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PCBB Banc Investment Daily December 04, 2013
Banc Investment Daily
December 04, 2013

Debit or Credit

There is an alternative coming soon to all those cards that make your wallet a fat, ungainly beast. A San Francisco startup called Coin has introduced an all-in-one card that can store information from every card in your wallet. Information from multiple cards is accessed with a magnetic strip that changes depending upon which card you intend to use. Your information then syncs through a smartphone app. Your phone will even let you know if you leave your card behind at a restaurant and the card is disabled if it is away from your phone for more than 10 minutes. We have mixed feelings about the last part and still wonder what happens if you forget to charge your phone and it goes dead. Can this technology work with international chip and pin cards? We are sure some of those questions will work themselves out as the card gains users and experience. For now, Coin is open for preorders for $55 with expected delivery in summer 2014 - sounds interesting.
Speaking of interesting and cards, we were buying a few items at a favorite local business the other day and gave the cashier our good old-fashioned debit card. The cashier asked "debit or credit" to which we replied "which is better for you"? The sales associate who just moments ago had demonstrated above average knowledge and ability replied "I don't really know as I only work here." In our travels, we have come across local businesses that can't process debit cards with a PIN and instead run every card as a credit card.
Now, we've always had the impression that it is significantly more expensive for a business to run credit charges on a debit card than with a PIN, but we spoke to a credit/debit card provider about the differences and it turns out that it's not that simple. In fact, nothing about debit cards and merchant transaction costs is simple. One rule of thumb applies generally, and that is a threshold around $50. For charges less than that, there is probably no savings in running the transaction with a PIN. For charges larger than that, it is beneficial for the merchant to run the transaction with a PIN. With that knowledge, it now makes sense for certain businesses to not have a PIN pad - like a convenience store where the transactions are small.
If your bank offers merchant services, it seems like a good outreach to offer training on the pluses and minuses of PIN transactions to your existing merchant service customers. Are you interested in growing that line of business? Offer to train other small businesses in your customer footprint.
We were poking around consumer finance-for-dummies-type web sites to see what they had to say about debit versus credit. They acknowledge that there is no difference in how the money comes out of your account when you use a debit card, regardless of whether it is run as a debit or credit. But the "common knowledge" approach is that consumer should prefer the charge is run as a credit unless the customer is making a cash withdrawal. The reasoning is that there are stronger fraud protections. In reality, the fraud protection on a debit card is identical regardless of whether the charge is run as a debit or credit as mandated by law and common practice.
Once again, there is a certain amount of misinformation or lack of information around, so bankers need to be a resource for their customers, both business and retail.