2004-09-10

Debit Or Credit?

You hear that question all the time. Most often you probably hear it at the grocery store. Statistics shows that the grocery store is the place you are most likely to use your debit card. Maybe I'm the only one who has pondered this question, but why the choice? And which method does the store prefer? Really, it has to be broken down into three elements: which does the store, cashier, and customer prefer, since they may all be different?

I have been holding on this to this question for years. Probably ever since I first got a debit/credit card from Fleet and then visited my local Roche Bros.

For some reason I always had a hunch that the debit card was preferred by the cashier. My thought being that they didn't have to wait for the credit card receipt to print up, instead just having you enter your own PIN. One day I even ventured to ask the cashier at a Stop & Shop and she confirmed my suspicions. It is simply an easier, faster transaction for the cashier.

As for the customer, it never really seemed to make a difference, at least to me. It honestly didn't feel like it mattered one way or the other since the money is all coming from the same place.

Then I heard some disturbing news that people may actually be charged an off-network transaction fee if they use debit, akin to the fee you would get visiting a rival ATM. This definitely had sinister written all over it. I quickly went online to Fleet Home Link to see if any sort of transactions fees were recorded in my history. There were not. Still, it is said that more banks charge the fee than do not. This is something that you should probably look into if you haven't already.

If there is a fee then the question becomes a no-brainer. But how unethical to have no warning of the fee during your transaction. For shame, James. So if these fees are bad for the customer than why do grocery stores even offer this option. Because what's bad for the customer is not always bad for the store. Which brings us to ...

The method that the store would like you to use, without a doubt, is debit. Why? Because this brings more moola to their own bank accounts. Its quite simple really, though it had never occurred to me before. We all know that credit cards charge transaction fees on all purchases. A certain percentage of whatever you spend goes to the credit card company instead of the retailer. Previously, this fee had been about $1.64 out of a $100 purchase. As of August 1st of this year I'm told that this number has actually decreased to $1.16 for the same purchase.

Why would they decrease their fees like drastically? They're just trying to keep up. You see, when you use your debit card for a $100 purchase the retailer only gets sacked for about $.09 - $.25. Imagine how quickly that would add up for the store over just the course of one day if all of their customers used debit instead of credit.

This brings us to our next question: If stores would rather have you use debit then why don't they just come out and say so? The answer: they finally have. Well, at least some have. This past weekend I was down on Cape Cod for the Gastaldo Family Bocce Ball Doubles Tournament (which ended in disaster, but that's another story). While there I did a little shopping at the Hyannis Stop & Shop. As I checked out, lo and behold, there was a sign above the card swiper recommending that you use debit instead of credit.

Of course, they mentioning nothing about the money that they'll be saving. Instead, they make it seem like its all about the customer, telling you how its more secure, easier, and how convenient it is to get cash back. Now, we already know that its not really that much easier. Perhaps others use the cash back feature, but I never do. I just go to the ATM. And while it certainly would be more secure if you were required to enter a PIN, those that steal your credit card probably won't be choosing debit so that shouldn't pose too much of a problem for them.

Once again in consumer America, its all about the benjamins. Feel free to stick it to big business and indulge in the delightful answer of "credit."

5 comments:

Joshua Provost said...

And the grocery store is getting a break due to volume. 727 Records pays somewhere in the neighborhood of 3% off the top for credit card transactions.

Use this information wisely. It'll always help out your friendly neighborhood businessman if you pay in cash. For big ticket items, see if they'll split the difference if you pay with cash. It's the cash discount. If they can't fork over at least 1%, their shooting themselves in the foot.

Of course, their credit agreements forbid them from giving a discount for cash purchases, but seriously, can they help a brother out?

Gabe said...

Yeah, the Credit Card transaction fees can be anywhere from 1% - 3%, American Express being on the higher end. That's why you don't see as many places taking American Express.

I've known about these back-end fees to retailers for quite a while. In relation to Josh's comment, I therefore try to use cash or debit at the places I like. Then I stick it to other places, like gas stations, with credit. Mwa, ha, ha!

I've even noticed that now many places, if you swipe your debit/credit card, the pin screen comes up automatically. If you want to use credit, you have to press another button at that point.

Jeremy said...

Excellent points brought out by both Joshua and Gabe. While I emphasized the "sticking it to the man" approach they showed how to balance that with the "help out the little guy" approach. I will definitely take that into consideration for future purchases.

"Auntie" Lori said...

i try to use debit all the time because it shows up almost instantly on my online bank statement. the credit transactions can take up to three days to process. i like to know how much money i have at any given moment, i don't like waiting for processing.

shannon said...

Yep, I, too, have heard of banks charging fees for using your debit card. I've never encountered it (my first bank was Fleet, too!), but I've heard of it.

credit card processing costs the stores more than processing a debit card. I always use my debit card (when I can), and 9 times out of 10 I say "credit" simply because i don't feel like putting in all those damn pin numbers with other people waiting in line.

I could care less about what the store has to pay! I'm paying $3.99 for a box of cereal, they can pay a quarter for the transaction!!

And why do people use credit cards instead of their debit cards, which would be the obvious first choice? Well, I know for me, I only use my credit card when... there's no money in my checking account. ;)

LOL

Thanks for the good, informative post!!