Why and how banks encourage consumers to sign for debit card transactions instead of using their PIN.
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Debit cards provide a choice for consumers who make a purchase with their plastic. Debit card users can opt to go the “debit” route and enter their personal identification number (PIN) when making a transaction. Or, they can decide to use their debit card as they would a credit card and sign for the purchase. When it comes to bank issued debit cards, there are a number of ways the bank encourages you to put down your John Hancock.
Upon first thought, there may seem to be little difference between keying in your PIN number or signing your name for a debit card purchase. But in fact, the decision could have an impact on your wallet.
With consumers increasingly choosing to make debit cards their plastic of choice (debit cards now make up over one-third of all card transactions), banks are looking for a way to increase business from this consumer choice. With experts noting that signing for debit purchases is more profitable for the banks, they are encouraging customers not to stick with the PIN.
Although banks make more money from signed debit card transactions, the extra cash is made off merchants, not consumers. Merchants pay higher fees when consumers choose to use their signature. With PINs, merchants pay credit-card companies and their bank partners a flat fee to process the debit transaction, generally between 10 cents and 50 cents. However, the merchant fees for processing a signed debit transaction are a percentage (typically 2.49 percent) of the transaction value.
Meanwhile, banks are also using incentive programs like those offered for reward credit cards to spur signature-backed debit transactions. Signing for debit card purchases can reward consumers, including those whose cards bear the imprints of big names like Visa and Citi, with all sorts of rewards. However, with a PIN, rewards take longer to earn, if they can be had at all. So even if you pay a fee for your debit card, you could be missing out on rewards if you choose to enter a PIN when making a purchase. Therefore, it’s important to read the fine print in your card agreement.
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