Saturday, 15 March 2008

The high cost of debit cards

Gillian Shaw of the Vancouver Sun does a really sloppy job on an important issue. She reprints what a few people say to her. She does almost no analysis and misses the important issues.

1. Banks in Canada are hugely profitable. That is because they can make money. Literally. And unbelievably most people pay them more money for the "services" they use. Credit Unions demonstrate every day a more efficient way of banking that is cheaper for credit union members - whether they are consumers or businesses. Charges for banking are ridiculous - and that includes card use, debit or credit. Incidentally, at one time credit card companies would not allow merchants accepting their cards to pass on transaction costs to their customers. When did that change and why?

2. Handling cash is also expensive - and risky. Lose a card and it can be cancelled. Lose your wallet and it is a news story if you get it back with the cash in it. Translink makes a nice profit on its rolled change service, which is cheaper than the banks.

3. Transactions are never free - because some cost is involved. Most businesses are sensible and try to shield the customer from seeing these costs openly. But it seems to me to be fairly obvious when so many stores will give me cash back on my debit card which is cheaper from their point of view. Especially when a white label cash dispenser in the same store will ding me for the same service. Most stores will not add extra charges if you use their wash room (though many try to restrict their use to customers only). Most restaurants do not charge for tap water. Neither service is cost free to provide, but you can really upset people if you don't.

4. Credit cards can be very expensive indeed if you do not pay off the balance every month. Store cards are the worst. Debit cards are cheaper for people who have trouble keeping track of how much they are spending - but most institutions will be cheaper if you have a pre-agreed overdraft limit than a short period of credit card debt, simply because of the way that interest is calculated.

5. Merchants can decide which cards they accept, and the credit card companies have now been stopped from adopting some of their anticompetitive practices, that restricted which cards could be offered in the same places. Small transactions are an issue - but sooner or later some bright spark is going to solve it here just like they did in Hong Kong with the oyster card.

You want my business - treat me fairly. Simple.

1 comment:

Anonymous said...

My policy is to investigate every avenue open to me to save money with the banks, and there are actually quite a few. Simple things like keeping a minimum amount in your bank account negates the monthly fees, and using a credit card and paying it off in full every month instead of using debit (which if you use every day for small purchases gets quite expensive).

And never use another bank's ATM - especially not the private provider's! It amazes me just how much some of those ATM providers charge. Highway robbery.

But here I am preaching to the choir.

I do think in general that most "western" Canadians have much worse money habits than do our asian counterparts. Most of my Chinese friends avoid interest on loans like the plague, and have a "save then spend" philosophy. I think we need to start teaching our children some basic money smarts within the family, like the Chinese do. Of course many people do, but it amazes me how many people I know who don't even blink at paying $20 a month in bank fees, or $80 in credit card interest charges.

Wake up people!