The death of the debit card?
Posted at 2:07 PM on September 29, 2011
by Bob Collins
(25 Comments)
Filed under: Economy
Unlike when I first moved to the state almost 20 years ago, you don't see many people with their checkbooks in hand at the checkout line anymore, thanks to the debit/ATM card. Minnesota, more than any other place I'd visited, had a love affair with the checkbook.
Cup of coffee? Hang on while I write this check. Minnesotans seemed to write checks for everything.
That all ended when the debit/credit card replaced it, but are the heady days of checkbooks in the back pocket about to return?
Bank of America announced today that it's going to start charging $5 a month for its customers who use debit cards.
The announcement coincides with the October 1 start of the Dodd-Frank Act's Durbin amendment, which caps fees banks can charge merchants for processing debit cards to 21 cents per transaction, potentially costing banks billions of dollars in fee income.
Plug a leak somewhere, it'll sprout somewhere else. There's a reason why banks have the biggest buildings in most cities.
Wells Fargo has been testing a $3-a-month fee in some states to see if people will rebel against it. The test markets do not include Minnesota, however.
It's not just the banks that are causing a big jump in plastic. VISA and Mastercard are planning to sharply raise the debit card transaction fees for small purchases for merchants, according to an analyst note today.
As the Associated Press reported, it's going to change the way you pay for things...
Such a hike could pose problems for the operators of self-service kiosks like DVD rentals, which would have to deal with a big increase without alienating customers, the analyst said. It also risks alienating important merchants like Starbucks Corp. that rely on small purchases, he said. "These operators will be violently opposed to this price change," and could slow down their investments in new technology needed to accept mobile payments in response, Janney Capital Markets analyst Thomas McCrohan said. It will also "reinforce merchants' view that the networks are not friends of merchants."
And the increased costs of transactions undoubtedly will be passed along to consumers. Will gas stations again have a two-tiered pricing system -- one for debit/credit and one for cash? Will your $1.84 coffee go to $2?
And, most important, are you the consumer going to accept the cost of debit cards or change the way you pay for things? Will cash make a comeback? Is the checkbook still alive?
Well?
Comments (25)
California already has two-tiered gasoline pricing, but some stations consider debit as the same as cash, while others only give the cash price for folding money.
Thanks for the heads up on the Wells Fargo fee. Iv'e been considering moving my shekels to a credit union for some time, and this would push me over the line.
My fingers are crossed that the big banks will drive themselves out of business, while strengthening smaller banks and credit unions.
I received an email notifying me about changes to my Wells Fargo account a few weeks ago. I looked into it and they were going to start charging me something like $12 a month to use a "free" checking account I had created a few years ago. They said that if I switched to all online statements the 'service charge' would be reduced to something like $5 a month.
A couple weeks ago I promptly closed the account. I still have my college checking account, but once that is up I am almost positive I will be switching banks.
I like Tyler's idea. I've been with a credit union for over 20 years; would never bank with a commercial bank again. But credit unions sometimes adopt some of the policies and practices of banks, including charging for some things. They always charge LESS though.
If I had to start paying for debit card transactions, I would definitely start carrying more cash, and write checks for bigger purchases. Fortunately, my credit union has a network of ATMs around the metro area where there's no fee for withdrawals.
For many of those who live with poverty, exorbitant fees are already the norm.
First, a single checking account goes bad with $35/transaction overdraft penalties. The bank closes the account and reports the person to an agency like ChexSystem, thus preventing the opening of another checking account anywhere.
Next, take a check written on many MN banks to that specific bank to cash it. They'll ask you if you have an account with them, and when you don't, they'll charge you $2 - $5 to cash their own check.
A pre-paid debit card is the second-tier option when a checking account isn't an option. Overdrafts will not be processed on these accounts, their only advantage. Sign-up cost is $4-6, monthly charge $3-6, a $5 fee is charged for each cash deposit, and the per-ATM fee is $2+.
You forget one thing, Bob, the checkbook will most likely not return to consumers' back pockets and purses as many retail outlets no longer accept checks at all.
So, we're apparently looking at a future where it will be cash or credit (and not debit).
Apparently, the fee that Wells Fargo is going to charge its customers depends on the specific type of checking account you hold. In our family, we have three checking accounts with Wells Fargo under varying programs and the new monthly fee only applies to one of our accounts.
So for some, it's going to go from carrying a separate credit card and "ATM card" (back in the day) to an all-in-one card back to a separate credit card and "ATM card". Everything old is new again! Yippee!
I've seen my grandmother whip out her checkbook to pay for dinner on a couple occasions when visiting me in the Twin Cities. I typically use that as my opportunity to jump in and pay so as to not have the check conversation with the server.
As for banking, I agree with Jim. Although I have been dissatisfied with Wells Fargo for awhile now, I have been holding off on leaving because it is conveniently located across across the street from my work, but the addition of debit card fees would make the convenience of less fees at a credit union the better choice.
Cash will be king.
When I was one-year old my grandparents opened a saving account for me at their credit union. I have had the account for 39 years. The service has always been outstanding and dealing directly with a person who has the ability to make a decision on a loan or other service has been refreshing.
One of the beautiful things with a Credit Union is that you and the rest of the members are the "owners". Show up, voice your opinion, and vote at the annual meetings.
When we married, my husband had a checking account at Wells Fargo. We will be closing our Wells Fargo account when our last box of checks is gone. Every time I've gone into the lobby at Well-Fargo, recently, they have tried to sell me everything in the book. If they want are business, why are they doing things that will drive customers away?
I have had the privilege of working at both a bank and credit union for the last 9 years of my life. It completely boggles my mind that consumers are still more prone to go to a bank than a credit union. I luckily now work for a CU, but the most common reason we receive of why people don't swiitch is because CUs simply don’t have the branches on every corner. How are they going to do their banking? To that I reply: It’s 2011. We have internet. Do you drive to Comcast to pay your bill? No. Our CU (and most that I know) offer online deposit options where you can deposit from your computer which is actually CLOSER than your nearest bank. CUs are also part of networks, thus you are going to get MORE ATMs by being part of a CU. Also, branches are the MOST expensive part of the banking industry. Why do you think banks struggle and need bailing out, while CUs are remaining strong? Hope having a Wells Fargo within 4 miles of your house is worth all those fees you are getting.
What about the other side of the coin? Businesses have been eating 1.5-3% of all the transactions up until now. Taking those fees out of their cost structure should offset the monthly fees (unless you don't believe in competitive markets for groceries and think that evil big food will just pocket the profit).
There is still another alternative almost any church nowadays will sell you SCRIP, gift cards for just about anywhere - saves you the hassle of writing multiple checks and you give 1-5% to the church depending on the merchant. Some schools are picking this up as well.
// that evil big food will just pocket the profit
You mean like the airlines did when the ticket tax went away a couple of months ago? 9g)
What about Google wallet?
I would love to see everyone abandon the banks for credit unions, and pay more with cash so merchants don't have to eat the transaction fees.
I could understand if it was a 35 dollar service fee to do this, but five dollars? I see more people waste that on a coffee in the morning. It also costs more time and/or money to run around and try to get to an ATM vs just using the credit /debit card. There are more ways to fight back against the fees than just cancelling your big bank account. Have these banks added a valuable service over the years?
The reactions from some people are not much different from Bill O' Reilly threatening to quit his job if he has to pay more in taxes... (still secretly hoping he does)
Also, there are online banks that don't have a physical presence that offer free checking / atm debit credit / free check writing services... and you don't get a service fee for using their card. Remember: you can still be a smarter consumer by consuming smarter, not sloppier.
Does anyone remember when Wells Fargo charged you to call the phone bank and request to talk to a real person? I do. That was the day I closed my account & moved everything to the local credit union. I don't care that they are not as accessible as major banks (actually, my credit union has a deal with a local bank to make it more accessible), they are worth it for the customer service alone.
Maybe I'm elitist, but what's hard about credit versus debit? Know how much money you have, use credit cards to your advantage (rewards points), and pay your bill in full each month. The money that would have come drip-drip out of your bank account via the debit card (+ fees!) comes out in one check (or electronic transfer) to Visa or MC.
And +1 to credit unions, I've had my account with the same CU (Spire) since I was 11, have done 7 or 8 loans over that time, and enjoy better rates, free bill pay, and more. Wells and BofA have nothing that attracts me to their edifices...
Like the check a Credit cad (as we know it today) will become a quaint thing of the past soon too. The numbers and the card itself are too easily forged and it is too easy to "fool" the clerk when you say 'see id' on the back of the card if they look at all.
Some form of large key cryptographic number with a challenge/response or two factor authentication will need to come in to play soon. The savings in loss prevention would pay for the system in less than three years (probably one). Which is where the big mean banks should be looking to make their profits (by cutting losses and overhead) rather than making the end users pay for the privilege of having the bank hold their money or the merchant for the privilege of doing business with them (the bank) .
Not all Credit Unions are the same. One credit union with a name that is associated with the road system in st. paul acts a lot more like a (us)bank than a credit union. Many of the board members and the president belong to a political party that would like to see the end of the jobs for all the constituents they were originally chartered to serve 80 years ago.
I have seen this credit union send my friends to a social service place to get credit counseling. Even after going to the service they will still foreclose or re-possess rather than work out any kind of deal like Wells does for it's mortgages and car payments (by tacking payments intended for this month on to the end of the loan and collecting more interest that way). I think they are using the private social service place as a back handed method of collecting financial information on their member(s). They spend a lot of effort patting themselves on the back in their literature as to what a great job they are doing with that program that does not help anybody much. They are not the same CU I joined in 1989.
Use caution when selecting your credit union. Check the 'health' of the credit union by going to http://www.ncua.gov/ ask blunt questions to the staff about the board members and president of the bank when asking for your application. You don't have a choice with a bank that is too big to fail, but you can choose a credit union that is more like you than "you need to like it".
I opened an account with a credit union in '87 when I moved to Michigan. I still have the account and it's where I do all of my "banking", even after moving to and staying in the Twin Cities.
With direct deposit, internet service, and a cooperative agreement with a local credit union, I can do it all here. So there's only 1 ATM in town that I can use fee-free? Okay-dokey. I don't need something on every corner.
Why do businesses do something? Follow the money to find the answer. In this case, the trail is pretty short, and it doesn't lead to me, the customer.
I use my credit card because it is more protected than a debit card. Legally you are protected with a credit card it if gets stolen. With a debit card you don't have these same protections. I just make sure I don't charge up more than I can pay for in a month. Also, credit card returns are much easier and available to track if I accidentally loose the receipt.
I too use a credit union and I don't understand why people don't seek these institutions out more. From loans to free bill pay I am very happy with the services available from a credit union.
Bottom line is this is another example of the big banks whining.
@bob re:airlines...last I checked govt regulations have created significant barriers to entry ensuring that air travel is not competitive, hence the poor quality and high pricing. Not really comparable to unregulated (relatively) places we generally use our plastic at such as grocers, restaurants, gas stations and the like. And of course I must point out that those unregulated (relatively) markets are always improving quality and pricing. If we were to deregulate banks or heaven forbid demonopolize money we would not have to worry about things like fees. Money is and always has been a good and must be treated as such.
//hence the poor quality and high pricing.
... and the highest degree of safety in the world.
But that's another thread. There's an argument to be made that the situation with the financial institutions *is* the result of deregulation. When states no longer were able to -- or no longer interested in -- regulating bank charters, they became national institutions and you had the consolidation of smaller banks creating the large national ones.
WRT to credit unions vs. banks, I'm interested in *why* they are providing a superior service that I read here? What is it about the way they're chartered?
Bob, another facet of this is the partial repeal of Glass-Steagall by then-President Clinton in '99. In short, the partial repeal allowed the commercial banks to get back into the investment banking business. I would argue that this marked the beginning of what would become the real estate bubble that burst almost 10 years later. The wall between commercial banking and investment banking had been in place since the 1930's when Glass-Steagall was enacted after the Great Depression.
CUs like mine may have a partner company they work with for providing members with investment services. But the CU makes it crystal clear that the investment company is not a part of the CU.
I opened an account at my father's credit union (he worked for the post office hint hint) with my paper route money in the 70's. I used it primarily for loans because the rates were better but now use it exclusively for everything. Their service during the deaths of both my parents was exceptional, and the moveyourmoney.org campaign really got me thinking.
It's a not-for-profit financial cooperative owned by the members. I truly believe that makes the difference.
The "move your money" campaign website is actually
moveyourmoneyproject.orgLink
Bob asks "What about Google wallet?"
It'll have to expand beyond 1) cities and 2) sprint to make any headway. If they really want to change the way we pay they'll have to make it work with any bank and any carrier.
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