Thursday, September 10, 2009

Debit card

Until recently, commercial banks were the only major financial institutions actively involved in the plastic card field. Other than banks, the other major issuers of cards were retail department stores and oil companies. This situation changed rapidly during the 1970s, however, as nonbank financial institutions (principally credit union, mutual savings banks, and savings and loan associations) successfully invaded the plastic card market using debit cards. While a credit card permits the customer to buy now and pay later, debit cards are merely a convenient way of paying now. A debit card enables its users to make deposits and withdrawals from an automated teller ("money machine") and also to pay for purchases by direct electronic transfer of funds from their own account to the merchant‘s account. Debit cards are also used for identification and check-clearing purposes and to access remote computer terminals for information or for the transfer of funds.
An important feature of debit cards is their potential for the complete elimination of checkbook float. Electronic funds-transfer systems activated with a debit card will take only seconds instead of days (as checks now do) to move money from one account to another. Overall, the outlook for debit cards is excellent. The fact that many credit-card users do not take advantage of the credit feature but merely use their card for convenience in shopping suggests that three is a market for debit-card services.
Both the credit card and the debit card offer significant opportunities to financial institutions to develop new services and open up new markets. The overall cost of consumer lending can be reduced by encouraging small borrowers to use a revolving charge-card account rather than negotiating separate loans each time funds are needed. Credit and Debit cards linked to money machines and point-of-sale terminals can provide the means for moving funds in many different directions-for purchases of goods and services, for additions to savings, and for investment. Most, if not all, consumer financial services-credit, savings, and checking-may be offered through card programs, offering the consumer greater speed, convenience, and accuracy in record keeping.

No comments: