Debit Cards Win Growing Acceptance

BANKS and credit card companies are trying to get consumers to pay their bills with a different kind of plastic.

It's neither a credit card nor a traditional automated teller machine (ATM) card. It's called a "debit card," and it can be used as an "electronic check" to pay bills everywhere from supermarkets to gas stations, as well as to get cash from an ATM machine. The service is not new, but it is getting heavy promotion from banks, which collect fees from merchants on each transaction. In 1991 debit-card use soared 42 percent from the previous year to 172 million transactions nationwide, according to POS News i n Chicago, a monthly newsletter following the industry.

"We think it's going to be a growth product because of the convenience it provides to customers," says a spokesman for Fleet Financial Group Inc. The New England bank introduced its MasterCard Debit card last month, and has already issued tens of thousands of cards, says Chris Fredrick, senior vice president. Profitable business for banks

Compared with personal checks, which generate no revenue from merchants, debit cards are a very profitable business for banks, says Lauri Giesen, editor of POS News.

To promote these cards, most banks won't charge customers any fees initially. Fleet offers its debit card free of charge for the first six months and after that a consumer pays $1 per month.

A debit card is a bank's ATM card that has been enhanced through the addition of a logo such as Visa or MasterCard. This card can be used with any merchant who accepts the credit card.

Visa and MasterCard are busy lining up banks to issue their debit cards. Some 225 institutions are signed up for Visa's Interlink card, which was introduced last year.

Visa has 22 million debit cards outstanding. Its "on-line" card, Interlink, requires cardholders to enter a personal identification number at the checkout counter; money is taken immediately from the customer's checking account. The Visa Debit card, an "off-line" card, uses the cardholder's signature for authorization. Payments take three days to go through.

MasterCard, has 1.6 million users of its off-line Master Debit card, and has 37 banks in issuing on-line Maestro cards, which were introduced two months ago. For on-line transactions, supermarkets pay a 10-cent fee and other merchants pay 0.45 percent of the total bill. For off-line cards, merchants pay 1 to 1.25 percent of the value of the transaction. Will it catch on with consumers?

But how widespread consumer acceptance will be remains to be seen, industry analysts say.

Some consumers are reluctant to use debit cards because they don't have a floating period before payment. When a consumer uses a debit card, the money is taken out of the account within three days - often within 24 hours. With a credit card purchase, consumers typically have 25 days to pay off.

But debit cards provide an alternative for American consumers who already carry heavy debt loads on their credit cards, says Robert McKinley, president of RAM Research Corporation, a market research firm in Frederick, Md. With a credit card and a debit card, consumers can pay later for major purchases and pay now for items such as groceries and gas, he notes.

Mr. McKinley says about 20 percent of all the consumer transactions in the US are handled by credit cards. The rest are cash and check transactions, of which debit cards account for only 3 percent. Banks want that percentage to grow, he says.

"The debit card market is going to grow very quickly as places like supermarkets begin to accept the cards," Mr. Fredrick says.

Each year American consumers spend $260 billion grocery shopping, $143 billion at gas stations, and $57 billion for convenience stores. In 1991, 17 percent of all supermarkets in the US accepted debit cards, up from 4 percent in 1989, according to Progressive Grocer, a trade publication.

Debit cards offer supermarkets faster transaction time - about 30 seconds versus 90 seconds for a check, Ms. Giesen says. This saves about 23 cents per transaction.