Forum: Ill-considered to expect banks to eliminate fraud entirely
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I refer to the letter, “ Having fewer credit cards can make it easier to detect fraud
The writer believes that banks are not doing enough to deter fraudsters. But the point is that the optimal level of fraud to society and to banks is non-zero.
Beyond a point, further minimising the risk of fraud comes at prohibitively exorbitant costs because marginal costs rise steeply.
The costs required to completely stamp out fraud such as the US$1 (S$1.34) his friend lost are far greater than that dollar, and those costs will be passed on to the rest of society. For instance, it will become much more cumbersome for lawful users to transact and there will be a slowdown in the economy as a whole.
Just like how the writer says that it would be impractical to “set up transaction alerts on banking apps for amounts as low as one cent”, it would be ill-considered to expect banks to eliminate fraud entirely.
As a tongue-in-cheek economist may put it: “If you’ve never missed a flight, you’re probably spending too much time in airports.”
Let me add: “If you’ve never been a victim of fraud, you’re probably not trusting people enough.”
Banks are well aware that, all else held constant, a rise in fraud will mean a fall in demand for their cards’ services. They are also the stakeholders who are most aware of their respective cost structures.
Banks can determine for themselves the optimal level of resources to deploy to detect fraud better than any central governing body.
As long as the banking market is kept competitive by regulators, it is unnecessary to make banks spend more on tackling fraud.
Tan Yi Swee
