The Wall Street Journal reporters at FiLife started a series of “Why Don’t They …” blog posts making suggestions about services and practices which seem to make sense to the customers but not offered by the financial institutions.
I gave a one-word answer — economics. If you think they should do something but they are not doing it, first think about the economics. More likely that not, it’s because they make more money by not doing it.
Companies are driven by ROI — return on investment. They also compete with each other. The companies are not stupid. If something provides a benefit to the customers and it delivers a good ROI, you bet some companies will do it. If you don’t see it happening, it means there is no good ROI or they are pursuing something else with a better ROI.
In Why Don’t They… Let Me Have an ATM card that Isn’t a Debit Card?, Ron Lieber asked why the banks give their customers a debit card bearing a Visa or MasterCard logo (also known as a Check Card) instead of just a plain ATM card which can also be used as a debit card but only with a PIN.
In a follow-up post, Ron found out that many large banks actually do give out plain ATM cards but they don’t make it the default option. Nor do they make it apparent that the customers have that choice. You have to specifically ask for it. It goes back to my previous post Opt In or Opt Out: The Power of the Default Option. The default choice is designed to benefit the business offering the choices.
A Visa/MasterCard debit card can be used with or without a PIN. When you use it with a PIN, it’s called “PIN debit.” When you use it without a PIN, it’s called “signature debit.” If you lose the debit card, whoever found it can use it in any store by doing signature debit. The cashier is supposed to check the signature but we all know they don’t do a good job at that.
A plain ATM card can only use PIN debits. Therefore it’s more secure. If you lose it, nobody can use it without a PIN. You would think the banks should prefer a more secure card, but they don’t. They push for the less secure card because they make more money if you use signature debit instead of PIN debit.
According to an article on MSNBC, for a $100 purchase, the bank can earn $1.48 if you use signature debit, $0.20 if you use PIN debit. Guess which button the banks want you to push? If you are a bank, which card do you want to send to your customers, a debit card that can do signature debit or a plain ATM card that can be used only with PIN debit? No contest. The banks make all kinds of efforts to push their customers to use signature debit instead of PIN debit. Examples:
- Wells Fargo gives ~0.25% reward for using their check card. Only signature debits are eligible. PIN debits don’t count. In some areas, Wells Fargo charges $1 in any month you use PIN debit at least once. No charge for signature debits.
- U.S. Bank charges customers in some states $0.25 for each PIN debit. Ouch! That sting will sure train the customers well not to push that debit button or say “debit” ever again. No charge for signature debits.
Another reason the banks push debit cards is that the customers are more likely to generate overdraft fees that way. When the customers switch from writing checks to using debit cards, they often also ditch their check register. It becomes harder to track the purchases. Before you know, small purchases add up and you will bounce a check or scheduled draft.
If you like using a debit card instead of a credit card, and you care about security, ask your bank for a plain ATM card. You don’t get it unless you ask for it. Avoid banks that punish you for using PIN debits.