Paying to Use a Debit Card? I Don’t Think So.

October 19, 2011

Recently Bank of America announced that it will charge debit card holders $5 a month for the convenience of using a debit card, and you can be sure other banks will follow suit.  This stems from recent legislation that puts limits on the fees banks and other financial institutions can charge on certain types of transactions.  Regardless of the reason, it’s time for a revolution.

For thousands of years consumers have managed to engage in financial transactions without the need for such devices.  In the beginning, you simply handed your goose to the ironsmith in exchange for a set of horseshoes.  Then, we started carrying small pouches of coins with the picture of someone’s face on it.  Now, all we have to do is swipe a thin plastic card through a machine and viola, a financial transaction has occurred, but at what price?

Since the evolution of the credit card (which some date back to the 18th century), consumers have been able—and willing—to pay more for merchandise than they would otherwise be willing to pay if they only used cash.  Because of this, merchants quickly realized the advantages of accepting electronic forms of payment.  (Why else would a merchant be willing to pay for this method of payment?)  The truth is consumers are likely to spend 20 – 40% more when shopping on plastic (debit or credit), and the consequences of such behavior have become all too evident in the form of price inflation and overspending. 

Imagine what your world would look like if you only shopped with cash?  No, not a debit card, but actual cash?  Do you really think you would spend the same amount?  Consider the following: if I were to ask you to pull out your wallet and take out a debit card and a $20 bill, and I were to ask you which one you were more willing to cut with a pair of scissors, how many of you would even hesitate to say the debit card?  Why is that?  Isn’t using the debit card the same as using cash?  ABSOLUTELY NOT!  When you hand a merchant your debit card (or credit card for that matter), you know you’re going to get it back, but hand them a $50 or $100 bill and it’s gone.  In the end, the problems we are facing today can be tied to the disassociation debit and credit cards have made between us and our money.

That’s why I say it’s time to revolt against debit card (and credit card) usage, and here’s why:

#1 – If consumers don’t pay the fees incurred by financial institutions for processing electronic transactions, the merchants will.  If the merchants pay these fees, they’re going to pass along the cost to the consumer in the form of higher prices.  In the end, it’s the consumer that gets screwed.

If you’ve ever seen a retailer offering a lower price for cash purchases, you can understand why.

#2 – Paying a fee to spend money you DO have (which essentially is what a debit card is) is the equivalent of holding money hostage, and it’s downright un-American.

Your money belongs to you, and they should pay YOU for the privilege of having it.  After all, they’re just going to turn around and lend it to someone else in the form of a car loan or home mortgage, so they’re already making money off of your money, there’s no reason for them to expect more.

#3 – If consumers embrace the idea of actually spending cash for everyday items, not only are we less likely to get in trouble for overspending, but we might just realize how much we are paying for things and become more demanding of higher quality at better prices (the results of a consumer-driven economy).

This is particularly true in my household.  When my wife does her food shopping (which includes six trips to three different stores a week), it’s easy for her to lose track of how much she has spent when using a debit card, but when she takes an envelope with a few hundred dollars cash, we know that there is no way she can spend more than what we have planned to spend.

If my bank thinks they’re going to charge ME a fee for using a debit card, then I’ll tell them what they can do with it—and you should too.  In the land of the free, it’s time to make cash king once again!