Consumers buying into a plastic money world
BY TERRY SAVAGE SUN-TIMES COLUMNIST Jul 14, 2006
Updated: May 3, 2013 12:14PM
Originally published: June 6, 2005
What’s safer than cash? Plastic. And in spite of some of those urban legends -- truly mythical stories about people having cash siphoned out of their bank accounts, leaving them destitute -- plastic is far safer than cash.
The use of plastic, whether in the form of debit cards or prepaid cards is growing exponentially. According to Cardweb.com, 668 million credit cards are outstanding (Visa, MasterCard, American Express and Discover), and an additional 235 million debit cards. So it’s important to know how exactly they work -- and how you’re protected.
Whether you use a credit card, debit card, or prepaid card, you are 100 percent guaranteed against loss through fraudulent use. It’s called a “Zero Liability Policy,” and it is honored by all of the thousands of Visa and MasterCard issuing banks.
Debit cards on the rise
For the first time in the industry’s history, offline debit card purchases have exceeded traditional credit card purchases. There were 3.13 billion debit card purchase transactions in the first quarter, compared to 2.97 credit card purchase transactions, according to Cardweb. The Visa Check Card has the lion’s share of this market.
There are two ways to use your debit card: online or off-line. If you use your PIN at the point of sale, the amount is immediately debited from your checking account as an online transaction.
If instead you sign the card slip, it is processed in the same way as a credit card transaction -- off-line -- and you’ll notice that the debit doesn’t hit your checking account for a few days.
When you use a debit card, you must have money in your checking account to which the card is linked before the purchase can be authorized. You’ll never build up a balance or pay interest.
You may not earn miles, or as many miles, with debit transactions, and by using an online debit, you may forfeit some dispute protections offered by an off-line transaction.
And it’s your job to keep track of all those debit purchases.
If you’re banking online, you’ll see the debit amount and location posted every evening to your online statement.
The use of prepaid cards is growing at a triple-digit rate, and is estimated to result in $50 billion in transaction volume within the next five years.
You probably think of a prepaid card as one of those gift cards, loaded with money that you can use in a particular store. But now, prepaid cards have grown to become the method of choice for many companies to disburse payroll, and for state government agencies to disburse payments such as student loans and child support.
In fact, for the more than 27 million Americans who do not have a checking account -- 11.7 percent of the U.S. population -- prepaid cards offer low-cost access to bill payment, and the security that comes from carrying plastic instead of cash.
Today’s prepaid cards have the added advantage of being “reloadable.” So if regular payments are to be received every month, as in the case of child support or a paycheck, the money can be sent directly through the banking system to the account that stands behind your usage of the prepaid card.
The card is embossed with the individual’s name, the Visa hologram, and a bank routing number. The cardholder has a PIN which can be used to withdraw cash, as well as to make purchases. In effect, prepaid cards have “created” a bank account for the holder -- a person who might have been fearful of entering the banking system. There’s a toll-free number to report a stolen card, or to ask about your balance.
The versatile prepaid card
I’ve written about these types of cards before, including the VisaBuxx card (www.Visa BUXX.com), a reloadable debit card that allows parents to track a student’s spending online and reload an allowance directly from the parents’ checking account. Prepaid cards are also being used in conjunction with Health Savings Accounts to allow people easy access to their tax-free savings to pay for medical services.
The payment world is moving very quickly toward non-cash transactions -- whether it’s for bus fare or bill pay or even to buy a McDonald’s hamburger. We’ll save a lot of trees. But first we must convince consumers that plastic is even safer than cash. Because it is. And that’s the Savage Truth.
Terry Savage is a registered investment adviser, and appears weekly on WMAQ-Channel 5’s newscasts. Distributed by Creators Syndicate.