You never have to wait long for changes in the banking business – especially changes that are bad for consumers. That's why we keep getting the question:
"What are the latest ways banks and credit card issuers are squeezing travelers?"
Despite huge profits, the country's big banks keep trying to figure more ways to squeeze a few more dollars out of travelers. And that's not likely to change any time soon.
Goodbye, Debit Card Rewards?
Citing impending limitations on debit card transaction charges, JP Morgan Chase announced that, starting July 19, it will stop offering "rewards" on debit card purchases. The "Durbin Amendment" to financial overhaul legislation proposes to cut the banks' take on a debit card transaction from more than 1 percent to 12 cents. That cut, say the banks, means that offering rewards would make debit card transactions a losing proposition. Although the law is subject to a ruling from the Federal Reserve, banks figure they'll have to stop offering airlines miles and other rewards on debit cards – or at least cut the rewards to trivial levels.
So far, I haven't seen a comparable move from any other big bank. But as I've said so often, "Nothing catches on in the travel industry as fast as a bad idea."
The cuts are likely not to spread to credit cards, however. Banks earn so much on transaction fees, interest, and such, that they can easily cover the costs of rewards.
Higher ATM Charges
Along with cuts in rewards, expect banks to increase their charges for withdrawals from any ATMs other than their own. Specifically, you can look for big-bank charges to go up from around $3 per transaction to around $5. Smaller banks that don't currently charge are apt to rethink that policy – particularly the few banks that actually reimburse you for other banks' ATM charges.
So far, I've heard nothing about any bank's adding a transaction charge to withdrawals from its own ATMs. But I wouldn't be surprised if that happened, at least from some of the more avaricious members of the industry. Also, at least so far, nothing seems to have changed with the fee-free "Global ATM Alliance" system.
Alternative Payment Systems
If you shop online a lot, you may have noticed an increase in the number of merchants that say PayPal is the only online payment form they accept. Even those that continue to honor AmEx, Discover , MasterCard, and Visa are pushing you toward PayPal whenever they can. The reason is obvious: PayPal takes a smaller chunk out of their sales receipts. Also, for many smaller merchants, using PayPal frees them from maintaining the large reserve of revenues – money that's theirs but they can't touch – that the big credit companies require to cover potential chargeback losses.
Of course, from a consumer prospective, PayPal isn't exactly a credit card. Yes, you can link your PayPal account to a credit card, but as far as I can tell, if PayPal has to draw on that account, the funds count as a cash advance rather than a purchase, which is not good for consumers. All in all, I give PayPal high marks for ease of use. If you aren't already using it, you should open an account.
Given the ongoing inflation in merchant charges, several new outfits are entering the online payment arena. Among the current big-time players, Amazon and Google are both promoting their own payment systems. Among the relative newcomers, AlertPay, DigitalRiver, MoneyBookers, and Revolution Money Exchange are all challenging PayPal as well as major credit card systems. As far as I can tell, they all look and work in about the same way for consumers. The major differences are in merchant fees and requirements.
Personal Money Transfers
If you're still using Western Union or conventional money orders to send cash, you're seriously behind the times. Several online systems allow you to transfer funds to someone else, instantly, at no cost to either sender or recipient. The only requirement is that both have a PayPal account. PayPal notifies the recipient that the funds are available, and the recipient decides how to proceed. I've used PayPal that way on several occasions to send a few bucks to a loser relative.
PayPal works even when sending money to someone without a bank account. Instead, a recipient can establish a PayPal debit card account, and the recipient can use that debit card – currently branded MasterCard – just like any other debit MasterCard. Getting cash out requires paying whatever fee the ATM operator assesses.
Other, newer options provide for direct transfer of funds from your bank account to a recipient:
- Popmoney works through your regular bank – currently the system claims 170 participating banks – and sends money from your account to a recipient's account with no fee on either end. Check your bank for enrollment.
- ZashPay is similar, currently with some 70 banks. Receiving money is free, but sending costs 75 cents per transaction up to $500.
- Obopay works in about the same way, as does AlertPay. AlertPay facilitates transfers to and from foreign countries and includes a provision for currency exchange. Currently AlertPay charges a 2.5 percent spread over the wholesale rate – a figure that is certainly competitive with other means of exchange.
At this point, I have no personal experience with any such service except PayPal. I'd be happy to hear from any readers with experience with any of the other systems.
According to some industry mavens, mobile systems will be the "next big thing" in payments. As many have noted, today's "smart" phone is, among other things, a powerful computer that can connect to the Internet just about anywhere, either through a local phone wireless network or directly through Wi-Fi. In fact, some in the industry prefer to call them "mobile devices" rather than "phones." Already, you can use a typical smartphone to perform simple financial transactions. With the expected addition of "near field communications" technology, mobile devices may challenge conventional online devices for ticketing and other travel uses.
At this point, I'm just starting to look at new mobile device uses. I'll certainly be adding additional coverage as the industry matures. Meanwhile, check out currently available applications with your wireless system. And if you're interested in following the fast-moving technology, Mobile Money Exchange is a good place to start.
Chip-and-PIN: Still No Action
With all the other changes in the business, U.S. banks are still not issuing dual mode credit or debit cards compatible with the chip-and-pin system in widespread use outside the U.S. Moreover, I still haven't heard any rational explanation for this behavior. Maybe later this year?
Have you tried any of these payment options? Tell us about it by adding a comment below.