Banking Technology in the Entitlement Age
The recent announcement by Bank of America that they would start charging a $5.00 per month fee to Debit card holders has the media, and subsequently the general population, up in arms. What was once a free feature heavily promoted by the banks has suddenly become another source of income for one.
Debit cards have long made money for banks, directly and indirectly. They save money by processing transactions electronically and, just like a credit card, merchants pay transaction fees for accepting the cards. However, recently enacted legislation has severely cut into the fees which banks can charge for such transactions which threatens a major source of income. Hence, the introduction of card holder fees.
What many are overlooking is that debit card users have always been paying fees, probably far more than the fees proposed by BoA. The fees paid by retailers were merely factored into their cost of goods making the retail prices higher. It is unlikely that we will see any real drop in prices as a result of the legislation just more profits for retailers who are already struggling in this economy. Just like the fuel surcharges that were added when gas was $4.00/gallon but were never withdrawn even when fuel dropped back down below $3.00/gallon. Fees, like taxes, only seem to go up, not down.
Many of those who are most vocal in their complaints focus on the fact that advances in technology have not only made such transactions virtually instant but also fully automated. Unlike the old days of having to collect, read, encode and submit paper checks to handle non-cash money transactions, debit cards are processed electronically. Even the receipt is optional. Obviously, that means a significant savings for banks, both in time and effort. Moreover, transactions can be instantly denied if the card holder does not have sufficient funds so no dealing with bad checks and the bank can immediately take possession on the funds which it will often hold for a period of time before forwarding to the retailer allowing for some short term profit.
So fast. So simple. So safe. So why the need for any fee? Aren't we entitled to free debit card usage? Along with free checking?
No. In this entitlement age, people seem to forget that all these free services they have become accustomed to are being delivered at a price to someone. Many are often teasers meant to hook you on something that you will want to either upgrade at some point or will become unable to live without at which point the provider can then recoup their investment by charging a fee. The great technology that makes using debit cards fast, simple and safe costs significant amounts of money. Someone has to pay for all this technology.
Technology has advanced banking well beyond the abacus, paper bank log books, manual calculator, paper warrants and MICR encoded checks (technology still in use after almost 50 years). Bank processing has improved from checks taking several days to a week or more to clear to instant access to your money through debit cards and ATMs. Despite all these changes, the fact is that it still remains a service industry with high costs associated. In exchange for holding and protecting your money, granting you on-line access to check your balance and transactions and issuing bank issued plastic for ready access to the funds WITHOUT having to physically visit the bank, banks need to be able to offset the costs of providing such services. After all, if it was cheap and easy to run a bank, we'd all have our own personal bank. Right?
Object to the new debit card monthly fee? You could always write a check. However, many retailers, for a variety of reasons, do not accept checks. Another option, carry cash. No retailer rejects cash payment. Realize, though, the majority of bank fees can be waived by simply keeping a minimum balance in your account and most banks will also reward you by posting a small monthly interest amount to your account. Do they make money on you? Certainly. If not, they would fail.
If you don't like the bank fees, shop around. Plenty of competition exists between brick and mortar institutions and on-line providers vying for your account. Just remember, every feature you demand, be it debit cards, on-line access, on-line banking, or free ATMs, costs money to provide. Unless you can keep enough money in your account so that the bank can use it to make money, be prepared to pay a fee for the service. The more conveniences and services you receive, the more it costs. Don't expect something for nothing, especially in this economy.
Final thought... As distasteful as a fee for using a debit card may be, you probably pay more for an annual fee on one of your credit cards or as a result of the abnormally high interest rates charged. In exchange, credit cards typically offer some sort of rewards program and offer far better consumer protection rights than debit cards. The best option? Use one credit card for incidental charges, the things you would normally use a debit card for, and pay it off every month. This measure allows you to use the bank's money instead of the other way around, while also accumulating rewards and having the best consumer protection available.
For more information on consumer protection and rights with respect to credit cards and debit cards, visit the following Federal Trade Commission Consumer Protection Web page:
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre04.shtm
...
Debit cards have long made money for banks, directly and indirectly. They save money by processing transactions electronically and, just like a credit card, merchants pay transaction fees for accepting the cards. However, recently enacted legislation has severely cut into the fees which banks can charge for such transactions which threatens a major source of income. Hence, the introduction of card holder fees.
What many are overlooking is that debit card users have always been paying fees, probably far more than the fees proposed by BoA. The fees paid by retailers were merely factored into their cost of goods making the retail prices higher. It is unlikely that we will see any real drop in prices as a result of the legislation just more profits for retailers who are already struggling in this economy. Just like the fuel surcharges that were added when gas was $4.00/gallon but were never withdrawn even when fuel dropped back down below $3.00/gallon. Fees, like taxes, only seem to go up, not down.
Many of those who are most vocal in their complaints focus on the fact that advances in technology have not only made such transactions virtually instant but also fully automated. Unlike the old days of having to collect, read, encode and submit paper checks to handle non-cash money transactions, debit cards are processed electronically. Even the receipt is optional. Obviously, that means a significant savings for banks, both in time and effort. Moreover, transactions can be instantly denied if the card holder does not have sufficient funds so no dealing with bad checks and the bank can immediately take possession on the funds which it will often hold for a period of time before forwarding to the retailer allowing for some short term profit.
So fast. So simple. So safe. So why the need for any fee? Aren't we entitled to free debit card usage? Along with free checking?
No. In this entitlement age, people seem to forget that all these free services they have become accustomed to are being delivered at a price to someone. Many are often teasers meant to hook you on something that you will want to either upgrade at some point or will become unable to live without at which point the provider can then recoup their investment by charging a fee. The great technology that makes using debit cards fast, simple and safe costs significant amounts of money. Someone has to pay for all this technology.
Technology has advanced banking well beyond the abacus, paper bank log books, manual calculator, paper warrants and MICR encoded checks (technology still in use after almost 50 years). Bank processing has improved from checks taking several days to a week or more to clear to instant access to your money through debit cards and ATMs. Despite all these changes, the fact is that it still remains a service industry with high costs associated. In exchange for holding and protecting your money, granting you on-line access to check your balance and transactions and issuing bank issued plastic for ready access to the funds WITHOUT having to physically visit the bank, banks need to be able to offset the costs of providing such services. After all, if it was cheap and easy to run a bank, we'd all have our own personal bank. Right?
Object to the new debit card monthly fee? You could always write a check. However, many retailers, for a variety of reasons, do not accept checks. Another option, carry cash. No retailer rejects cash payment. Realize, though, the majority of bank fees can be waived by simply keeping a minimum balance in your account and most banks will also reward you by posting a small monthly interest amount to your account. Do they make money on you? Certainly. If not, they would fail.
If you don't like the bank fees, shop around. Plenty of competition exists between brick and mortar institutions and on-line providers vying for your account. Just remember, every feature you demand, be it debit cards, on-line access, on-line banking, or free ATMs, costs money to provide. Unless you can keep enough money in your account so that the bank can use it to make money, be prepared to pay a fee for the service. The more conveniences and services you receive, the more it costs. Don't expect something for nothing, especially in this economy.
Final thought... As distasteful as a fee for using a debit card may be, you probably pay more for an annual fee on one of your credit cards or as a result of the abnormally high interest rates charged. In exchange, credit cards typically offer some sort of rewards program and offer far better consumer protection rights than debit cards. The best option? Use one credit card for incidental charges, the things you would normally use a debit card for, and pay it off every month. This measure allows you to use the bank's money instead of the other way around, while also accumulating rewards and having the best consumer protection available.
For more information on consumer protection and rights with respect to credit cards and debit cards, visit the following Federal Trade Commission Consumer Protection Web page:
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre04.shtm
...
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