The New York Times published an excellent article about debit card transaction fees. One of the themes of the article was why your bank and the card associations (Visa and MasterCard) want you to sign a receipt at the point of sale, and why merchants want you to use your PIN at the point of sale. The piece is a fascinating read, but it leaves one (big) question open: What should a prepaid debit cardholder do at the point of sale? Enter a PIN or sign the receipt? And why? We answer those questions.
The New York Times article discusses the impact these fees have on merchants, banks and Visa and MasterCard, and only touches on the impact on consumers (by noting that the fees that merchants arre charged for signature transactions are ultimately passed on to consumers in the form of higher prices).
But here’s the deal.
Most prepaid debit cardholders need every extra penny in their account… today. They care about having enough money in the account to make it until payday. They don’t care if their choice between signature or PIN might cause the price of goods to go up slightly.
Reason 1: To Save Money
Quite a number of prepaid cards have lower fees (or no fees) for signature debit transactions. For example, the RushCard Purple Diamond Visa Card has no charge for signature debit transactions, but charges $1 for every PIN debit transaction.
The READYDebit “basic” plan Visa cards charges $0.95 for each PIN transaction, but has no fee for signature transactions.
How many purchases do you make each month? Ten? Twenty? An extra dollar a transaction adds up fast.
If you can, choose signature over PIN.
Also, make sure to read your card’s terms and conditions carefully so you aren’t shocked by these fees when you get your statement.
Reason 2: To Enjoy Transaction Protections
Both Visa and MasterCard have a “zero liability” protection policy that protects their cardholders from unauthorized or fraudulent use of their cards. These policies are generally used to prevent against theft (and use) of your card, but there are situations in which the policies could be used to protect you from a merchant that charges you improperly for a transaction. For example, what if you buy a shirt at Wal-Mart, and the clerk mistakenly charges you for 3 shirts. If you use signature debit, the zero liability policies should protect you. However, if you use PIN debit, the policies may not.
Both Visa and MasterCard specifically set forth situations in which PIN transactions are NOT covered by zero liability. Here’s a quote from Visa’s zero liability terms and conditions:
Covers U.S.-issued cards only. Does not apply to ATM transactions, PIN transactions not processed by Visa, or certain commercial card transactions.
MasterCard’s “Zero Liability Protection for Lost & Stolen Cards” applies to prepaid debit card transactions (although the card may need to be registered in advance). However, MasterCard specifically states that:
Zero Liability does not apply to MasterCard cards … if a PIN for a debit transaction is used for the unauthorized purchase.
These limitations do make some sense, as the theory is that if a thief were able to get hold of your PIN number and your card that you probably did not exercise “reasonable care” in protecting your information.
But why take a chance?
If given the option, choose signature over PIN.
Reason 3: To Earn Benefits
Visa and MasterCard both give you incentives to choose signature debit instead of PIN debit.
For example, if your prepaid card is a MasterCard-branded card, you can enroll it in the MasterCard Savings Program and earn rebates and rewards for certain transactions made with your card.
However, MasterCard only provides rewards for signature purchases. PIN purchases are expressly excluded. Here’s a quote from the MasterCard Savings Program terms & Conditions:
you will receive a rebate on your applicable purchases, subject to the terms and conditions of the Registered Card Offer and provided that: (i) the purchase transaction originated in the United States or Puerto Rico; (ii) the purchase transaction is not a PIN-based transaction;
Visa excludes PIN transactions from rewards and sweepstakes participation. For example, “purchases authorized by using a PIN” are specifically excluded from eligibility for entries in Visa’s “Win a trip to the Olympic Games – For Life!” sweepstakes.
Why miss out on these benefits?
The choice is pretty clear. Save money + protect yourself + earn rewards by using signature debit. Let the merchants, banks and Visa and MasterCard fight over how the fee income is split.
When in doubt, use signature debit at the point of sale whenever you have the choice.