Beware the Pitfalls of Using a ‘Debit Card’

In a matter of months, Visa U.S.A. plans to bring what some have called the payment system of the future to every U.S. city.

Technically this system is called “on-line point of sale.� But most people would think of it simply as a way to pay for groceries, stereo equipment and clothing with an automated teller card, sometimes called a “debit card.� You may have seen this system in operation in local areas.

For example, a shopper selects a blouse at a store that uses point-of-sale terminals. She takes her purchase to the counter, where the clerk rings up her bill. She then runs her debit card through the machine attached to the cash register, enters her personal identification number and receives a receipt showing how much money will be automatically deducted from her checking account. No cash. No checks. No monthly credit card bills.

Banks, retailers and even the government have tried to find ways to eliminate costly paper transactions for more than a decade. There’s no doubt that the debit card--or something similar--is the way of the future.

Visa says it has signed up 700 banks and 9 million retailers to its “off-line� debit-card system, in which it takes a day or two to transfer the money from the customer’s account. It expects a similar high rate of acceptance with its budding “on-line� program, in which the money is deducted from the customer’s account at the time of the transaction.

But for you point of sale can be a mixed blessing.

Anyone who has used automated tellers knows their conveniences. What the machines lack in personality, they make up for in efficiency and availability. They’ll give you cash in the middle of the night, and they’ll never snarl or ask you to pull out every credit card in your wallet to prove your identity. If you have the automated teller card and the secret code, the machine will cooperate.

Better yet, these electronic terminals are becoming easier to use. By now anyone who can read can use an automated teller. Point-of-sale terminals, which are popping up in supermarkets and fast-food outlets, are also simple to operate.

The drawbacks are primarily centered on an inconsistent patchwork of transaction fees that can make using a debit card almost as expensive as it is convenient. And those who are careless in recording point-of-sale purchases will find that transaction fees are only the tip of what can be an expensive iceberg.

Although some banks allow their customers to use these cards for free, others charge for the service. There is apparently no industry standard. Fees can range from 10 cents to $2 per use, industry experts say.

Retailers can charge transaction fees too. Arco, which has gasoline and retail outlets in five states, for example, charges 10 to 20 cents per use. Other retailers offer the service for free; some have substantial charges.

How costly is this? Well, point of sale tends to be popular to pay for relatively inexpensive items, such as fast food and gasoline. If you’re buying a $2 hamburger and pay a 20-cent point-of-sale charge, you’ve just added 10% to the cost of the hamburger.

If you use your card frequently, these charges can quickly add up to hundreds of dollars. Throw a quarter into a jar every time you go to the supermarket or gasoline station and you’ll see what I mean.

There is one more practical concern: These transactions are easy to forget. Because you don’t need to pull out your checkbook, you might fail to record the fact that you electronically deducted the purchase amount from your account. One absent-minded consumer complained that this problem caused her to bounce several checks. And adding bounced-check charges from the bank and retailer to a point of sale could cost up to $35.

But these problems are surmountable. If you are meticulous about recording debit card transactions, you won’t bounce checks.

As for the fees, ask about them before you use the card. Banks and retailers must disclose the charges, if there are any.

In some cases, the fee will be minimal and worth the cost. Where the fees are high, don’t use the card and don’t hesitate to say why.

Remember that companies want you to use these cards. If enough people refuse to use point-of-sale terminals because of high fees, there is a good chance that banks and retailers will lower the cost.

* EDITOR’S NOTE: Starting this week, Kathy M. Kristof’s Personal Finance column appears in the Business section during the week, as well as on Sundays.

Use a Card, Any Card

As the number of merchants and banks installing automated teller machines has grown, the number of transactions has skyrocketed.

1990 1989 1988 Nationwide transactions per month in millions 15.7 10.9 8.4 California transactions per month in millions 9.8 6.0 -- Number of terminals 60,500 51,000 44,000

Source: POS News