Consumers Getting Mixed Messages On Debit Cards In Wake Of Swipe Reform

Last year, banks and financial regulators on Capitol Hill went head-to-head over swipes fees, the amount of money banks charge businesses each time they accept a debit card purchase. While swipe fees did end up being reduced by only a fraction of what had initially been proposed, banks are still whining about the pennies they are no longer bringing in. Thus, shoppers are receiving mixed messages from retailers and financial institutions about whether to use their debit card, credit card, or cash.

Many would obviously want you to pay cash, as every cent of what you hand over goes straight to their cash register, but that’s not a reasonable expectation for bigger-ticket purchases.

And while a lot of consumers chose debit cards over high-interest credit cards in the wake of the financial downturn, most major banks have stripped any of the attractive perks once associated with those cards (frequent flier miles, rewards points) and have begun piling on fees and penalties in order to make up for the money they’re losing from the reduced swipe fees.

Still, a new report from Javelin Strategy & Research finds that 73% of U.S. consumers are satisfied with using their debit cards, but the banks would rather have you using credit cards, which often charge the highest per-purchase fees to retailers and also earn double-digit interest on customers’ unpaid balances, in addition to any fees.

“Consumers love their debit cards, but the majority would choose different payment options if they were charged a fee for using debit,” said Beth Robertson, Director of Payments Research at Javelin. “Our data shows that if [financial institutions] implemented debit card fees, 32% of consumers would choose cash as their payment option, 25% would pay with a credit card and 26% would switch to another bank that didn’t charge for debit cards. Banks should improve their messaging and educate consumers about new regulations so consumers can understand the effects of their payments choices.”

Also of interest from the Javelin study is that cash is the most frequently used payment option, 79% of respondents saying they had made cash purchase within the past seven days.

Of course, it doesn’t give the average amount of each cash transaction, meaning that while nearly 4 out of 5 people are still using cash on occasion, they may only be using it to spend $1.00 on a Coke at the newsstand outside their office.

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  1. Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

    Thanks to the Interac network, I don’t carry cash anywhere. And since my bank isn’t charging fees for POS purchases (well, not for chequing accounts, anyway) it’s a no-brainer.

    SOCIALISM

  2. menty666 says:

    With sales and sin taxes it’s tough to find a Coke for a dollar anymore.

  3. frank64 says:

    The problem was, and still is that merchants have no way to react or minimize the affects of any price increases. The rules they are forced to accept suck. I say give the merchants the ability to make choices about what type of cards they accept and the ability charging for the service. This will put give banks the normal pricing feedback to their fees. The $5.00 fee that caused the uproar is an example of the consumer actually seeing the fee, if it is hidden they don’t care that the merchant pays it and passed it on. They pass it on to everyone though, so it appears free to those who use it. That is why banks can charge much more than they would normally.

    If the merchants had these options, the banks would change. They both want consumers to use these cards, they can come to terms that don’t mean consumers would actually end up paying.

    • williamv1982 says:

      Merchants can and do pass on swipe fees explicitly to the consumer. It costs me more to use my credit card at most gas stations so I avoid them when possible. It’s still worthwhile to pay the extra ~5 cents per gallon when you factor in the credit card rewards.

      • frank64 says:

        Exactly my point on the gas, but merchants can’t do that on the merchandise in the store. My guess if they were allowed to the fees would not have gone up to the level they are at now. The banks would have wanted to keep costs down enough that the merchants wouldn’t even be bothered to pass it on directly to card users.

    • Jawaka says:

      Unfortunately most consumers don’t give a crap what fees merchants have to pay.

  4. Murph1908 says:

    My BP card just slashed the rewards it offered. I was getting 5% back on gas purchases at BP, earning me frequent $25 gift cards. It’s now a maximum of about 3%, but it ends up being only 2% or so due to how the rewards work now.

    Now, instead of a gift card, you get so much off per gallon, up to 20 gallons on a single fill up. So unless your tank will hold 20 gallons, or you bring 2 cars at the same time, you don’t ever get the full potential rewards.

  5. SeattleSeven says:

    Of course credit cards have an important benefit to the consumer…

    With a credit card it is SO much easier to deal with any fraud or disputed transaction. Also you have the benefit of it not being your money, but the banks money. So if (when) that retailer mistakenly charges you for 5000 cokes instead of one, you can just let the bank deal with it at the snail’s pace they deal with everything.
    A debit card in that scenario leaves you begging for mercy and unable to pay rent, etc.

    This benefit should not be ignored. It has saved me several times from a massive headache.

    As long as you pay your card off every month, that service is free to you. If you cannot pay your card off every month, then it probably isn’t worth it.

    • ChuckECheese says:

      Why can’t debit cards have the same protections?

      • Lyn Torden says:

        Ask Congress. They are the ones that represent all the big corporations in the lawmaking process.

      • CubeRat says:

        Well, you can dispute a charge posted to your debit card. The difference is, that until/unless the dispute is settled in your favor, you don’t get the money back. (Some of the banks, mainly larger ones have systems in place similar to credit cards, but that is bank policy.)

        The debit card accesses YOUR money. The credit card accesses the BANK’S money.

        Consumers often believe the cards are the same, with same laws/benefits, because they are used by consumers in the same way. However, they are completely different in they eyes of the law, regulators, issuers and merchants.

    • Warren - aka The Piddler on the Roof says:

      After a trip to LA a few years back I noticed a fraudulent charge on my bank statement for like $100 or something. I called the bank (US Bank) and reported it. They reversed the charge in about a week. It was a VISA debit card.

      Funny thing is, I got a phone message from someone right after the charge was reversed. It was a woman and I could barely make out what she was saying. She sounded very nervous. My guess is that it was one of the servers I handed my card to when I was there. Maybe when the charge was reversed it raised a flag with her employer and she got busted. Here’s to hoping.

    • Jawaka says:

      I have no problem with credit cards for large purchases but it drives me crazy when people use them to buy their coffee and a newspaper. Are you worried about fraud at your local Dunkin Donuts? Gonna charge back that $1.85?

      • AcctbyDay says:

        Worried about the guy behind the counter using your debit card information to create a false debit and rob you blind.

        It happens, don’t be blind and say it does not. Maybe not your gas station, but plenty of gas stations out there.

        I’m not saying credit cards should be used ALL THE TIME FOR EVERYTHING, but they have their place. Using a credit card for the majority of your purchases keeps your bank information out of ANYONES hands. Do you want someone to be able to hack the gas station and rob you blind because you hate credit cards?

      • NeverLetMeDown says:

        Nope, but since credit card transactions are (everywhere I shop, at least), faster than cash, since they don’t require a signature for small transactions, there’s zero reason not to use them.

  6. CubeRat says:

    Any benefit of the price caps are only being felt by merchants that take debit cards from financial institutions worth more than 10 billion. And then only if the transaction isn’t small.

    I read an article yesterday that spoke of how much more many merchants who are in rural areas are paying a lot more. Interesting read.

    http://online.wsj.com/article_email/SB10001424052970203750404577173422622877502-lMyQjAxMTAyMDIwNDEyNDQyWj.html?mod=wsj_share_email

  7. ColoradoShark says:

    “Many would obviously want you to pay cash….”.

    A store would save something if it did not accept cash at all because there would be no point to robbing the store (should lower insurance) and no need for armored car service. Anyone know how much that might be?

  8. AllanG54 says:

    It’s cash or credit card (which I pay in full every month) for me. I have never used my debit card.

  9. teamplur says:

    when using a debit card, what’s cheaper for the retailer…. paying debit, or using the debit card and running it as credit?

    • baquwards says:

      It’s cheaper to use as a debit with a pin if available, running as credit with signature, has higher fees. There are certain mom and pop places that have a debit option and I use it, mainly because I know these people and I shop there because they have great prices.

  10. pythonspam says:

    I have no problem bearing the brunt of swipe fees (as opposed to the merchant imbedding them in the prices) but we are dissillusioned if we think merchant pricing will go down in response to swipe fee reductions.
    I normally wouldn’t advocate government price controls, but when you have a market cornered by 3-5 companies, there are not true capitalistic market forces driving innovation and competitive pricing.

    Also, why are swipe fees a percentage of the purchase amount? Why does a $20 purchase cost the credit card money less to process than a $100? A single digital transaction is taking place.

    • RvLeshrac says:

      The rates differ because idiots buy into whatever bullshit the banks happen to be selling this week. Just look at all the morons who post about how the poor banks aren’t making any money now that they have to charge only *slightly* more than the transaction costs them, instead of several times more than the transaction costs them.

  11. binkleyz says:

    I seem to recall that the banks pushed debit cards as an alternative to checks, even going so far as having Mastercard create a commercial mocking the poor schmo who wanted to write a check.

    The thing is, processing a debit card transaction is MUCH cheaper than dealing with a check, since the banks are required to keep up a large check processing facility, with real people working in front of actual machines (versus bits swapping with no human interaction) in order to deal with them.

    Want to convince the banks to stop diddling us with debit card fees? How about writing checks (wherever possible) in lieu of a debit card or credit card swipe.. Get a few hundred thousand people to do THAT for a few months, see how the banks will react.

  12. Jimmy37 says:

    I don’t use debit cards because I like the float and protection of credit cards. I pay these off every month. If banks start charging for credit cards, I’d go back to checks. Which ever is cheapest and easiest to my pocketbook.