Is Off-Line Debit about to Derail; Some See the Sudden Acceleration in Check Card Use as a Boon, Others as Fraud Waiting to Happen (1997)

I've been in financial services for 25 says Robert Baker, senior vice-president of Visa USA, there has not been a product that has grown this rapidly in such a short period. Baker is talking about off-line debit cards, also known as check cards, ever since Visa renamed its original card, launched in 1979, as the Visa check card, in 1993. That reframing of the product in consumers' minds is one of the factors that has brought to life a long dormant product. Between 1993 and 1996, issuance of the Visa check card roughly tripled to 46.2 million cards, while issuance of MasterCard's equivalent, MasterMoney, increased fivefold to 15.6 million cards. And the cards are active, tool generating $54.2 billion in sales for Visa issuers and $8.7 billion in sales for MasterCard issuers in 1996. Last year consumers charged something to a Visa check card every 31 seconds -- a 40% increase over 1995. Off-line debit card transactions (where the ATM card is used without the user entering his personal identification number) have just outstripped on-line debit card transactions at the point-of-sale (POS), according to Deluxe Electronic Processing Systems, a Milwaukee-based transaction processor. Debbie Fornoff, product manager, says that 60% to 65% of Deluxe's debit transactions are now off-line. One reason why off-line transactions are more prevalent is that they can be conducted in more places. off-line transaction uses the same card-readers and networks as a credit-card meaning off-line debit cards are accepted wherever credit cards are accepted. For on-line debit card transactions, however, the merchant needs a different card terminal and must make special arrangements with his bank and a debit network. Off-line cards have thrived since Visa and MasterCard began promoting them in recent years, having formerly let them languish. Card users reportedly love them, once they try them, and banks get to make money off the checking account, normally a loss leader. Off-line debit is always lucrative for banks in a way that on-line is not. Occasionally, banks actually pay for on-line transactions, while they get paid for off-line. Mostly, it's a question of degree, explains Steven Cole, president and chief executive of Cash Station, a Chicago-based POS and ATM network provider. On a $100 an issuer using the Cash Station network pays 4 cents for an on-line transaction and gets $1 for an off-line transaction, he says. Compared with credit card convenience users (no roll-over of balances), the check card is a better deal for the bank because it gets paid within three days rather than 30. Consumers reportedly find check cards more convenient and faster than writing checks, and they appreciate that check-card charges, like credit-card charges, appear on their bank statements in a way that shows them where they spent their money. Check cards are also, directionally, very correct, in that they help migrate consumers from checks to electronic forms of payment, says Lisa Wilhelm, senior vice-president of Fargo Bank, San Francisco. Fraud fears begin to mount Wells debated for years over whether we wanted to enter the off-line debit arena, in part because of fraud concerns, says Wilhelm, who is in charge of risk management for the bank. Wells' entry came last August when it inherited a portfolio of 2.5 million check cards as part of its acquisition of First Interstate Bank. Outside of former First Interstate customers, does not offer check cards yet. It plans to make the product universally available by year end -- provided it is satisfied the necessary precautions are in place. Wilhelm is one of those who believe there is an emerging fraud risk with check cards as the product becomes widely used. An off-line debit card has all the risks associated with a credit card as well a three-day delay between authorization and posting, she says. …