I’ve had some conversations with business owners lately about the risks of fraud from using a business debit card. Turns out, a lot of people mistakenly think that business debit cards don’t protect business owners from fraud. In reality, debit cards can offer those protections – but most don’t. That’s because preventing fraud on a debit card requires an upfront investment in technology that many legacy card providers haven’t yet made. Here, I’ll debunk the myths of debit card fraud exposure and outline a few ways that business debit cards actually offer greater protections than credit-based alternatives. I’ll also highlight some options for fraud-busting business debit.Debit Cards & Liability for Fraudulent Purchases
From what I can tell, the misunderstanding about business debit protections comes from an outdated understanding of how these cards work.
In their original form, debit cards offered unlimited access to the funds in the accounts they were connected to (typically, a checking account). They were essentially digitized checks (and in fact are still sometimes called “check cards”). Today, many debit cards still work in that way. This is significant because of the laws that currently protect users:
- The Electronic Fund Transfer Act (Regulation E) offers protection for fraudulent purchases of at least $50 made on consumer debit cards, assuming the consumer notifies their bank right away. But this law specifically excludes protection for business debit cards.
- The Truth in Lending Act (Regulation Z) offers the same protection for fraudulent purchases made on personal credit cards. Regulators have generally extended the protection to business credit cards as well.
How Debit Cards Can Prevent Fraudulent Purchases
So while it’s true that federal laws don’t currently offer business owners any protections for fraudulent purchases made with business debit cards, many cards available today offer business owners protections via different means.
For example, MasterCard offers a business debit option that comes with “zero liability” for unauthorized purchases (though it’s important to note that this protection comes with restrictions).
And many issuers offer pre-funded debit cards, which lets business owners limit the amount of money a cardholder can access.
While both of these options make debit cards less risky for business owners, neither of them prevents the riskiest behavior — employees draining funds in ways that are considered “authorized.” That’s where new technology comes in. A new generation of business debit cards developed with a tech-first mindset offer backend controls intended to proactively prevent unauthorized purchases. These controls include:
- Per-card fund access. Each card can be assigned its own spend limit; any transaction that would exceed this limit is declined at the point of purchase.
- Day and time limits. Cards can be restricted to weekdays, days employees are traveling, or days a given project is active.
- Vendor type limits. This lets you approve only certain vendor categories. Attempted purchases at other vendors (i.e., any not related to an employee’s work duties) are declined.
To summarize: the technology available today enables business debit cards to prevent fraudulent transactions from happening, so that it’s irrelevant whether existing laws or a card issuer offer fraud protection.
Think of it as adding door and window locks and a burglar alarm to your home to protect your stuff rather than leaving everything open and buying the most expensive insurance policy.
Thinking Beyond Fraud
Discussions of fraud reimbursement for business credit and debit cards are important, but they often miss an important point: not all problematic purchases are fraudulent.
For example, with a normal business credit or debit card, your employees can easily spend more than the limits you set them, make purchases outside approved categories, and use the card for non-business activities.
While you may be able to discipline the employee internally and recover some of the funds through your accounting department, you won’t be likely to convince your card issuer that the transactions were fraudulent.
In fact, most card issuers only consider “fraudulent” purchases to be those that happen when a card has been stolen.
So even if your card is protected by the Truth in Lending Act (TILA), that law won’t do anything to help you recover money your employees spent in ways you didn’t approve.
Preventing Fraud & Eliminating Liability with Tech-First Debit Cards
Employee debit cards may not be the right solution for every business, but you shouldn’t rule them out because of liability concerns about fraudulent purchases. Today, there are a handful of providers offering cards with the backend tech that lets you proactively control employee spending:
- Dash, which has been touted as particularly useful for companies working with contractors, in part because of its mobile app, which lets workers request money from anywhere.
- Emburse, which helps get funds to a distributed workforce by using virtual cards (i.e., no actual plastic).
- PEX, which doesn’t limit daily transactions and lets you load up to $25,000 at a time, meaning it tends to work well for medium-sized businesses.
- Bento for Business, which works in all the above scenarios and was named “best across the board” in this category by Fundera.
So if you’d prefer an employee expense card solution that prevents things from going wrong in the first place to one that offers extensive protections for the things that will inevitably go wrong, it’s time to reconsider business debit. Before you choose a card, though, make sure its backend has the kind of technology that protects you.