Debit Cards; a thing of the past?
Pending Federal Proposals, this July a merchant’s cost of processing a debit transaction could be greatly reduced; great for the merchant and customer, terrible from the perspective of the bank. Yet banks have a way of recouping lost money, and one possible way is by reducing debit card purchases. A method some banks already have in the works is limiting the daily spending amount a customer can charge on their debit card. That limit would vary from $50 to $100 per day; an action that would stymie daily debit card users like myself.
Debit card transactions are deducted directly from a linked bank account. Banks typically don’t profit on these purchases directly from the customer, instead they make money on the merchant’s transaction which averages about 44-cents. The Fed is proposing capping the fee at 12-cents per transaction; a 70% reduction.
Not wanting to lose such a huge source of income, banks are proposing ways to practically eliminate debit card usage all together (some banks have already terminated incentives such as their debit card rewards program). In my opinion, banks may be hoping customers who like using plastic instead of cash will begin relying on credit card purchases in lieu of debit ones. For those customers who have difficulty keeping track of due dates and paying bills on time, this could mean a new source of income in the way of interest charges.
So what does this mean in the long run? It could mean that debit purchases could practically disappear in the future. With few incentives for banks to push this source of payment type, they may make it more difficult for customers to benefit from the ease of use.
As a daily debit card user, I know that this could greatly affect how I manage my money. Since I know I’m not good with cash, I would probably use my credit card instead. But this would mean I would have to stay on top of my monthly bills and pay them before the due date. Something I’m already doing, but don’t need to think about as frequently since I normally keep zero balances on my credit cards.
But what about debit card customers who won’t qualify for a credit card? Or for customers who have maxed out their credit cards? They would have fewer choices; mainly their choice would be cash-only. Though cash-only payments work well for some, keeping track of loose bills and coins can be difficult for others as I know first-hand.
At the moment, the future of debit cards seems a bit hazy.
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Implementing a monthly zero-based budget, whether you prefer cash, credit or debit, will eliminate the issue. If you do a weekly budget check-in, you’ll know how much you need to withdraw/save/pay (cash/debit/credit) every week or month. I don’t think it’s anything to worry about. The banks are in it for themselves, which we’ve always known. We should be in the financial game for ourselves, telling our money what to do instead of the other way around. (I haven’t commented much but I like your blog and have been reading it for several months now. Thanks.)
Thanks for the heads up – I imagine I can expect my high-interest checking accounts to be a thing of the past once this kicks in. I currently earn 3% on my checking account, as long as I use my debit card 12 times per month. I guess $0.44*12 = $5.28, which is generally higher than my monthly interest payment.
Losing debit cards would be a real shame though, because I think you shouldn’t *have* to have a credit card to use plastic if you don’t like carrying debt, even debt you can pay off each month…
Kellen recently posted..Maintaining flexibility
I think this would be a really crappy thing for banks to do. They need to realize that every time somebody uses their debit card they are one, interacting with the bank and two, relying on the bank. If they take away that incentive, they automatically make themselves irrelevant to many customers.
It’s extremely short term thinking, if you ask me.
Money Beagle recently posted..If Youre Buying Or Selling A House- Keep Your Social Networking To A Minimum
I think it is interesting that banks would want to limit the $ amount of purchases rather than the quantity.
Also, if they are expecting me to pay $10-$15 for my checking account AND debit card purchases then things like prepaid credit cards suddenly start looking like MUCH more attractive products.
SillySimple recently posted..Frugal Bread update
I’ve seen a few posts like this lately and honestly I don’t think it’ll happen. There are too many people who use debit cards all the time for nearly everything. Our society (Western based, anyway) has become a society that revolves around plastic – debit or credit. When it got to the point that you could buy a hamburger at McDonald’s with a debit card … well, it’s a sign that debit is here to stay.
If all banks decide to severely limit debit transactions, it will prompt a radical change in our economy. I just don’t think it’ll happen.
kh recently posted..Monthly Goals – April
It seems that banks are trying to discourage use of debit cards. Credit cards are becoming more expensive and the cc companies keep adding more. The push is toward credit cars where the fees are higher. As a consumer, I can protest these higher costs by avoiding them. I just pay it off each month.
krantcents recently posted..Cash or Credit
@Carrie B – Thanks so much for commenting! I use my debit card so frequently that news such as this just makes me freak out. I guess I could always switch to a credit card, but then it’s making sure I stay on top of bills I normally don’t have to even think about. One particular bank seems to be popping up in the news with tactics such as this – oh I won’t name the bank but it’s not my favorite! Starts with a Ch and ends with an ase.
@Kellen – 3% is a really great rate right now. And I agree, losing the ability to use a debit card would be a shame, especially for people who may not be able to switch to credit so easily.
@Money Beagle -I agree. Of course the bank that is spear-heading this idea is not my favorite, but they are the largest bank in the nation. They don’t seem to care if they lose a customer or two. Hopefully this type of program won’t be successful enough to continue.
@SillySimple – Prepaid credit cards might be a great option if banks begin to go in this direction; limiting debit card purchases. All I can say is that credit unions are looking better and better each day!
@KH – I hope you’re right. I’m so used to swiping my debit card for transactions as low as $1.00 I can’t imagine going without. I think one bank in particular is concocting these types of ideas and maybe it’s just to make customers irate. I don’t know if that is their exact plan, but I can’t think of why else they’d come up with crazy ideas such as this.
@Krantcents – I pay my cards off in full each month as well, so if I absolutely had to switch to credit I would live. However, I’m so used to deducting the amounts immediately out of my check register that I’d have to come up with another plan for keeping track with my credit card.
More crappy moves by the banks. We use our debit cards quite a bit, but we’ll just move to cash, and screw ‘em!
101 Centavos recently posted..Random Tips and Notes
@Little House – Yeah I know that bank.
They pretty much kinda just stink. My local Credit Union doesn’t offer a ton of interest on checking accounts, but they do offer no fees on just about everything. I use Chase for business (because they took 1/4% off my mortgage to do so), Ally for my Scentsy business, and my local Credit Union for everything else. Out of all of them, my CU’s service is outstanding. They’re really invested in my local community, charities in my area, etc.
Hmmm. I don’t know what I would do without my debit card. Hopefully it doesn’t come to that. I’m not so great with cash either, and not really interested in playing the credit card game. Maybe we should all move back to checks until they start charging for the use of those too!
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I was never much of a check writer, so I guess if it came down to cash or credit, I’d have to go with credit. Of course I say this out of desperation; hopefully debit cards will be around for a long time!
If I were the bank, I would never put limit on the daily purchase with debit card. Many folks don’t check their account before they use it (with the new law in place, there will be a yes/no to proceed with the purchase). They overdraft and the bank happily charges fee. The least amount of the fee is $35. In 2009, banks in the States made more than $9 billion in fees without an effort.
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