Debit card use to grow

Jun 01, 1998 9:30 PM  By

Although debit cards debuted about 10 years ago, consumers are just now embracing them. Credit card provider Mastercard estimates that from 1996 to 1997, debit card usage increased 93%. And according to New York-based market researcher DataMonitor, debit cards will account for 8.8% of total consumer spending by 2001, up from 2.2% in 1997.

“The catalog industry needs to be able to accept these cards,” says Ron Eike, director of operations for food mailer Omaha Steaks. He estimates that debit cards are used for 9.5% of Omaha’s catalog orders, and he predicts usage will grow 40% by 2001.

A debit card differs from a credit card in that the purchase amount is subtracted from the cardholder’s bank account. For merchants, processing debit card transactions is essentially the same as processing credit card sales. In fact, most catalogers can’t distinguish between debit and credit card transactions at the time of purchase. And the banks charge merchants the same interchange rate for debit cards as for credit cards, says Tim Litle, chairman of OrderTrust, a Lowell, MA-based order processing network. A typical Visa interchange rate for a cataloger would be 1.65% of the transaction amount plus 5 cents per transaction, plus network and processing fees.

But Litle says that, in theory, banks shouldn’t levy any charge for debit card transactions. The charge was implemented for credit card transactions to compensate the banks for “floating” the credit card debt for 30 days. But because debit card transactions are instantly subtracted from the cardholder’s bank account, Litle says there is no risk.

Regardless, most catalogers agree that if consumers want to pay with debit cards, they’ll accept such payment. Jewelry and tabletop catalog Ross-Simons has been accepting debit cards for over a year. “Whatever payment option is easiest for the consumer,” says vice president of marketing Peter Howard, “we will accept.”