Life got a little easier for Darrell Davidson when he found a way to shop, dine or pay for just about anything without carrying cash, checks or credit cards. The Mount Washington resident now carries an "electronic check."
When Mr. Davidson makes a purchase, NationsBank authorizes the merchant to withdraw the amount directly from his checking account. He doesn't have to carry checks or cash, and no interest mounts on his credit card.
Mr. Davidson carries a debit card, and such cards have been around in one form or another since the first automatic teller machine card was issued.
"It is becoming the preferred method of shopping," says Rick Lyons, spokesman for Internet, Inc. which owns and operates the MOST electronic banking network.
But while an ATM card has limited uses -- to withdraw cash from your account or to pay for gas or groceries locally -- the newer debit cards provide consumers the opportunity to spend money almost anywhere.
If you haven't yet heard of this high-tech check, you will soon. Both VISA U.S.A. and MasterCard recently kicked off a $l consumer education campaign to promote debit cards.
The cards are not new. MasterCard has offered them for about 15 years, says Art Kranzley, president of Maestro, a MasterCard division that issues ATM cards.
They weren't widely marketed because financial institutions .
could make a greater profit from interest on credit card balances than the comparatively lower fees they earn on debit cards.
And, says VISA spokeswoman Una Somerville, "In the early '80s, banks were struggling just to get an awareness of the ATM cards out." She adds that consumers have also been confused about the term debit card. "That's why we decided to use 'check card,' " she says.
Almost everyone is familiar with the ATM type of debit card. There are about 200 million ATM cards in use, industry analysts say. With these on-line cards, the amount of a purchase is debited immediately from your checking account after the customer's personal identification number (PIN) is entered into a machine at the checkout counter.
The other type is an "off-line" debit card, of which there are an estimated 16 million of those in use. It works like a credit card, TC except the purchase amount is deducted from your checking account two or three days after the sale and doesn't require a PIN machine for processing (a cost-saving factor for merchants).
Every merchant who accepts a VISA or MasterCard must accept their debit cards, says Laurie Giesen, editor of POS NEWS, a newsletter that reports on the electronic banking card business.
Sean Kennedy, president of the Electronic Funds Transfer Association, says either type of debit card has several advantages. "The beauty is not having to carry a lot of cash with you. It's less time-intensive than writing a check. You receive a receipt. Merchants can process [the transaction] quicker and it is a guaranteed payment. The funds are usually received and credited quicker."
"I like it because it's immediate," says Mr. Davidson, who designs shopping centers.
However, he says it's important to remember to deduct the amount from your check book. "That's its weakest point. If you don't have your checkbook with you, you have to remember to do that."
Ms. Giesen cites a possible disadvantage of the off-line cards for banks: "They are not quite as secure as the [on-line debit cards] because there is no guarantee that the money is going to be there. If the money isn't there, the banks would have to pay [the merchant]," she says.
Tom Saquella, president of the 500-member Maryland Retail Merchants Association, says retailers are cautious about debit cards -- particularly the on-line ones. "My impression is that merchants aren't running too quickly [to accept the cards] because of the cost of getting the machines and the per transaction cost."
Some retailers are simply waiting to see how the public
idea. If consumers won't patronize businesses unless merchants have machines, then they will have to get them, he says. "It's like the chicken and the egg."
For consumers to buy into debit cards as a check replacement, the price has to be right. Presently, it is for many debit card holders. A spot check found that at least two local banks (NationsBank and First National Bank) currently are not charging customers a per transaction fee for their off-line debit cards.
In other states, some banks are charging one or two dollars a month. And the practice may spread to Maryland. "Although, there is no fee today in this area," says Tommy Lewis, a senior vice president at NationsBank, "I will say, the trend is toward having a monthly fee."
Banks also reap profits from the electronic checks by charging merchants 1 percent to 3 percent of total purchases made with the cards at their businesses, says credit analyst Robert McKinley, president of RAM Research Corp., which studies the credit card industry. But banks are cautious about spreading the wealth.
"The customer will have to meet certain criteria such as a good credit history," says Laurie Rush, an assistant vice president at Provident Bank.
This is especially true of the off-line cards because of their spending power and the two- to three-day lag time between a purchase and the withdrawal from the buyer's checking account. The plain, old on-line debit card might be the best that a bad credit risk can do.
But the financial industry is increasing the potential purchase power of even those. Both VISA and MasterCard are offering on-line debit cards. It's an ATM card that can be used outside of a local area for transactions where a PIN number is required, explains Mr. Kranzley.
"Just think of it," says NationsBank's Mr. Lewis, "as a simple extension of a checking account."
COST OF DEBITING
The following is a random selection of what banks are charging for debit card use. The transactions apply to Maryland only. There may be different charges for using a bank card outside of Maryland:
ATM transaction at a point of sale (POS) where the personal identification number is keyed in): no charge
ATM card withdrawal at one of its machines: no charge
ATM card withdrawal at a different machine: $1
Off-line card: no charge
First National Bank:
ATM card transaction at POS: 20 cents per transaction
ATM card withdrawal at one of its s machines: no charge
ATM card transaction at a different bank machine: $1.50
Off-line card: no charge
ATM card transaction at POS: no charge
ATM card withdrawal at one of its s machines: no charge:
ATM card withdrawal at a different bank: $1
Off-line card: scheduled to be offered to Maryland customers in a few months
ATM card transaction at POS: no charge
ATM card transaction at one of its machines; no charge
ATM card transaction at a different bank branch: $1
Off-line card: scheduled to be offered to Maryland customers in a week