How Visa, Using Card Fees, Dominates a Market

From the NY Times:

Every day, millions of Americans stand at store checkout counters and make a seemingly random decision: after swiping their debit card, they choose whether to punch in a code, or to sign their name.

It is a pointless distinction to most consumers, since the price is the same either way. But behind the scenes, billions of dollars are at stake.

When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.

The difference is so large that Costco will not allow you to sign for your debit purchase in its checkout lines. Wal-Mart and Home Depot steer customers to use a PIN, the debit card norm outside the United States.


  1. chip&pin’s been the ONLY way to do it in the UK since feb ’06, it was sold to us as ‘more secure’, which really just means ‘we can put all the blame on you when someone takes your money’.

  2. Blurg.

    …OK, first thing that the Times (or you) got wrong. Visa charges the same fee regardless of whether it’s debit or credit. They are just the network. A transaction is a transaction to them. It’s the consumers’ credit card bank which charges more for credit card transactions then debit transactions. And why is that? Because they are evil? No, it’s because when I, as a consumer, do a credit card transaction, the bank doesn’t see any money from me for 4+ weeks until I pay my credit card bill, whereas a debit transaction is immediate. So the bank has to fund the float to the merchant, and therefore they assume risk and discount the money the pay the merchant accordingly.

    …And because of that float, there is no reason why any consumer would choose a debit card transaction to a debit card transaction. I get the float of my money for 4 weeks and I also get points from most every credit card company. As long as you don’t do something stupid (like most Americans) and live outside your means and can’t pay your bills, then you should charge everything possible on credit cards and then pay the balance in full every month.

    1. wow, cool, first celebrity commenter on here?

      Unfortunately the article wasn’t talking about debit vs credit cards, it was talking about signing for a purchase vs using chip&pin.

  3. Up here in the big white north, debit cards (i.e. Interac) have always been magstripe+PIN. They’re transitioning to chip+PIN in order to reduce the risk of cloning. Merchants are assessed a fixed fee per transaction (I believe ours is $0.50) As such it’s no skin off our back to provide a “cash back” service if a customer is already making a purchase.

    Credit cards are a different beast. The merchant fee is a percentage of the total transaction, and that percentage varies depending whether the card was typed, magstripe+signed, or chip+PIN. Obviously a typed transaction is the riskiest (from a card issuer’s point of view) since a physical card may not even be present. Chip+PIN is the “safest” and has the best rate. Straight-up cash back is a bad idea since we end up paying them a percentage of the money we’re giving back to you.

    Of course, the move to chip+PIN has blurred the lines between credit at debit (at least in Canada where up until recently PIN = debit) As such the credit card companies appear to be in the midst of introducing their own “debit” cards, albeit with the same percentage-based merchant fees. More money for them! Woot!

  4. Ditto, Rampage_Rick. And the fact that you didn’t put a T on the end of Interac makes you my official hero for the day (that drives me CRAZY). Just imagine you can see me clapping!

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