|
|
Contact | Home | |
|
Debit Cards |
Frequently Asked Questions About Debit CardsBy Patti Murphy Use your browser's back button to navigate this Debit Cards FAQ menu below.
Whats the difference between an on-line and an off-line debit card?Both on-line and off-line debit card transactions post against a customer’s demand deposit (checking) account. The primary difference between theses transactions is in the customer authorization process. With on-line debit, the customer must enter a personal identification number (PIN) to authorize a transaction; off-line debit requires a customer signature, akin to credit card transactions. On-line debit card transactions are routed through EFT networks (the same networks that route ATM transactions), while off-line debit transactions are processed through the credit card clearing and settlement networks. On-line debit card transactions also post to customer accounts in real time (or near real time), whereas off-line transactions can take a day or two to post to the cardholder’s account. This delayed posting feature creates some float, meaning customers can make payments in anticipation that there will be sufficient funds in their checking accounts when the payment clears, even if there are not sufficient funds available at the time of the transaction. (You know the game: pay for groceries on Thursday, relying on the certainty that funds will be available for debiting on Friday when the customer’s paycheck has been deposited to their checking account.) What is PIN-less debit?PIN-less debit is an on-line debit application offered by the major retail EFT networks (namely Star, Pulse and NYCE) for recurring payments of varying amounts to certain regulated enterprises – such as utilities, lenders and individual government agencies. For collecting entities, a key benefit of PIN-less debit is cost structure. EFT networks use flatfee structures – typically in the range of 40- to 60-cents a transaction; the credit card networks, which are used to clear and settle off-line debit card payments, vary fees based on transaction value, the type of business accepting the payment and capture methods. How popular are debit cards? In other words, what percentage of the time can a merchant expect to see off-line (signature) debit cards?Some merchants (e.g.: furniture or jewelry stores) may see very few debit cards (online or off-line) presented for payment, while others (e.g.: grocers and quick service restaurants) may accept debit cards for a large percentage of sales. Available data suggests debit cards generally enjoy significant popularity at merchant check outs. For example, 59% of all transactions initiated with Visa-branded cards last year involved Visa off-line debit cards, also known as Visa check cards. Visa check card transactions represented 36% of Visa’s U.S. sales volume last year, or $454 billion, Visa reports. MasterCard reports that approximately 2 billion transactions worth an estimated $82 billion were initiated using its MasterDebit (off-line/signature) debit card product in 2003. Financial Insights, Framingham, MA, estimates that 19.1% of U.S. POS transactions were initiated using debit cards in 2002; by 2007, Financial Insights expects debit cards to be used in 45.1% of POS transactions, surpassing credit card usage by a factor of two to one. In 2002, off-line (signature) debit cards were used for a total of 8.2 billion POS transactions, according to Financial Insight’s data; on-line debit cards were used in 5.2 billion transactions, representing roughly a 60-40 split, off-line versus on-line debit. Credit cards were used for 13.9 billion POS transactions last year, according to Financial Insights. This year Financial Insights expects merchants will handle 11.0 billion off-line debit card transactions, 9.6 billion on-line debit and 15.5 billion credit card payments. By 2007, online debit cards will account for nearly twice as many POS transactions as signature debit cards (24.9 billion compared to 12.5 billion), Financial Insights estimates. What are the prevailing consumer sentiments toward debit cards, vis-à-vis credit and other types of payment cards?While consumers traditionally have used debit cards as replacements for cash and checks, results of a recent survey by Edgar, Dunn & Co. suggest growing numbers of consumers now use debit cards instead of credit cards at the point of sale. The firm’s payments experts suggest the switch in preferences is due in large measure to a “fundamental shift” in consumer attitudes toward cost and fiscal discipline. (In other words, consumers in growing numbers want to pay for purchases with funds on hand today rather than with money they expect in the future.) “[A] significant percentage of debit card spending has migrated from the credit card among cardholders who prefer debit,” the firm said in reporting results of its nationwide consumer survey. Thirty-eight percent of consumers surveyed by Edgar Dunn in 2003 said they prefer using debit cards to pay for purchases, while 22% prefer standard credit cards and 20% prefer co-branded cards. Fifteen percent of consumers polled prefer using loyalty cards, the firm reports. What are the prevailing interchange rates for on-line and off-line debit card transactions?Off-line debit card interchange varies according to the type of merchant involved and the transaction amount. For example, a Visa check card used at a service station is assessed an interchange rate equal to 0.70% of the transaction total plus 17-cents (with no maximum amount), whereas the fee for grocery stores maxes out at 35-cents. MasterCard’s interchange structure mirrors Visa’s closely, although some of the categories differ. (For more detailed information, refer to the Visa and MasterCard offline interchange fee charts published in GS 04:01:02, p. 77.) Interchange for on-line debit card purchases range between 40-cents and 60-cents and are set by the EFT networks through which transactions are routed. Any of these fees can and are marked up by acquiring banks to cover associated expenses (such as telecommunications costs) and to produce a profit. What types of consumer protections exist for debit cards?Both MasterCard and Visa offer consumer protection in the form of zero liability for unauthorized use of off-line (signature) debit cards – as is the case with consumer credit cards. Certain conditions apply, however; for example, only consumer accounts in “good standing” qualify for zero liability protection. Unauthorized use of on-line debit cards are addressed by the federal EFT Act and Regulation E. In most cases, customer liability for unauthorized use of online debit cards is $50. |
Payments ArticlesMobile Phones as Electronic Wallets New Era for Check to ACH Conversion New ACH Rules: A Tipping Point for EFT Debit Facts: A Debit Card Tutorial |
|
|
|
The Takoma Group © 2007 |
