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53 Bus. Law. 1093 (1997-1998)
Can the Promise of Debit Cards Be Fulfilled

handle is hein.journals/busl53 and id is 1115 raw text is: Can the Promise of Debit Cards Be Fufilled? By David A. Balto* During the past few years, there has been dramatic growth in the use of debit cards. With this growth, a host of competition and consumer protection issues have been raised, posing important consequences for the future of the debit card and whether it can fulfill its potential to provide a safe, secure, and efficient payment system for consumers. On the com- petition side, debit cards have developed slowly in the United States, in part because of a lack of competition between debit card networks. Be- cause Visa and MasterCard are primarily credit card networks, they have been slow to embrace the opportunity to develop debit card networks. Perhaps even more importantly, debit cards pose new consumer protection risks and may result in a high rate of fraud. This Article addresses the combined competition and consumer protection challenges. BACKGROUND The three most prominent consumer payment systems in the United States for consumer-merchant transactions are cash, checks, and credit cards. Each of the systems has its strengths and weaknesses from the per- spective of banks, consumers, and merchants. To oversimplify grossly, cash cannot be used for large transactions. Checks have a significant risk of loss (for the merchant) and relatively high handling costs because of the pro- cessing fees. In addition, the merchant is not compensated until the check clears, frequently a period of several days. Credit cards have a lower risk of loss and lower handling costs than checks, but the merchant still faces costs in terms of the float. Another payment system-debit cards-was relatively uncommon in the United States until the mid-1990s. Under debit, a consumer pays for a transaction by giving the merchant a debit card, which directly and electronically debits the consumer's bank account. There are two types of debit cards: online and offline. Online debit cards, including automatic *Mr. Balto is the Acting Assistant Director of the Office of Policy and Evaluation of the Federal Trade Commission's (FTC) Bureau of Competition. The views expressed in this Article are those of Mr. Balto and are not necessarily the views of the FTC or any of its commissioners. 1093

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