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Get ready for the onslaught of debit cards
A new form of electronic payment will make it unnecessary to carry those risky wads of dough, writes LEIGH ROBERTS
Internationally, debit cards are the fastest growing form of electronic payment. The world's two largest payment service providers, MasterCard International and Visa International, reported strong growth in the number of debit card transactions in the past year. In developed countries like the US and France, debit cards are popular because of the convenience and security they offer. A debit card obviates the need to carry wads of cash: to pay for goods you merely swipe your card and enter your pin number in the merchant's terminal. It's akin to having an ATM in each shop - indeed, you can even withdraw cash from the merchant's terminal. In developing countries, though, debit cards take on a different role. They offer a non-cash payment mechanism to "underbanked" customers - who do not have a credit history and could not easily obtain banking products like credit cards and overdrafts. In South Africa, the four major banking groups look set to offer debit cards to both ends of the market. Customers with cheque accounts could use debit cards as an alternative to cheques, cash and credit cards. At the middle to lower end of the market, customers with transmission accounts only could use their debit cards as an alternative to cash payments. While all banks are excited about the coming debit card explosion, their product strategy divides them firmly into two (quite hostile) camps. Absa and Standard Bank are going the magnetic-stripe ATM card route, while FNB and Nedcor are walking the smartcard path. Absa and Standard will enable their customers' existing ATM cards to double up as debit cards. All that's needed to facilitate the debit card function is an upgrade of the merchant's credit card terminal. These cards operate in the same way as an ATM card: after keying in your pin number, the payment request is electronically authorised, and the funds are immediately deducted from your account. A debit card transaction will, however, cost you. Both Standard and Absa say the fee will be similar to that of an ATM cash withdrawal. Merchants are not obliged to offer the debit card facility, but many will be enticed by the benefits: lower cash holdings; guaranteed payment; and customers with plastic cards tend to spend more. Larger merchants may find that a debit card transaction costs less than a credit card payment. An initial problem cardholders will encounter is that they'll be restricted to using their debit cards only at those merchants who use the same bank - for example, an Absa cardholder will be limited to Absa merchants. This inconvenience arises from the friction bubbling in the local banking arena. The two camps are resisting a move to common standards which would allow interbank operability. The first moves to a more cohesive operating system will probably be a link-up between Absa and Standard, and one between FNB, Nedcor and NBS Boland (and these will surely entrench the two camps). FNB and Nedcor are firmly set on going the smartcard route - the debit card facility will be offered as part of their smartcard initiative. A smartcard is a plastic card embedded with a computer microchip which allows for different bank services to be accessed from one card. The smartcard can be a debit card, a credit card, and an electronic "purse". Smartcards are the way of the future and in times to come, will store information such as airline tickets. FNB is aiming for both ends of the market -an entry-level debit card for customers who have transmission accounts and who either don't have or don't want credit facilities, and those customers who already have cheque books and/or credit cards. Nedcor at present offers customers ATM debit cards linked to cheque accounts, but is in the process of launching smartcard-based debit cards to all sectors of the market. Both banks hasten to add that clients will be able to use their smartcards at ATMs. A major difference between the smartcard-based debit card and the ATM debit card is that the smartcard allows for pre-authorised spending limits. This enables a card to be used off-line, which is important in developing countries where telephone links are unreliable and expensive. FNB and Nedcor say they'll offer a number of pricing alternatives for the debit card facility. By end of the month, merchants who bank with Nedcor, FNB and NBS Boland will have the smartcard-reading equipment. This considerable investment, borne by the banks, begs the question of who will end up paying: the merchant, the cardholder or the bank? Customers who hold smartcards will experience the same problem as ATM debit cardholders - they will be able to use their cards only at merchants who have smartcard terminals. The interoperability problem lies at the heart of the friction between the two banking camps. The smartcard banks are pushing money into technology and are launching millions of cards onto the market. The banks in the other camp agree that smartcards are the future, but they're taking a slower line in their migration from the current magnetic stripe cards. The ideal situation is where all bank cards can be accepted at all merchant terminals - but that looks like a couple of years down the line. One has to wonder though, at the number of people in the top end of the market who will flock to debit cards. If you pay for goods on your credit card, you get up to 55 days free credit, you notch up points on your loyalty programme, you can use your card anywhere in the world, and you don't pay a transaction fee.
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