Thursday, August 18, 2005

Profile: No wonder banks are goaded by debit cards (source:

(Irvine, CA) - August 19, 2005 - Study suggests that 31% percent of consumers prefer debit cards to cash or credit.

It doesn't take an investigation to understand why banks are goaded by the profitability of consumer debit cards. Beyond their traditional card fee revenue centers, the hidden source of probability for banks are when merchants accept a debit card as a credit card. Why? Because, while there is typically a flat fee of about 50 - 75 cents per transaction, if a clerk doesn't indicate that the card is a debit card, the processing terminal transacts the card as a credit card, which costs the retailer - and thus the consumer through this hidden tax - a percent of the sale.

Mitch Goldstone, lead plaintiff in the credit card antitrust litigation noted that "merchants with higher per sale transactions could be paying a steep premium when the debit card feature is overlooked. And, it is very easy to not discern the difference, especially as the word ‘Debit,’ ‘ATM’ and ‘Check’ and are being cunningly masked within the hologram and via other non-
transparent imprints."

As a retailer and co-owner of a national ecommerce business, Goldstone was not surprised that a recent American Bankers Association survey identified that more than 30% of U.S. consumers prefer using debit cards. "This popular payment tool is a boon to banks," explained Goldstone, "because a merchant who mistakenly charges the transaction as a credit card could be paying upwards of $25.00 on a one-thousand dollar order, rather than just about 75 cents if it was entered as a debit card. This helps explain why the interchange business reaps more than $20 billion each year for banks.