Convenience key to debit card use

Drug Store News, August 20, 1990 by Susan Ball

Convenience key to debit card use

NEW YORK - There's one person that everybody wants to use the debit card: The shopper in front of them at the checkout lane.

That line drew chuckles when Stuart Bloom of Carmody & Co., a market research firm, said it to a group of bankers here recently.

But his point was serious: "This is a convenient system of payment; POS debit will grow as that sinks in."

Whether called debit cards, POS debit, POS-EFT or just "POS," on-line real-time electronic funds transfer at point of sale is catching on slowly but steadily across the country. The main users so far are supermarkets - about 2.3 percent of them nationwide have debit card programs, according to Bloom - and gas stations, but debit cards are beginning to spread to drug stores, convenience stores, liquor stores, fast-food establishments and book stores. Even some U.S. Postal Service locations in Southern California are testing the system.

What makes debit cards feasible is the existence of a regional banking network that shares automated teller machines (ATMs). Over the past 10 to 15 years, bank networks have formed all over the country. Some that have debit card systems are NYCE *New York Cash Exchange); Pulse in Texas, with its Pulse Pay POS debit system; Shazam in Iowa; Interlink in California; Honor in Florida; and Magic Line, with Magic Touch, in Michigan. (Most of these networks reach beyond their state of origin; for example, NYCE has 430 member banks in 22 states and Puerto Rico.)

Debit cards are accepted in such supermarket chains as Randall's Food Markets In Texas; Publix Supermarkets in Florida; Wegmans and D'Agostino Supermarkets in New York; Hyvee, Dahl's and Econofoods in Iowa; and Lucky's in California, to name a few.

While not climbing aboard in droves, drug stores are beginning to accept debit cards in some places.

Pay Less's approximately 180 stores in California accept payment by debit card, which it calls Pay Less X-Press Check. A few small drug store operations in California also accept them, as do four Sav-on locations, according to Janet Pruitt, executive director of California's Interlink Network, which is owned by four big California banks.

Although POS debit is available in Pay Less stores in other states, the volume is in California, because of Interlink's strong card base. Interlink, which started as a strictly POS debit network in 1985, is now the largest POS network in the U.S., processing 5.9 million transactions during May alone. There are 12,000 terminals in the Interlink system, and of the 3,200 stores participating, some 200, or about 6 percent, are drug store locations.

In the Midwest, four F&M stores are "live and running" with Michigan's Magic Touch debit card system, and it's likely that all F&Ms in the state will be on line by year's end. (About 50 Meijer Thrifty Acres stores in Michigan may also be up by the end of the year, and three Jewel Foods stores in the Kalamazoo, Mich., area are scheduled to be up this summer, according to Al Ruggirello, vp of Magic Line.)

In the east, NYCE has not signed up any drug store chains yet, but a few independents in upstate New York offer debit cards.

Faster and guaranteed

Besides convenience to customers, the process is faster than payment by credit card or check: Total tender time - from when the cashier tells the customer the total bill to when the cash drawer closes - is about 20 seconds, the same as for cash payment. Payment by credit card or check takes an average 90 seconds. Actual network response time - from when the cashier hits the "enter" key on the terminal to transmitted approval - is about six seconds.

Moreover, "it's a good deal for retailers, because they're guaranteed payment," said Cindy Ballard, vp-corporate affairs of Texas' Pulse network.

Then why haven't debit cards caught on like a brushfire?

Sources cite several factors affecting growth: * The inability to deliver a common card base. * The cost of the equipment. However, that's dropping. Also, high-volume retailers, such as supermarkets, often upgrade terminals to handle debit cards. In the case of small retail operations, the retailer's bank might lease or sell the terminals to the retailer, and a third party drives the terminals. * Lackluster educational efforts by banks and retailers to gain wider consumer acceptance. * Phone line costs. Currently, there are two ways of linking one site to another to transmit data: 1) by leasing dedicated phone lines, which is expensive and therefore justifiable only if there's constant usage and high volume, and 2) dial-up, meaning a phone call for each transmission.

Pay Less rollout

Pay Less began testing POS debit about 1 1/2 years ago, and rolled it out in all its California stores last summer. While the service is available chainwide, Washington and Oregon are still working to build banking networks.

Pay Less decided to offer POS debit as a convenience to customers, because it speeds up transactions and because of the guaranteed funds aspect, said Al Cacagno of information services.