TYPES OF BANK ACCOUNTS

Savings Account and Current Account

Content:

1. Definition 

2. Comparison Chart

3. Key Differences

4. Similarities

5. Conclusion

1. Definition 

Saving Account

Savings Account is the most common type of deposit account. An account held with a commercial bank, for encouraging savings and investments is known as a Saving Bank Account. A savings account provides an array of facilities like ATM cum Debit Card facility with different variants, calculation of interest on a daily basis, internet banking, mobile banking, online money transfer, etc.

The account can be opened by any Individual, Agencies or institutions (if they are registered under the Societies Registration Act, 1860). A Pvt. Ltd and a Ltd. company are not allowed to open a savings account.

Current Account

A deposit account maintained with any commercial bank, for supporting frequent money transactions is known as Current Account. A plethora of facilities is provided to you, when you opt for a current account like payment on standing instructions, transfers, overdraft facility, direct debits, no limit on the number of withdrawals/deposits, Internet Banking, etc.

This type of account fulfills the very need of an organization that requires frequent money transfers in its day-to-day activity.

An Individual could open this type of account, Hindu Undivided Family (HUF), Firm, Company, etc. Account maintenance charges are applicable as per the bank rules. The current account is also known as checking account or a transactional account.

2. Comparison Chart

3. Key Differences

1. An account that stimulates savings and investments is known as Saving account. An account that advocates highly liquid transactions is known as a current account.

2. Saving Account is ideal for salaried people because of regular monthly savings. Conversely, Current Account is perfect for businesspeople because of the day to day money transactions.

3. There is a restriction on the number of monthly transactions, in the case of a savings account. There is no such cap for a Current Account.

4. The primary difference between them is current account is non-interest bearing whereas savings account offers interest on a daily basis.

4. Similarities

1. Type of Demand Deposit
2. Internet Banking Facility
3. Multicity Cheque Facility
4. Nomination facility

5. Conclusion

We have discussed in detail about both the entities, and it is quite clear that the two are important in place. If we talk about the major difference between them, it is the number of transactions – withdrawal or deposit.

HOW DOES ATMs WORK?

How Does ATMs Work?

When you insert your debit or credit card into the ATM, it reads the information encoded on the magnetic strip on the back of the card. That black strip is encoded with your unique card number, expiration date and personal identification number (PIN). Your card is basically a hard copy of the access information to your account.

The ATM then asks for your PIN to verify your authorization to access account funds and information.
When you have verified your PIN, the ATM communicates with your bank to access your account information. It can then display your account balance or distribute cash to you from your bank account balance.


The ATM is connected to a collection of massive interbank networks. The two largest interbank networks are Cirrus and Pulse, although there are many others. An ATM can only provide access to bank accounts that are enrolled in the interbank networks it has access to; these are usually listed on the side of the machine. These interbank networks use phone lines, internet access and central computers to distribute information among one another and facilitate financial transactions.

If you are requesting an account balance, the ATM asks your bank through the interbank network what your account contains. It is then able to display checking and savings account balances to you. Some ATM machines are also able to display the available line of credit on a credit card.

If you are requesting cash, the ATM goes through the same initial step of communicating with the interbank networks to get your available balance, but instead of displaying a balance it dispenses cash from cash cartridges within its internal vault. Bills of various values are stored within different cash cartridges to allow the machine to accurately distribute the requested amount of cash. The ATM machine then releases the cash and sends a message to your bank to withdraw the cash amount, and any fees, from your account.

ATM SAFETY REMINDERS

Privacy and security

The convenience of using a worldwide ATM network comes with some responsibilities. Here are some points to remember when using any Automated Teller Machine.

(1) Always be alert – Pay attention to the people around you and to the location of the ATM.
If you see anyone suspicious or do not feel comfortable at the ATM, go to another location.

All ATMs should be well lit, be in high traffic areas and provide an easy exit. When possible, have someone you trust or a security person accompany you an ATM you feel is not in a secured environment.


(2) Be prepared to leave – If you notice anyone or anything that makes you feel uncomfortable at an ATM, end your transaction, secure your cash, card and receipt, and leave the area immediately. Do not stay at an ATM any longer than necessary. Report anything suspicious to a security person in the area.

(3) Have your information ready – Have your card and any deposit slips ready before arriving at the ATM to minimize the time you will spend there. At a Drive-Up ATM, remain in car with the motor running and make sure your doors are locked and windows are closed. When you are ready to proceed with your transaction, open only the window needed to access the ATM.

(4) Safeguard your card and PIN – Remember that an ATM card, with the proper indication number, allows an individual to access the money in your account. Make sure your ATM card is stored in a secured area. Never keep your PIN and your card in the same place. Try to refrain from copying your PIN. If you ever forget your PIN, just contact us for a reminder.

(5) ATM Receipts – Never discard your ATM receipts near an ATM. Always secure your receipt when leaving the ATM and shred it as your means of disposal.

(6) Walk-up ATM precautions – When using a walk-up ATM, please be sure to position yourself so no one can observe you entering your PIN. Maintain a polite distance while waiting to use an ATM and make sure others do so too. If someone is crowding you at an ATM, leave immediately and come back later.

(7) If your card is lost – If your card is ever lost or stolen, please report it to us as soon as you notice it missing. By reporting the missing card immediately, you will minimize your loss and liability.


(8) Check your statements – Each month, check your statement for debits you did not authorize. If you see any unauthorized debits, please contact us immediately.

HOW TO WITHDRAW MONEY FROM AN ATM

Starting the Process

(1) Insert your ATM card

(2) Enter your PIN

(3) Select “Withdrawal”

(4) Several amounts will be displayed on the screen or enter the amount you want by pressing the numbered buttons.


(5) Choose the account you want to withdraw from if asked.

(6) Take your cash

(7) Take your card

(8) Take your withdrawal slip

ADVANTAGES & DISADVANTAGES OF ATM MACHINES & BANK/DEBIT CARDS

Debit Card

Advantages

(1) You don’t have to carry cash around with you.

(2) If your card is stolen, the thief cannot get your money without your PIN.

(3) You can use it to pay at some retail shops.

(4) Keeps your money safe.

Disadvantages

(1) If you forget your PIN number you cannot use the card.

(2) The system can be off-line.

(3) Training is needed.

(4) Difficult to maintain spending discipline.

ATM or Bank Card

Advantages

(1) You can withdraw cash at any time, day or night. The banks don’t need to be open.

(2) ATMs offer the convenience of multiple locations. You can withdraw cash at any bank that is part of the system to which your ATM card is linked.

(3) Your ATM card is protected by a PIN, keeping your money safe.

(4) You don’t need to fill out withdrawal and deposit slips as is required at the bank.

(5) ATMs are faster than going to the bank—no long lines.

(6) You can withdraw cash at ATMs in foreign countries.

Disadvantages

(1) ATM may be off-line (system down).

(2) You may forget your PIN number.

(3) Risk of robbery when you leave the ATM.

(4) The ATM can break down or run out of cash.

(5) Fees charged to use ATMs of other banks can become expensive.

DEBIT CARD VS CREDIT CARD

Debit Card vs Credit Card

Debit and credit cards offer more than a way to access money without having to carry around cash or a bulky checkbook.

Debit cards are like digitized versions of checkbooks;
they are linked to your bank account (usually a checking account),
 and money is debited (withdrawn) from the account as soon as the transaction occurs.


Credit cards are different; they offer a line of credit (i.e., a loan) that is interest-free if the monthly credit card bill is paid on time. Instead of being connected to a personal bank account, a credit card is connected to the bank or financial institution that issued the card. So when you use a credit card, the issuer pays the merchant and you go into debt to the card issuer.

Most debit cards are free with a checking account at a bank or credit union. They can also be used to conveniently withdraw cash from ATMs. Credit cards have the advantage of rewards programs but such cards often require an annual fee to use. Financial responsibility is a big factor in credit card use; it is easy to overspend and then get buried in overwhelming credit card debt at a very high interest rates.

This comparison provides a detailed overview of what debit and credit cards are, their types, associated fees, and pros and cons.

CREDIT CARDS

Credit Cards

A credit card is a thin plastic card that can be used to buy items. A credit card might be used to buy food or restaurant meals. A credit card allows you to pay later for the items you bought. This is called charging. It means that you have paid for the items with your credit card.
You promise to pay when you sign the credit card receipt in the store. Credit cards can be issued from a store, a bank or a company. You will be billed 
monthly for the items you have charged. You can pay the entire amount owed.


Or, you can pay a part of the bill each month. Your monthly bill will tell you the minimum payment you must pay each month. Minimum payment is the smallest amount you can pay each month. You will be charged interest on the total amount you owe. Interest is the amount of money credit card companies charge for using a credit card. Interest is figured in percentages. If you pay only the minimum payment, the amount you owe will continue to grow. If you do not pay your bill on time you can be charged a late fee. If you pay late, you will pay more. If your card charges high interest, you will end up paying much more than the price of the item. Each credit card has a maximum amount you are allowed to charge. The maximum amount is called the credit limit.



A credit card, such as VISA or MasterCard, allows you to pay for sales or services by borrowing against your line of credit with the credit card company and to make monthly payments on the outstanding balance. A charge card, such as American Express requires payment in full each month of the outstanding balance charged to the account. 

What are the advantages of using a credit card?

1 They allow you to make purchases on credit without carrying around a lot of cash. 

2 They allow accurate record-keeping by consolidating purchases into a single statement. 

3 They allow convenient ordering by mail or phone. 4 They allow you to pay for large purchases in small, monthly installments. 

4 Under certain circumstances, they allow you to withhold payment for merchandise which proves defective. 

What are the disadvantages?

1 The ease of using credit cards, combined with impulsive buying, may result in over-spending. 

2 High interest rates, as well as other costs make credit cards a relatively expensive method of obtaining credit. 

3 Lost or stolen cards may result in some expense ($50.00) and inconvenience. 4 The use of multi-credit cards can get you even further into debt. 

4 Fraudulent or unauthorized charges may take months to dispute, investigate, and resolve. 

How do I get a credit card?

You must complete an application. A credit card cannot be issued unless requested. Issuers often acquire names of consumers with good credit ratings from a credit reporting agency and send the consumers "preapproved" applications. Card issuers are permitted to mail you an application or a solicitation for a credit card or to ask you by phone whether you want to receive a card and to send you a card if you say yes. An issuer will consider your employment, current assets, current debts, and credit history when you apply for a credit or charge card. If you have had a poor credit history, some companies will issue you a "Secured" credit card. The issuer requires you deposit money in an account and allows you to make credit purchases up to the amount on deposit. Consumers who wish to use such plans to rebuild their credit record should make certain that the deposits are held in a protected escrow account.

Can a merchant charge me more if I use a credit or charge card? 

YES, but if a merchant charges you more for using a credit or charge card, that fact and the additional amount must be disclosed to you before the sale is made. A merchant can also offer a discount to customers who pay cash. 

What should I do if my credit cards are lost or stolen? 

Phone the credit card company immediately, and report that your card is lost or stolen. Your monthly billing statement will list the phone number for reporting lost cards. Be sure to get the name of the person you talked to. The issuer will cancel your card so no unauthorized charges can be made on it. To create a record for the company and for your own files, write to the company after you have phoned. Include your name, address, account number, the date you believe the card was lost or stolen, and the name of the person you spoke to when you called the company. You will not be liable if you notify your issuer that your cards were lost or stolen before unauthorized charges are made. If your cards are used before you report them missing, the most you can be liable for is $50 per account. 

DEBIT CARDS

Debit Cards

Like the ATM side of the industry, the debit card side also has seen important changes, especially in transaction volume and industry structure. After a long period in which debit transactions grew slowly, debit transaction volume began to grow very rapidly in the mid-1990s. Paralleling developments in the ATM industry, the number of online debit networks has declined and industry concentration has increased.
Perhaps the most dramatic development in the industry has been the race between online and offline debit.
Important underlying elements in this competition are the fee structures associated with debit card payments and rules that compel merchants to accept offline debit cards. This chapter reviews these changes. The chapter also reviews authorization, fee, and settlement arrangements for debit transactions. In addition, emerging products that use debit cards for making payments are surveyed.

 
Although debit cards were in use during the 1980s, transaction volume was negligible (Chart 10). In the early 1990s, growth was sufficient to make debit card volume more noticeable, but by 1995 it still represented only 2 percent of retail noncash payments. Strong growth in more recent years, however, pushed the percentage to 11.6 percent in 2000. As seen in Chart 10, online and offline debit transactions showed similar growth patterns from 1990 to 1995, and by 1995 each had roughly the same number of transactions. However, after 1995, the growth of offline transactions outpaced online, so that by 2000 the number of offline transactions was 63 percent higher than online transactions. As a consequence, online debit’s share of total debit transactions has fallen (Chart 11). Online debit represented about 60 percent of debit transactions in the early 1990s, but in the last few years its share has been closer to 40 percent. Online debit’s share has increased the last couple of years as volume growth has accelerated, but it is too soon to tell whether this trend will persist.

He number of cards in circulation that have a debit function (either online or offline) has also grown, rising from 130 million in 1985 to 287 million in 2002 (Chart 12). However, until well into the 1990s, few consumers were using the debit function of their cards: There were less than 10 annual debit transactions per card in circulation until 1996 (Chart 12). Since then, annual debit transactions per card have risen to nearly 50. It is clear that the late 1990s witnessed a major change in how consumers use their debit cards. Debit cards have been used more extensively in recent years for a number of possible reasons. It is relatively easy to add a debit function to an ATM card, and because the base of ATM cardholders was well-established in the 1980s, it was not difficult for banks to establish a similar base of debit cardholders. 

Aggressive marketing on the part of banks helped familiarize debit cardholders with the instrument, as did the emergence of Visa and MasterCard’s offline debit products, which opened up their credit card infrastructures to debit cardholders.71 In addition, the number of online debit card readers grew sharply—from 40,000 in 1988 to 3.5 million in 2002—yielding an almost 35 percent annual growth rate . Merchants have had at least three clear incentives to install online debit card readers. First, debit cards offer consumers a payment choice that many of them now prefer. Second, processing an online debit transaction is less costly to merchants than an offline debit card, credit card, or check transaction.72 And third, the risk of fraud is lower with online debit than other methods of payment.

BRIEF HISTORY OF THE INDUSTRY

History

The late 1960s marked the beginning of modern ATM and POS systems, although the concepts of ATMs and debit cards existed prior to this (see timeline page 13). It might be argued that the first ATMs were cash-dispensing machines.
England’s Barclays Bank, for example, installed the first cash dispenser in 1967.
But it did not use magnetic-stripe cards; customers were issued paper vouchers that were fed into the machine, which retained the voucher and dispensed a single £10 note.21 Don Wetzel has been credited with developing the first modern ATM. The idea came to him in 1968 while waiting in line at a Dallas bank, after which he proposed a project to develop an ATM to his employer. 

A major part of the development process involved adding a magnetic stripe to a plastic card and developing standards to encode and encrypt information on the stripe. A working version of the Docutel ATM was sold to New York’s Chemical Bank, which installed it in 1969 at its Rockville Center (Long Island, N.Y.) office. Although the Docutel ATM did use the modern magnetic stripe access card, the technology remained primitive compared with today’s. 

The Docutel ATM only dispensed cash and was an offline machine. To enable payment processing, the machine printed a transaction record that was MICR encoded.23 By the early 1970s, ATM technology advanced to the system we know today. ATMs were first accessed primarily with credit cards, but in 1972, City National Bank of Cleveland successfully introduced a card with an ATM but not a credit function.24 ATMs were developed that could take deposits, transfer money from checking to savings or savings to checking, provide cash advances from a credit card, and take payments. 

ATMs also were connected to computers, allowing real-time access to information about cardholder account balances and activity. By connecting a string of ATMs to a centralized computer, banks established ATM networks. Although many ATM networks were proprietary (single bank) networks, a major development was the emergence of shared networks.



At first, ATMs were located on the premises of bank offices, but off-premise ATMs soon followed. Grocery stores and convenience stores quickly recognized the benefits of installing ATMs on their premises. By providing convenient access to cash, ATMs increased customer traffic as well as the amount of purchases per customer. Dahl’s Foods of Iowa first installed ATMs in its grocery stores in 1975.27 In the early 1980s, ATM installation at grocery stores and at convenience stores became widespread, which provided further stimulus to development of shared networks. 

Grocery stores also led in installing POS debit systems, starting with the Massachusetts grocery chains of Angelo’s and Starmarket in 1976.28 By the early 1980s, serious testing of POS debit began at many of the large gas station chains. However, throughout the 1980s and into the 1990s, the volume of POS debit transactions remained modest, mired by conflicts between merchants and banks over payment of transaction fees and the cost of POS terminals, and by the existence of multiple technical standards.29.

 The 1980s marked several important developments for EFT networks. In contrast to POS debit, the ATM system was flourishing. In 1982, Visa acquired ownership positions in the regional network Plus and began to build a national EFT network.30 Perhaps more important, in 1985 the U.S. Supreme Court held that ATMs did not represent bank branches. Until that time there had been considerable legal uncertainty about the legal status of ATMs. If ATMs were considered branches, the limitations on interstate branching would affect their placement and, in turn, might put any EFT network that operated across state lines in legal jeopardy. 

The decision by the U.S. Supreme Court encouraged interstate EFT networks. By removing a potential barrier to forming networks across state lines, it also was a factor in beginning a trend toward consolidation of shared networks.31 By the early 1990s, national EFT networks had extended their geographic reach from coast to coast, in part due to the 1990 “duality” agreement between Cirrus and Plus, whereby ATM owners belonging to one of the two networks could service customers of the other without incurring additional membership fees.32 Establishment of true national networks, growth of regional networks, reciprocity agreements between networks, and cards tied to multiple networks assured virtual universal access to ATM services.

 In the mid-1990s, most of EFT development was in the debit arena. The impasse between merchants and banks finally broke down as merchants sought to reap the benefits of 14 A Guide to the ATM and Debit Card Industry online debit and banks pushed for more efficient payments systems. Debit terminal installation accelerated and the number of online and offline debit transactions grew rapidly. Perhaps following the trend toward consolidation of ATM networks, POS networks started to consolidate. 


An important development was the change in the ownership structure of EFT networks. Until recently, most EFT networks were joint ventures owned by bank members of the network. In 1999, a milestone was reached when Concord EFS, a publicly traded payments processor, acquired the MAC network, at the time the third-ranking network in terms of transaction volume.


 In that same year, the first- and second-ranked networks, Star and Honor EFT, merged under the Star brand name. Concord EFS then made more news in 2001 by acquiring the Star EFT network, which raised its branded ATM count from 52,500 to 180,000.33 Concord EFS subsequently combined all of its acquisitions under the Star EFT brand, which today is the largest regional EFT network in the United States. 

In general, there has been a recent trend toward nonbank ownership of EFT networks, of which Concord EFS is the most visible example. This history of the ATM and debit card industry is brief but gives a flavor of developments that led to the current structure of the industry. The next two chapters look more closely at the industry today by reviewing trends in transactions, infrastructure, and consolidation, as well as providing a more complete description of transaction processes, fees, and settlement. 

OVERVIEW OF THE ATM & DEBIT CARD INDUSTRY

Industry infrastructure

It is useful to distinguish between the frontline participants or “users” in an ATM transaction or a debit card transaction and the components of the underlying infrastructure.

In an ATM transaction, users are the consumer, the card-issuing bank, and the ATM owner.
In a debit card transaction, users are the consumer, the card-issuing bank, the merchant, and the merchant’s bank. This section describes the infrastructure components of ATM and debit card transactions.
This infrastructure provides many services that are typically unseen or unnoticed by consumers and merchants and ensures that a transaction is appropriately authorized and processed. The infrastructure of the ATM and debit card industry comprises three main components: EFT networks, offline debit card networks, and third-party service providers. 

EFT Networks

EFT networks are the telecommunications and payments infrastructure linking consumers, ATMs, merchants, and banks. The physical components consist of ATMs, POS terminals, telecommunication connections, apparatus that route transaction information to appropriate parties, and computers that store deposit and transaction information. Two characteristics of an EFT network distinguish it from other payments systems that may use similar physical components. First, transactions are PIN-based. Second, consumer accounts are immediately debited (funds are immediately transferred from demand deposit accounts).9 There are two types of EFT transactions. The first are ATM transactions. The second are online debit transactions at POS terminals. 

EFT networks can be used for either ATM transactions or online POS debit card payments or both. In practice, most EFT networks 6 A Guide to the ATM and Debit Card Industry process ATM transactions, and a subset of these also processes POS transactions. A few EFT networks have been devoted solely to POS transactions. EFT networks are typically separated into two types. Regional EFT networks serve specified regions of the United States. 

There are three large regional networks: NYCE, Star, and Pulse. The NYCE network serves primarily the Northeast and Midwest, Star serves the West and the midsouth Atlantic regions, and Pulse serves the Central and Southern regions. Today it is something of a misnomer to call these large networks regional because they have grown to the point of near-national coverage. Examples of smaller regional networks include Shazam, located primarily in the Midwest, and Presto, serving the Southeast. National networks are fewer in number than regional network but are distinguished by their national territory. 

National territory does not necessarily translate into large size. The Armed Forces Financial Network is comparable in size to some of the larger regional networks, but its mission of serving the armed forces community leads it to a national geographic territory. Visa and MasterCard operate EFT networks that are truly national in size and territory. Each uses its own physical infrastructure to run ATM and POS transactions, and for marketing purposes their ATM and POS networks carry different names. Visa’s Plus and MasterCard’s Cirrus are ATM networks, while Visa’s Interlink and MasterCard’s Maestro are POS networks. 

Another important distinction for national networks is that they may serve as a bridge between regional networks. If a transaction conducted on a regional network is initiated using a card from another regional network, a national network may link the two regional networks so that the transaction information may be routed from one regional network to the other. In a sense, national networks serve as networks of networks.10 There are many types of ownership and membership structures among EFT networks. 


A single bank may own a shared network, but ownership by multiple banks is more common, a legacy of the fact that many of the first shared networks were typically joint ventures among banks. Some of these joint ventures included many banks, while others had a few. Nonbank ownership of networks ranges from complete ownership of the network (as with Concord EFS’s Star network) or as a joint venture with banks (such as First Data and NYCE). Membership in an EFT network is typically limited to financial institutions (banks, savings institutions, and credit unions) and can be, but is not necessarily, tied to ownership.

RECENT CHANGES IN THE ATM & DEBIT CARD INDUSTRY

Recent Changes

The payments system is going through a period of rapid change. Paper checks are increasingly giving way to electronic forms of payment, which themselves are being transformed as new products, new players, and new industry structures arise.



Some of the most dramatic changes are being seen in the automated teller machine (ATM) and debit card industry.

Installation of ATMs has been particularly rapid in recent years. ATM growth was 9.3 percent per year from 1983 to 1995 but accelerated to an annual pace of 15.5 percent from 1996 to 2002. Much of the acceleration is due to placing ATMs in locations other than bank offices. 


These off-premise ATMs accounted for only 26 percent of total U.S. ATMs in 1994, but now account for 60 percent. On the debit card side of the industry, growth has been extremely rapid in point-of-sale (POS) debit card transactions. With an annual growth rate of 32 percent from 1995 to 2002, POS debit is the fastest growing type of payment in the United States. Today it accounts for nearly 12 percent of all retail noncash payments, a fivefold increase in just five years.1 Growth has been sharp in both online (PIN-based) and offline (signaturebased) debit. From 1995 to 2002, annual growth of online debit was 29 percent, while offline debit grew at 36 percent. The ATM/debit card infrastructure also has undergone significant change, including consolidation, nonbank ownership, and increased transaction processing located at nonbank (third-party) processors. 


Consolidation of ATM and debit card networks began in the mid-1980s and continues today. One result is that in 2002 the top three regional networks (Star, NYCE, and Pulse) had a 70 percent market share in switch volume, while the top three networks in 1995 had a market share of just 39 percent.2 The recently proposed merger of First Data Corporation and Concord EFS, and its potential for combining their network subsidiaries NYCE and Star, would represent a further step toward consolidation. Along with consolidation has come a significant change in the ownership structure of networks. In 1985, banks or bank associations owned all of the top 10 regional networks, while in 2002 nonbank organizations owned five of the top 1 10.3 Acquisition of networks by nonbank companies that provide payment processing services, such as Concord EFS and First Data Corporation, reflects the growing importance of third-party processors in network ownership, driven by the desire of these organizations to expand the scope of their operations.

 Further, there has been horizontal integration among third-party payments providers, as organizations such as Concord EFS and First Data acquire smaller payments processors and organizations such as E*Trade and eFunds expand their ownership of ATMs or the ATMs they service through merger and acquisition. The proposed First Data Corporation/Concord EFS combination underscores the quest for scale and scope among payments processors. A number of changes also surround pricing structures and strategies. More than 88 percent of ATMs add surcharges to users whose access cards are not associated with that ATM’s owner, a practice virtually unheard of 10 years ago.


 Despite their prevalence, some ATM users continue to object to surcharges and a few jurisdictions have tried to prohibit them.4 Also controversial is the recent increase in the use of online-debit fees (PIN fees) by some financial institutions to redirect their cardholders from online to offline debit. Indeed, the differential pricing of transactions fees for offline and online debit was a key issue behind the conflict between merchants and card-issuing banks that was epitomized by the Wal-Mart “honor-all-cards” lawsuit. A settlement between the parties of the lawsuit, reached in April 2003, will likely have wide-ranging impacts on the industry.5 Another pricing issue has arisen due to volume discounts introduced by some networks, a practice that might be disadvantageous to smaller users. 

Finally, changes have gone beyond the traditional ways of using ATM and POS debit. There has been substantial innovative activity generating new products and services that use the ATM/debit card infrastructure. Applications are being developed that allow debit cards to be used to make payments on the Internet and to convert paper checks into electronic payments at the point of sale. Another initiative would use ATM and debit card networks to enable person-to-person (P2P) payments on the Internet. 

Issues and implications

Associated with these changes are numerous economic and public policy issues. These issues include market concentration, vertical integration and economies of scope, pricing, access, and risk. Market concentration. Consolidation has occurred at many stages of processing ATM and debit transactions. To some extent, this reflects advantages of size brought on by network effects and economies of scale. 

The results could be beneficial because the value of payments networks to consumers could increase and prices could be reduced. However, there is also a risk that increased size of providers could result in excessive market power for some firms in the industry, which could cause prices to rise. A number of issues deserve attention. For example, could further consolidation cause long-term harm by reducing innovation? Is the tension between a desire for efficiency and a desire for competition a cause for concern in the ATM and debit card industry? 2 A Guide to the ATM and Debit Card Industry Vertical integration and economies of scope. Some recent developments in the ATM and debit card industry involve expanding the scope of services offered, such as payments processors acquiring networks and networks providing additional payment services. 

This expansion represents a search for the appropriate scope of operations in payments processing. In addition, it has brought nonbank ownership to significant parts of the industry. Several important questions arise. What are the implications of these combinations? Will they be successful in realizing expected advantages? With banks decreasingly represented in the industry, should there be concern regarding who is responsible for ensuring that payments are processed efficiently and safely?  

WHAT IS AN ATM CARD?

ATM Cards

An Automatic Teller Machine card or ATM card looks like a credit card. But an ATM card is different. It is only used to get cash. An ATM card has your name  and your bank’s name on it. It may have your account number on it. It can only be used at an ATM machine. An ATM card can not be used to buy items in a store.

The ATM card will have a PIN number that you will need to remember. A PIN number is a secret number needed to use your account.
You will put the card into an ATM machine.
Then you will enter your PIN. Next you will enter the amount of money you would like to take out of the bank. Many ATMs charge a fee to use them. Record how much money you take out of your account. Write the amount of money you took out in your check register

One of the most rapidly changing parts of the payments system is the ATM and debit card industry. Recent developments include the sharp growth in point-of-sale debit card transactions, the intense competition between online and offline debit, and new pricing structures and strategies. There also has been a heavy consolidation of regional EFT networks and third-party service providers, and a growing importance in the nonbank ownership of networks.

The Wal-Mart–Visa/MasterCard “honor-all-cards” settlement and the proposed First Data–Concord EFS merger are just two examples of the dynamic forces at work in this industry. Associated with the numerous changes in the industry are some key economic and public policy issues. For example, has market consolidation to date been beneficial? What should one think about the trend toward vertical integration and nonbank ownership? Are changing pricing structures having an impact on network access? How is the risk profile of the payments industry changing