PAY WITH PAPER OR PLASTIC Two state grocery chains are testing use of ATMs for checkout payments

The age of the plastic money card has reached the grocery checkout line in Maryland. In pilot programs in the state's three largest grocery chains, people can now buy food on credit, or tap directly into their bank accounts or even into U.S. government funds to put dinner on the table.

Within the last month, two of the state's large supermarket chains, Basics and Safeway, have launched pilot programs to test the use of bank automatic teller machine cards to pay for groceries. Others are watching to see how the technology performs. And Giant Food, the largest chain in the Washington-Baltimore area, has begun processing food stamps and welfare cards the same way.


It is all part of the long progression toward a cashless, checkless economy, and in Maryland, it adds up to a revolution in the basic ways consumers spend their money.

Many gas stations in Maryland have pumps that accept bank cards. Within five years, electronic funds transfer systems at cashier's standswill likely be as commonplace as bank ATM machines. "Cash or charge?" may replace "Paper or plastic?" as the most-asked question at the supermarket. And the Food Stamp program could become stampless, allowing food chains to make direct withdrawals from government funds just as they will from individual checking accounts.


The technology for such systems has existed for more than five years, but acceptance has come slowly in the Northeast. Almost one-third of the nation's grocery stores now let customers tap directly into their accounts through "direct debit" systems, but three-quarters of those stores are in four states -- Texas, Arizona, Florida and California.

"There is a landslide of groceries beginning to do this," said Bob Gowens, executive vice president of the 45-store Randall's Food Market chain in Houston.

It's easy to see why. At the Basics store at Jumpers Hole in Anne Arundel County, one of two where the chain's system is up and running, an ATM card-wielding customer whisks through checkout with no need for cash or a store courtesy card. After ringing up a purchase, the cashier runs the card through the slot in her card machine, then the customer uses a small keypad to enter his bank personal identification number.Through the MOST banking system, a computer checks the account balance and deducts $10.75, transfers it to Basics and spits out a receipt.

About 20 seconds and it's over. Nothing to fill out, no change to make, nothing to sign. The only requirements are an ATM card and a minimum purchase of $10.

Faster checkout

Mike Flanagan, vice president of administration and controller of Basics, said the system offers multiple advantages to the company, including faster checkout, fewer errors, a streamlined flow of funds and less need to handle cash.

Jim Roberts, a spokesman for Safeway Stores, said that the grocery chain would expand its program to all 147 stores in its mid-Atlantic region, which stretches from Baltimore County to Williamsburg, Va., by the end of the first quarter of next year. Safeway now has the service, which also employs the MOST network, on line at four Prince George's County stores, he said. Safeway has 13 stores in metropolitan Baltimore.

"So far it's doing well," he said. "The customers seem to appreciate the option."


Mr. Roberts said Safeway's service differs from Basics' in that it permits the use of Visa, MasterCard and Discover as well as ATM cards. Some grocery chains, including Safeway, have been taking credit cards in some departments for several years, but Safeway is the first major Maryland chain to extend their use to checkout.

Basics plans to incorporate credit cards into its pilot program within a couple of months, Mr. Flanagan said. But while Mr. Flanagan is confident of the success of the direct debit program, admits to being "a bit leery" of credit cards because the transaction fees charged to merchants take a big chunk out of profit margins.

"Where debit is expensive to us, credit is very expensive," he said, adding that Basics would not want to raise prices to pay for such services.

Most of the other Baltimore-area chains are taking a more cautious approach to such innovations, although the huge Leedmark "hybrid market" in Glen Burnie plans to install direct debit in February.

Giant Food, the dominant chain in the Baltimore-Washington market, is one of the companies that is holding back. "The technology isthere, but we don't think the public is ready for it yet," said a Giant spokesman, Barry Scher. "It's definitely something that will be coming."

Michael Mann, Giant's manager of systems and programming, said one of the chain's trepidations about direct debit is that if the account shows insufficient funds, customers with full carts of groceries will be prevented from buying. With Giant's collections on bad checks running at a high level, he said, a little rubber might be the lesser evil.


"Most people don't intentionally write you a bad check," he said. "Do you want to deny them the ability to shop at your store again?"

Floating transactions

With that in mind, Giant is also considering a system called "automated clearing house," an "electronic check" system that would not connect directly with the customer's bank. ACH would keep the "float" time that paper checks now offer, Mr. Mann said, and cut down on the number of denials in the lanes.

Other retailers discount Giant's concerns about direct debit. At Basics, a keypad outside the office lets customers check their balances before buying. Safeway notes that by taking credit cards it gives most customers a payment alternative if their bank balances are running low.

While Giant is taking it slowly on direct debit, it does have plans to expand a related innovation called electronic benefits transfer, which is used to disburse government benefits such as food stamps or welfare payments without checks or actual stamps. The EBT program, which has been receiving a tryout at some Baltimore-area Giant stores, will be rolled out in Montgomery, Prince George's and Cecil counties in January, said Mr. Mann.

The state-sponsored EBT program will eventually bring direct debit a step closer to checkout lanes as it puts card-accepting terminals in virtually every grocery store in the state. "The technology is identical," Mr. Mann said, adding that the same terminals used to process government-issued benefit cards can be adapted to accept bank cards. This is critical to grocery chains because none wants to clutter the checkout area with multiple machines.


Mr. Gowens, the Houston grocer, said his company has been accepting direct debit since 1987 and that customers have taken to it enthusiastically. The system now makes up almost 11 percent of store transactions, he said.

"I pay for my system every two months just in reducing bad check losses." While bad checks are often written intentionally, he said, debit card users almost always intend to pay. So when a card user comes up short, Randall's tells customers to pay the next time they shop.

"They do," Mr. Gowens said. "We hardly ever lose money on a deal like that."

Popular system

He said the system has proven particularly popular among older customers because they feel safer not having to carry cash or checks. People under 30 have also taken to the system, he said, adding that it is most popular among the group psychologists describe as "early adopters of new things."

Richard Lyons, a top executive company that operates the 440-member MOST bank network, thinks direct debit is "a good deal for everybody" -- the banks, the merchants and the customers.


It costs the grocer about $1.75 in processing fees to send a check through the banking system, said Mr. Lyons, chief operating officer of Internet Inc. in Reston, Va., while the cost of an ATM transaction is 50 cents to 80 cents.

A5 That alone, he said, is "a tremendous incentive."