Tuesday, November 28, 2006

Your PIN-based Cards Are Not Always Welcomed (Commentary, WayTooHigh.com)

*Giant Print: "...you could WIN a $1,000 Shopping Spree!*"
Tiny print: "PIN-Based ... Transactions Ineligible"

MasterCard® and Visa® delight when you have debit cards in your wallet, but, just don’t think of actually using it as a PIN-based card.

Yesterday, a reporter for a leading U.S. daily newspaper asked us about debit cards. We explained how the game works and how some promote the use of debit PIN cards as a budgetary tool - you cannot spend what you do not have.

But, in many cases, the word "debit" is cleverly positioned within the card’s hologram or printed in a color so similar to the background that it is challenging for clerks to identify whether the card is a PIN-based debit card or traditional Signature credit card.

What is the difference between PIN and Signature cards?

While your funds are quickly withdrawn from your bank account, the retailer, nonprofit organization and other entities offering electronic payments face a host of wide-ranging fees. If a PIN- based debit card is used, there is typically a fixed cost per transaction. It could be as low as 25-cents. However, if the card is processed as a traditional Signature credit card, the banks and card associations get a piece of the action - in a big way. They reap a percent of the total sale which averages about 1.7% in the U.S., but, the fee can go much higher - there are nearly 100 separate interchange fees. To sample the variety of separate interchange fes, click here.

[Although unsure of his math, yesterday, Jim Cramer opined on RealMoney.com that MasterCard gets a "10-cent cut of every charge." However, from prior news articles, it was reported that the two leading card associations are not the benefactors from the interchange fees, but rather its member banks, which own(ed) the associations (pre-MasterCard IPO). Is this the ultimate shell game? According to CNN, MasterCard "...which doesn't deal with consumers directly, makes money from the fees it charges its bank customers for processing credit- and debit-card transactions and providing other payment-related services.]

During the holiday season, if you make a charitable contribution or win a silent auction item, you are likely to pay much more. Why? Take a look at the typical silent auctions hosted by non-profits. It takes might take place in a hotel and when the winning bids are processed, the organization might only have access to a credit card imprinter, rather than an electronic terminal. When they swipe your card under the stack of carbon-copy receipts, the interchange fee could be 5% or more.
Back to the reporter, I explained the incredulity of how Visa and MasterCard lure’s cardholders in then creates restrictive barriers.

*A full-page co-branded advertisement in today’s local paper for Bed Bath & Beyond and MasterCard explains how the game works. It offers an opportunity to "win a $1,000 shopping spree" when you use your MasterCard card at BB&B. But read the fine print rules. "PIN-based and International Transactions [are] Ineligible."

Here is another look at a similar speepstakes scheme from last summer.

PIN-based cards are not welcome. Even with the slim - very slim chance of winning the $1,000, the rules preclude you from using a PIN-based card. You can enter without purchase, but just don’t use your PIN card.

[Source: commentary, WayTooHigh.com]