Wednesday, January 16, 2008

Debit Card Quirks

OK, I've been toying with this topic for a while now. Not because it is controversial, or anything like that. Just simply because I didn't know if you'd give a damn. After much deliberation and introspection I've decided, what the hell. If one reader finds it interesting, then that's good enough for me.

I learned of most of this as a result of working at a credit union, but some of my support of my point of view is an left-over of my teenage "put it to the man" attitude.

OK, that's enough set up. Let's get down to brass tacks. When you swipe your debit card you are often given a choice of Credit or Debit. Without fail I always choose Credit and here's why.

The first difference is, who pays for the transaction? Since a debit or PIN transaction works just like an ATM withdrawal the cost of the transaction is passed on to the financial institution. Now granted, if you bank at one of the huge banks, this doesn't really mean spit. BUT if you bank at a credit union, this savings in costs are almost always passed on to its members as higher interest on savings or lower interest on loans. Some financial institutions are even starting to charge for this type of transaction, just like you took the cash out of a foreign ATM.

If you do a credit, or swipe and sign, the merchant pays that fee. I get a little satisfaction knowing that Wally World has to pony up 1-2% of my purchase for the privilege of taking my money. Plus, a portion of that fee goes to your bank/credit union. Once again, since credit union are not-for-profit organizations, they pass the income on to their members in the ways I mentioned before.

Here's the BIGGEST reason though, and this is the one nobody talks too much about. When you do a DEBIT or PIN based transaction, especially at the gas pump, the merchant places any amount they see fit on hold at the beginning of the transaction. That hold can stay in place for 48-72 hours. While that hold in in place those funds are not available to do things like, pay for checks or drafts that come in during that period. Legally, a merchant could freeze your entire account for up to 3 days, even though they got their $$ the instant you finish the transaction.

By the way, if you do shop at Wally World or any other place and when you swipe your debit card it automatically asks for your PIN. You have the option to press Cancel and select Credit for the transaction. Wally World even hides the cancel key to make it hard for you to opt out. When you think about the dollar volume that they do every day you can understand why. 1-2% of a million bucks is 10,000-20,000 dollars in income they have to give up.



Sevesteen said...

I pick the credit option in part because Walmart tries to guide me into using debit.

Diane said...

A number of places are now using machines that will automatically class the payment as debit, without giving you a clear choice (like your Wally World experience). Every one of those blasted terminals is different, and figuring out how to change it to credit is always fun.

Not only gas stations do the place-holder thing - a number of restaurants will put the transaction through with an automatic 20% tip (no matter how much you put on the receipt), and the total will not be adjusted until the transaction clears.

Anonymous said...

I work for an hotel that only has the credit option, however, we have to charge instantly instead of holding like you would a credit card because the processor (the middle man no one talks about)puts 2 holds on the bank account. There is nothing that I, as the credit manager of the hotel can do about it, but I am the one who is made out to be the enemy. Beware of this when making hotel reservations.