In addition, over the past few years, the use of paper checks has tumbled, while the use of all forms of electronic payments including automated clearing house (ACH) payments has mushroomed. The number of Automated Clearing House (ACH) Network payments reached 18.76 billion in 2009, an increase of 2.6 percent compared to a year ago, according to statistics compiled by NACHA, the electronic payments association.Overwhelmingly, consumers are preferring all forms of electronic payments for ease of use, convenience, and cost effectiveness. Whether paying bills online, getting cash back at the grocery store, or just making purchases at retailers, restaurants, and gas stations, consumers are increasingly using debit cards.
A report by Global Industry Analysts indicates that online purchases and the choice of a new generation of consumers is behind these trends. By 2012, according to the report, there will be more than 5 billion debit cards in use. The report also notes that fraud is shifting from the traditional schemes such as bad-check writing to more sophisticated methods such as financial database hacks and identity theft In contrast, POS transactions are not done in real time, and many banks were all too happy to charge overdraft fees if the consumer exceeded his or her bank account balance or credit card limit This report also states that 80 percent of consumers currently own a debit card, compared to 78 percent who own a credit card.
Cardholders have two ways to pay–they can make a PIN transaction or point of sale (POS) signature transactions. From the consumer’s perspective, there doesn’t seem to be much difference between the two payment methods. Yet, behind the scenes, how the payment is processed, and how much it costs the merchant differs. Historically, merchants pay more for the “interchange” rate for POS transactions than they do PIN transactions. That’s because POS transactions run on the credit card payment networks (Overwhelmingly Visa and Mastercard) and PIN transactions run in real-time on debit card transactions. The real-time nature of how PIN transactions are processed has meant that consumers are less likely to become overdrawn when making a purchase, because their bank account is checked upon submitting the PIN.
The Credit Card Act of 2009 provided a major overhaul of laws governing credit card companies. The new law makes it harder for people under 21 to obtain a credit card without a cosigner. It prevents banks from jacking up credit card interest payments without cause. A rcbalance s the largest recession since the Great Depression pushed unemployment to 10%, and foreclosures swept the nation, people cut back on their spending, including credit card spending. These and other factors are fueling the trend away from credit cards and toward debit cards.roughly six percent of consumers have used a prepaid card in the past months and about nine percent have used one in the past year according to “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston (January 2010).
Debit cards let you deposit your money into an account and spend it as you see fit. In contrast, you can’t deposit money on a credit card; you can only use credit that you then have to pay back. Even a “secured credit card”-for instance where you have to put $500 down as collateral to cover your charges-does not allow you to add your own money and withdraw it interest free. Rather, your deposit is only securing your line of credit and is not accessible to you until you close the credit card. Your line of credit could be increased beyond your initial collateral deposit as you develop a good payment history.You have many ways to add money to a prepaid card, such as using a money transfer agent or purchasing a Greendot MoneyPak at a broad swath of participating retailers nationwide. You can even set up a direct deposit to your debit card for all or part of your payroll or benefits payments.