(by Dr.Goldfinger)

Debit cards, over 285 million of which are in circulation in the US, are popular at the point-of-sale, but may take a hit if more banks charge consumers fees of up to USD 1.50 for a PIN-based transaction. Although merchants and consumers prefer PIN-debit to signature-debit payments for the extra security and lower fees, banks favor signature-debit, the fees for which can amount to 2 per cent of a transaction. Up to 89 per cent of banks in the New York area charge a fee of 10 cents to USD 1.50 for PIN-debit payments, according to the New York Public Interest Group, and this trend is replicated across the US.

By contrast, consumers who press the “credit” button at the point-of-sale and sign for their purchases are not charged a fee and often receive a bonus such as loyalty points or air miles. PIN-debit fees incurred by merchants derive from the fact that the transaction is processed online and is subsequently cheaper and more secure, whereas signature-debit fees are higher due to being processed “offline”. In this context, Ben Edmonds, of the Chicago Coalition for Consumer Rights, argues that POS terminals should in ten years’ time be able to disclose to consumers that a fee may be charged for the transaction method used.

Given a choice between PIN- and signature-based debit, 45 per cent of debit cardholders prefer to use a PIN, while 38 per cent favor signature-debit, according to the ABA 2003-04 Study of Consumer Payment Preferences. Under current practices, consumers whose PIN-debit fees are listed on their bank statement may believe this levy originates from the retailer and not from their bank, as is the case. For this reason, the National Retail Federation has called on the Federal Reserve to require any bank charging a fee for PIN-debit transactions to “fully disclose the fee it will charge and the name of the bank that will receive the fee”.