Special Report: Credit or Debit?

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Consumer's Card Choice Can Take a Swipe at Retailers' Profits

By Michael J. Marando

     There’s a dirty little secret in the world of automated high finance: Consumers who choose to “swipe and sign” a credit or debit transaction can cost retailers big money when compared with the lesser-known counterpart, the PIN-based transaction, which costs just a fraction for retailers.
     A retail transaction frequently begins with a cashier’s question, “Can I put this on your VISA card? Or credit or debit card?” The customer’s response makes a big difference to the business.
     Here’s how it works: Banks issue ATM and check cards that look a great deal like “credit” cards, complete with the familiar VISA or MasterCard logo, but in reality, they’re not credit cards at all. All transactions with these cards are deducted directly from the cardholder’s checking account.
     Consumers have two choices to complete a debit transaction: swipe and sign, where a signature is required to complete the sale, or complete a PIN-based transaction. Which method they choose makes no difference to the customers but does to the merchant.
     Debit card usage has more than doubled since 1999 to $321 billion, according to ATM and Debit News, a newsletter that tracks the ATM industry, due mainly to consumers spending 30 percent to 50 percent more when they use plastic instead of cash. 

Plastic Hikes Sales
     In fact, average transactions at Taco Bell stores nearly doubled, from $5.05 cash to $9.45, after the chain made ATM/debit card sales available. McDonald’s surveyed its customers during the late 1990s and found a 37 percent increase in sales resulting from plastic over cash.
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