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Cash and cheques fast going the way of the Dodo
The newest banking revolution will see debit cards take over the traditional functions of paper-based payment methods, writes LEIGH ROBERTS
To the bank customer, a debit card offers convenience and safety: you won't need to carry wads of cash around and it can replace your cheque book. Simply put, a debit card describes the function of using your bank ATM card to pay for goods and services at a shop's till-point. It works like this: you swipe your card through the shop's card-reader machine, key in your ATM pin number and the money is deducted immediately from your bank account and deposited into the shop's bank account. You pay the bank a fee each time you make a debit card transaction. This cost will vary among banks. Generally, the banks are pitching the cost in line with the charge for an ATM cash withdrawal. This makes paying by debit card much cheaper than writing a cheque. Using a debit card is more expensive, though, than making a large ATM cash withdrawal to pay for various purchases. But you're paying for the safety factor - avoiding the risk of a mugging after visiting the ATM. For credit card users - about 20% of the bank card-carrying population - a debit card is a much more expensive option. First, the transaction fee on a credit card is minimal (you only pay stamp duty of 20 cents), but this is in addition to the annual card charge (R90 or more). Second, the added benefits of paying by credit card are that you get up to 55 days of interest-free credit, as well as the free air tickets and goodies served up by the credit card company's loyalty programme. However, if you are the wild-spending type and you regularly pay interest on your unpaid credit card bill, a debit card might tame your habit. Debit cards are not new in South Africa - all the big banks have some cards out - but their usage has been limited. Absa and Standard Bank customers, for example, can use their bank cards as debit cards at Pick 'n Pay and Caltex. Nedbank has issued its Nedcheque card to only 200 000 customers. Over the next two months, Absa and Standard Bank will launch a major thrust to increase the number of shops that have the enabling card-reader machine for debit-card transactions. The two banks estimate that by early next year, more than 50 000 shops will have the machines. (The two banks have a combined bank card customer base of 10-million.) First National Bank will launch its debit cards in September, as part of its move - done jointly with Nedcor- towards smart card (computer chip) technology. The two banks say 30 000 shops are already equipped to read their smart cards. The benefits of using debit cards will be loudly sung by the banks, but there is a problem which you will encounter and which is unlikely to get much publicity: your debit card cannot be accepted by all shops. The problem lies with the card-reader machines, which are unable to read the debit cards issued by all banks. So, for example, customers of First National and Nedcor cannot use their cards at shops which have card-readers that have been supplied by Absa or Standard Bank. To avoid embarrassment at the tillpoint, you need to check that the store displays the logo authorising your card usage, namely Maestro for Absa and Standard Bank, and V-chip for First National. This acceptance problem indicates the deeply divergent views of the local banks on the speed of their move to smart card technology. (The computer microchip in a smart card is more advanced than the traditional grey magstripe.) Absa and Standard Bank are sticking with magstripe cards for the next two years before slowly replacing all their cards with smartcards. In the opposing camp, First National and Nedcor are ahead in the move to smart cards, with a million cards already in issue. However, while this camp may be further along in their migration, First National will bridge the gap by launching a hybrid card next year - a card with a magstripe as well as a chip (Electron). No matter the behind-the-scenes intense jostling among the banks, debit cards - whether housed on a magstripe or a smart card - are poised to send cash and cheques the way of the Dodo. At an international conference of Mastercard, a global payments service provider, in Paris last week, it was said that by 2005 more than half of all card payments made in the world would be debit. And in South Africa, debit-card transactions are expected to overtake credit within the next three years. The reason? Debit cards cater for the bulk of bank customers who do not qualify for credit cards -which, incidentally, was the original purpose for developing debit cards.
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