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Paying with Plastic: Debit Cards Take Prevalence Over Cash, Checks

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RISMEDIA, July 16, 2007—(MCT)—Sam Avila and a handful of his dry cleaning stores are holdouts in an age where plastic is king and cash is a forgotten relic.

Avila, owner of the nine $1.50 Dry Cleaners in the greater McAllen area, dislikes debit and credit cards. He says it cuts into his already slim profit margins and costs consumers a few extra pennies on every dollar.

He prefers cash and checks; no extra fees or costs.

But when a competitor opened across the street from one of his locations and offered the same price for services with the debit card option, Avila knew he had to give in to the debit and credit industry.

“At certain locations where we are competing with other cleaners, we have to offer debit,” he said. “If two stores are the same price and one offers debit, people are going to go to the one where they can use their card.”

More and more Americans are turning to debit as their preferred means of cash flow, and some government agencies are following suit.

Nearly half of all Americans say they prefer debit cards to cash, according to a 2006 study by the U.S. Federal Reserve Bank. More than a quarter of people use the plastic more than seven times a week, and young people are even more likely to use debit or credit, citing ease and convenience.

And quickly debit and credit cards are replacing the check as the standard way of doing business.

In June, the Texas Workforce Commission announced they would start issuing debit cards to new claimants instead of traditional checks. Now about 105,000 unemployed individuals in the state are using unemployment cards instead of checks.

Similar programs are already in use by the Texas Attorney General’s Office for child support payments. The Texas Health and Human Services Commission uses a debit system called Lone Star for its food stamp programs.

The debit cards are safer and faster than checks, said Ann Hatchitt, a spokeswoman for the Texas Workforce Commission. The state expects to save some money on the program in the long term on postage and checks, but not a lot up front. Recipients without bank accounts will also save a few dollars a month on check-cashing fees, she said.

“It’s much faster,” Hatchitt said. “Instead of mailing the checks on Monday, for example, the money will be in their accounts that day.”

Several area businesses are going straight for debit cards instead of using an antiquated check system, said Craig Lewis, executive vice president at Texas State Bank in McAllen. Larger businesses like hospitals and school districts use Texas State Bank’s program that gives debit cards to employees that don’t direct deposit accounts.

Those employees can just go to an Texas State Bank ATM to withdraw money instead of going to a bank.

“We used to see lines out to the street on Friday afternoons,” Lewis said about the traditional payday.

Again, debit cards help companies avoid postage and check costs, as well as cuts down on manpower needed to distribute the checks.

“The popularity of ATMs and debit cards and credit cards has gone up,” Lewis said.

“Employers are looking to be more efficient and this combines those trends.”

The bank now processes about 39,200 debit card transactions, compared with 8,200 checks. Debit card usage has grown dramatically at a clip of 30 to 43% a year from 2001 to 2005. The rate has slowed down to 6% last year, but only now that so many transactions are already on debit cards.

According to Lewis, debit card popularity has also helped cut down on the growing check fraud industry. With more sophisticated computer printers and scanners, check fraud and theft is growing. But debit cards help cut down on the fraud, even though credit card fraud is still an issue.

The Texas Workforce Commission also cites check theft as a reason for their debit card programs.

“If people want they can just drive up the street, open mail boxes and look for checks,” Lewis said. “But it’s a bit more sophisticated with credit cards.”

For Avila and his dry cleaning business, the resistance to debit cards are purely financial. A Federal Reserve Bank study showed that the use of debit cards adds about 1.8% to the total cost of transactions. While that doesn’t directly affect the consumer on every receipt, it creates higher prices for businesses, which in turn means higher prices.

“We’re $1.50 cleaners. If we started accepting cards, we might have to change our name to $1.75 or $1.80 cleaners,” Avila said.

Copyright © 2007, The Monitor, McAllen, Texas
Distributed by McClatchy-Tribune Information Services.

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