Supermarket cashiers ask: “Paper or plastic?”
That could mean, “How do you want your groceries bagged?”
But in this high-tech era, the question could also mean, “Do you intend to pay with cash, check, credit card or debit card?”
The number of credit-card holders grew by about 25 million in the past decade, but may be approaching the saturation point.
That’s why credit-card companies are scrambling to find overlooked consumers, persuade new businesses to accept credit cards and create new ways to use plastic.
Debit cards, the industry’s hot new product, may be perfect for the 1990s spirit of deficit and debt reduction.
A point-of-sale debit card is like a plastic check. A customer presents the debit card to pay for a purchase and the exact amount is withdrawn from the cardholder’s checking account through an electronic network linking the store and the bank.
Debit cards began in California in 1987, at Lucky’s chain of supermarkets. Despite initial resistance from merchants, the concept is spreading rapidly.
Today, diners at Carl’s Jr., a West Coast restaurant chain, can pay for a dinner of meat loaf and mashed potatoes with debit cards.
Other retailers accepting debit cards include Jewel supermarkets in Chicago; Exxon and Mobil gas stations in Washington, D.C., Dallas and Chicago; Popeye’s restaurants in Washington, D.C.; Burger King franchises in Arizona; and McDonald’s restaurants in Alaska.
“The retailer gets the money much faster. It costs less to handle than a check, and the funds are guaranteed,” says Laurie Giesen, editor of POS News, a Chicago-based newsletter that tracks the debit-card industry.
Giesen estimates that 10 percent of supermarkets across the United States now accept point-of-sale debit cards.
Sean Kennedy, president of the Electronic Funds Transfer Association in Herndon, Va., says the appeal of debit cards to consumers is ease of use: “You don’t have to carry checks with you.”
Debit cards appeal to the millions of Americans who don’t have, don’t want or can’t qualify for traditional credit cards, Kennedy says.
Debit-card holders usually have to pay an annual fee, but they do not have to pay any interest on purchases nor do they receive monthly bills in the mail.
There are two types of debit cards for point-of-sale transactions.
One is an on-line card that triggers an immediate withdrawal of money from the cardholder’s checking account. Another is an off-line card that acts as a plastic check, taking a few days to trigger the withdrawal of money.
On-line point-of-purchase cards are typically issued by a local consortium of banks to their customers and are accepted by merchants who subscribe to the service and have the required computer equipment.
On-line cards function as super-automated teller machine cards. When they are presented at the cash register, the customer’s information is run through a point-of-sale computer terminal to immediately withdraw the funds.
Demographic trends would seem to bode well for plastic providers in the 1990s. Sixty-one percent of Americans now have at least one credit card, according to The Roper Organization. The average cardholder carries nine different cards, a Federal Reserve Board survey found.
Consumers used the cards to make 5 billion transactions in 1992, with a total value of $420 billion, Credit Card News estimates.
Credit-card ownership rises with age, from 49 percent for adults aged 18 to 29 to a peak of 66 percent for those aged 45 to 59, according to Roper.
Ownership also increases with education. Eighty-two percent of college graduates carry plastic, compared with 58 percent of high school graduates. On average, 29 percent of credit-card holders used one of their cards in the previous week, Roper says.
But the massive and well-educated Baby Boom generation is settling into middle age, which is traditionally the period of peak earning and spending power.
But the good times are not assured. After years of enthusiastic spending, Boomers are belatedly beginning to save for retirement, which may temper their use of credit cards in the 1990s.
“Unless Baby Boomers become far more frugal, most will have to accept dramatically lower standards of living in retirement than they enjoyed during their working years,” says Princeton economist B. Douglas Bernheim in a study he did for Merrill Lynch.
Surveys also show that a growing share of Americans agree with the need to cut deficit spending, both in Washington and in their own households.
Not long ago, advertisements promoted the clout and status conveyed by various credit cards. They showed confident cardholders jetting around the world and whipping out their plastic to pay for gourmet meals or fine antiques.
You can still find adds like these in glossy magazines and other upscale media. But more and more, the message of credit-card marketers is directed at the consumer’s bottom line.
And other experiments are under way to develop practical and broader applications in yet another area: prepaid cards. These are already used on rail systems in Europe, Japan, San Francisco and Washington, D.C.
A rider on Washington’s Metro subway can buy a ticket for any amount from $1 up to $20 from a vending machine.
The value of the card is encoded on a magnetized strip. Each time the commuter exits the system, the appropriate fare is deducted from the total value of the card. If the value is insufficient, the turnstile won’t turn.
And now some companies are marketing debit phone cards, which are already common in Europe and Japan. Customers buy calling time upfront, and each time the card is used, that amount of time is deducted. When the time is up, the card can be thrown away. If the card is lost or stolen, the customer is out only the amount left on the card.
The cards are not as high-tech as the ones commonly used in Europe, where the cards are inserted into the phone. With AmeriVox, for example, a card being sold by Mountain View, Calif.-based World Telecom Group Inc., a customer dials an 800 number, punches in a nine-digit personal code and then the number he wants to reach.
But the real future of plastic may be at Florida State University in Tallahassee, where students carry an experimental super-smart card.
The FSU card, issued in conjunction with a local bank, is already accepted by 200 local merchants and on campus vending machines. Eventually students will be able to use it as a combination debit card, prepaid card, student ID and pass card for libraries and dormitories.
As for cash-that folding paper stuff-the future has turned from sunny to cloudy.
“I can certainly see the day,” says Anne Moore of Atlanta-based Synergistics Research Inc., “when debit cards will be much more common than a check, or even cash, because they are easier.”
Where to turn for information
Trends in the debit-card industry are the focus of POS News, 118 S. Clinton St., Suite 700, Chicago, Ill. 60661; 312-648-0261.
The industry’s trade group is the Electronic Funds Transfer Association, 950 Herndon Parkway, Suite 390, Herndon, Va. 22070; 703-435-9800.
Estimates of credit-card ownership are produced by The Roper Organization, 205 E. 42nd St., New York, NY 10017; 212-599-0700.
