NEW YORK – In an effort to combat fraud, Bonneville Bancorp is removing the option of signature debit payments in some states and essentially forcing customers to enter their PIN codes, reports American Banker.

A notice on Bonneville's website advises customers that signature transactions will not be allowed in California, Florida and Georgia, because of “high amounts of fraudulent card activity.”

Avivah Litan of Gartner Inc. told the news source: "All I can think of is that the fraud was so high that the lost interchange revenue is worth it compared to the cost of issuing new accounts...It's a statement admitting PIN is more secure, so it contradicts all the marketing messages" from most other banks.

Litan added that Bonneville’s approach is “very unusual.” Ryan Nielsen, a vice president at Bonneville, told the news source that First Data Corp., the bank’s processor, suggested the approach and that the signature transactions will remain “off” in those three states. “We had several fraud activities in those states in a short amount of time,” he said, adding that he believes other banks will follow Bonneville’s lead.

The source of the fraud, suggested Litan, is likely from criminal rings via skimming devices.

Meanwhile Aaron McPherson of IDC Financial Insights told the news source that banks do get hit by fraud rings, “but usually they try to keep it as quiet as possible because they don't want their customers to be worried about using their cards...Even if their fraud is really bad, they don't want customers to know about it."

McPherson added that Bonneville’s response indicates that its fraud-detection system is weak. “Any decent fraud system will allow you to tag transactions coming from those high-risk states and give them a higher risk score so they go through more stringent checks," he told the news source.