funding all kinds of nasty people. I'm not convinced the argument holds water since bad guys are often faster to move than the banks but it's worth noting.
In the few European countries I know, banks are very pro-active about card fraud and refund without asking questions if fraud happens anyway.
Nasty people will get funded anyway, but reducing fraud also reduces their income. The main drawback is that people have to use their PIN (and even that is getting rare thanks to contactless cards).