…They’re extinct. Well alright, this may be only a half truth. Truth: Dinosaurs are extinct.  Half-truth: Debit cards are on their way to becoming extinct.

Let me begin by saying that I have been a full-fledged debit card user for over 10 years. It’s my primary source of payment on a daily basis. But, with the changes banks are making to debit cards lately, I’m not so sure they’ll be around 10 years from now if I weigh the evidence from recent news sources.

  • Exhibit A: Wells Fargo eliminated their debit card rewards program on October 1st. As a Wells customer, I’m very disappointed. Each year I’d rack up enough points for at least two $50 gas cards. Bye, Bye $100 annual savings.
  • Exhibit B: Bank of America will soon be charging $5 a month for customers who use their debit cards.
  • Exhibit C: Big banks often play follow the leader; if this pattern continues, other banks will implement a monthly debit card fee.

Debit cards gained increased popularity when they implemented the STAR/Cirrus system, allowing traditional ATM cards to function as “credit” cards. Instead of having to pull out cash or punch in a PIN number, a merchant could swipe your Debit card as a “credit” transaction instead. A highly convenient function if I do say so myself.

But, with convenience comes fees. Merchants were paying similar fees on a debit card run as a credit card as they were on traditional credit card transactions. Banks made money in the form of fees, merchants grumbled and sometimes passed on those fees to customers by setting minimum debit card purchase amounts or tacking on a few cents to a purchase.

However, with the new federal regulation that just passed capping the amount banks can charge merchants to run debit and credit card transactions (October 1st as well), banks are scrambling to find ways to make up for the lost revenue. And that lost revenue seems to be settling on the banking customer.

What’s a debit card user to do? Of course there are other payment options, i.e. cash and credit. But these just aren’t as convenient as debit cards. Yet, if banks continue raising fees to make up for their loss in income, debit card users may have no other choice than to switch to an alternate payment method.

I know that this month I’m experimenting with using my rewards credit card and minimizing my debit card transactions, because, gosh darn it, I want those points!

How will your payment methods change?

21 Comments

  1. Debit cards offer less protection than a credit card and I’m always wary of using them. Doesn’t affect me much even if I decide to use them, since none of the banks I use have a debit card fee.

    I hope this will force more customers to leave criminally fraudulent banks like BofA.

    • @Money Cone – It’s funny, I’ve been using my debit card for years and never worried about protection. Supposedly, if you use it like a credit card, there is some protection from theft. However, you make a good point. If I use my credit card, I’ll not only earn points but have more protection as well.

  2. Money Beagle Reply

    I would likely switch to a hybrid of cash and credit card spending. Hopefully the minimum balance / direct deposit requirements would be in existance, in which case I would plan on the fees being waived.

    • @Money Beagle – I hope my bank doesn’t change any other fee waivers. As long as I continue with direct deposits and automatic withdrawls into savings, I should be able to continue fee-free. I don’t think it matters if I use my debit card or not. However, I am using my credit card this month as a test run. We’ll see how it goes!

  3. I still need to use my credit card 12 times per month to qualify for high interest checking. I have no idea how my bank still does this if they are not able to charge vendors fees anymore. I do love having a locan bank though. No extra fees here!

    Also – I see a spot open on your blogging buddy ads over there… Looking for an additional buddy? Because I am interested!

  4. retirebyforty Reply

    We rarely use debit card because it has less protection than credit card. We use the combination of cash and credit cards so we probably won’t have to change anything.

  5. Thats good information. The charging of fees for regular users was in talks as my father told me. It is foreseen that the plan will be implemented in about 5 – 6 years or sooner. But he also told me that some of the benefits will be increased manifold. I couldn’t understand the part after that. But he said, debit cards will stay a little longer.

  6. I do not use a debit card. I use my credit card exclusively to accumulate frequent flier miles for overseas trips. Therefore, I will not change my payment method.

  7. My University Money Reply

    I’ve switched over to using a credit card for nearly everything as well. If you pay it off monthly you get the rewards, and the increased warranties, as well as several other features if you look at some of the premium-cards. It’s tough to justify paying a debit card fee versus getting paid to use my visa cash back card.

    • @My University Money – This month is my test-run using my credit card. As long as I can remember NOT to pull my debit card out, it should go well. 😉

  8. I rarely use my debit card, just when I am desperate. I know that there are some high-interest-yielding accounts that encourage the use of the debit cards. I think they reimburse the charges accrued though for using the card.

  9. Great idea to switch to the credit card for points! I never got into the points thing, but my small-town bank didn’t offer it. I do get a rewards interest of 3.5%, though, so I guess it all works out.

    • @Christa – I’d take the 3.5% interest over points any day! I long for the days when the banks offered interest rates above a percent!

  10. Everyone above me as said it well. If everyone used credit cards (responsibly) how they should, then this Bank of America announcement would be irrelevant.

  11. Matt @Financial Excellence Reply

    Debit cards have the same fraud protection when you swipe it as a credit card. It’s the exact same protection so it’s not that debit cards are really less safe. It’s how you use them that gets you in trouble, but you could say that about credit cards too.

    I’m not a fan of the government limiting how much money an industry can make. I understand the banks wanting to make up the difference somewhere, but I don’t like the idea of paying more for something I rarely use.

    • @Matt – Thanks for clearing that up. I thought they offered protection and that’s why many years ago I made a conscious effort to use them (and the reward points were great too.) I guess now I’ll have to just use my credit card (so far, so good – I’ve even been paying it off as I go. 😉 )

  12. I truly hope they don’t go extinct, but I think that you’re likely right. The funny thing is that as people are less and less able to use a debit card, they’ll either switch to using credit cards more or back to using cash and *gasp* checks. Let’s see how the banks like processing those things in quantities again. Should also be interesting to see what many of the online banks do and how many people switch to them and to credit unions.

  13. youngandthrifty Reply

    I rarely use my debit card (but my BF always uses his debit card) because I like seeing where my transactions are (much clearer on a credit card bill).

    I’m surprised about this… i haven’t seen much of this decrease in debit card activity in Canada though..

    • @Young and Thrifty – Not all banks are charging a monthly surcharge on debit purchases yet. B of A is the first to implement it full scale. But, my guess is this will become common among other banks, so to prepare for this, I’m starting to use my credit card. Oh, and I’ve also lost my rewards points on my debit card but will still earn them on my credit card. Just another incentive to go with the credit card.

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