Tuesday, August 24, 2004

The Cashless Society

Aug. 18, 12:32 EDT
Cashless Society
Tara Perkins
The Hamilton Spectator

At this downtown Hamilton church, worshippers don't place tidily folded envelopes in the collection plate. Most reach for the wireless debit machine, each one swiping their offerings straight from their bank account.

Allowing parishioners to debit donations is paying off for the new Dominion Christian Centre on Park Street North. More than three-quarters of the funds the church takes in are paid on plastic, says pastor Peter Rigo.

The centre is one of the many organizations and businesses which are speeding up Canada's transformation to a cashless society.

On average, more than 75 bank cards are swiped in this country every second of every day. That's largely being driven by young Canadians, already the world's largest debit-card users.

"People 25 and under don't use cash anymore," Rigo says. "Only the over-50 generation still writes cheques."

The statistics back him up.

Three-quarters of 18- to 24-year-olds in Canada say debit is their favourite way to pay, according to the Interac Association, a co-operative of financial institutions and other companies. In the 55 to 64 age bracket, about 40 per cent prefer debit. Seniors still prefer cash.

But young people are changing the way this country pays for goods and services. That has some debt counsellors worried; they say debit makes it too easy to overspend.

Other financial experts say the debit trend may be greasing the wheels of this country's entire economy.

Canadians made more than 70 debit payments per person in 2001, compared to about 43 in the U.S.

A study recently released by Visa Canada estimates that electronic payments have fuelled a $60-billion increase in personal-consumption spending over the past two decades. That's over and above what Canadians would have spent with cash or cheques. Most of that growth came from credit cards. But debit cards -- which have really only been available for the last decade -- accounted for $10.4 billion.

In 1990, the Interac Association launched Interac Direct Payment as a pilot project, allowing people in the Ottawa area to pay at stores with their bank cards. The concept rolled out across the country four years later.

In 1994, Canadians spent $9.4 billion on their bank cards. Debit has flourished since. Last year, Canadians paid for $116 billion in goods and services on their bank cards.

There are already more than 520,000 debit machines on retail counters nationwide, and the Interac Association believes the debit craze will only increase in the years to come.

Next year, Canadians will be able to shop online with their bank cards, says Sara Feldman, vice-president of communications and marketing for the association.

And now that wireless debit is available, everyone from pizza delivery guys to taxi drivers to ice-cream-stand owners are cashing in on the trend, carrying around the small black portable machines that allow customers to swipe wherever they are.

Right now, supermarkets are leading the debit charge, taking in nearly 30 per cent of the total money Canadians spend using their bank cards.

Clothing stores and department stores are next on the list, says the Interac Association. But some businesses are reluctant to adopt the new technology. Part of that comes from the fees involved.

Debit card users pay fees to their bank. Those fees vary by bank and type of account. Also, shoppers may be asked to fork over a surcharge to use debit. For instance, a convenience store on Dundurn Street asks customers for an extra 15 cents to pay with a bank card.

Just as there are different banks offering various packages to customers, there are different companies offering debit machines to businesses, and various ways of paying for them.

Most retailers rent the machine -- though it is possible to buy them -- for about $50 a month, and then pay a small fee for each transaction (about 15 cents). Surcharges to cover that transaction fee must be approved by the company that owns the debit machine, which may split the proceeds with the retailer.

Some businesses raise their overall prices a bit, in order to pay the extra cost of offering debit. That means customers paying cash are subsidizing those who are swiping.

"I just can't believe how much we're charged for these things," says Anna Martini, co-owner of Sweetwater Cafe on Dundurn Street. She pays $35 a month to rent the debit machine, plus transaction fees.

A nearby bakery decided debit is too expensive as most customers are only taking home a few dollars' worth of food, Martini says.

But she considers it an essential expense. "I have to have debit or I would lose 50 per cent of my business," she says, adding that when new customers come in, the first words on their lips are often, 'Do you take bank cards?'

"I have people coming in and asking to put a coffee on (debit), and I can't say no, or I'll lose my customer."

She's envious of Tim Hortons, which is resisting the debit revolution, claiming the coffee and doughnut chain can get away with refusing bank cards as it has a location on every corner and a till full of customer loyalty.

Swiping cards and entering PIN numbers slows down service and adds to lineups, Tim Hortons says.

"While we want to provide convenience for our customers, the speed of service is always top of mind for us," says a Tim Hortons spokesperson. "But we are always keeping our ears open for different methods and how they can integrate into our system."

Meanwhile, other major franchises are beginning to use debit, and finding that giving customers another way to pay increases the bottom line.

Last month, McDonald's Corp. credited a portion of its higher sales and profit to the decision to accept debit and credit cards.

And it's not only the increased sales that can add to profits. In Toronto, most taxi companies are charging their passengers surcharges between 25 cents and $1.50 per debit transaction, says Nita Powers, spokesperson for eXcape Business Transactions Inc.

That B.C.-based company rents out wireless debit machines for about $40 a month, and allows taxi drivers to pass that cost (and more) on to customers through surcharges.

EXcape has cornered a chunk of the Toronto taxi market, but it's had zero luck pitching debit to Hamilton cabbies, Powers says. "We've talked to several Hamilton companies," but none of them are close to adopting the new technology.

Powers thinks she knows why.

"A lot of people who drive the taxis are above the age group, the generation, that uses debit."

In Toronto, competition from cabbies who began accepting bank cards has forced most others to follow suit.

Feldman, of the Interac Association, says, "Research indicates that consumers are increasingly using debit as a payment method because it is convenient, safe, trusted and widely available."

But too much convenience can be a bad thing, debt counsellors warn. Sharon Vukosa, a Hamilton counsellor with her own firm, BDA Consulting and Counseling Services, is not a fan of debit cards.

"They're so deadly. I tell people all the time, put your debit card away. Build your own (spending) plan for the week, and based on that you go and get the cash you need out of the bank."

Vukosa says teens and twenty-somethings who have been raised without learning how to balance a chequebook are in particular trouble.

"Young people are notorious for overusing debit cards. If you use a debit card and you're not keeping a chequebook register, how much is in your account? Do you know?"

Her words ring true for Michael Roellinghoff, a 20-year-old McMaster student who firmly resists getting a credit card but can't avoid using debit. "Debit makes me less thrifty. You can't remember how much you've spent."

The only experience he's had with a chequebook was a school lesson in Grade 5, when his teacher taught the class how to balance an account.

Roellinghoff says he tries not to use debit for small purchases, because the fees add up. And that's another reason Vukosa counsels people to stay away from bank cards. "The fees are just unbelievable on them," she says.

Anthony Daly, a credit counsellor with Hamilton's Catholic Family Services, says bank "service charges can range from $10 to $50 or $60 a month for some people, because they don't take out cash. They use debit 10 times a week."

That's in addition to the surcharges. And extra fees, plus extra spending, can equal trouble, Daly says. "The fact that people have cards and don't have to carry cash, means you have easy access and they are definitely more prone to use it."

Daly tells people to go to their bank and ask them to reduce the amount they can take out in a day. "A lot of people don't realize that they have some control over the amount that they can access." He suggests parents teach their children how to use debit while they're young. "When parents want to set a good sense of role-modeling, they can go to the bank and get a debit card and set a very small daily limit, $50 or $25."

Vukosa would like to see debit terminals in stores offer a printout of what's left in the customer's bank account. "The debit card was created for the bank, by the bank, to make the bank more money," she says. "They were not created for consumers. Because, if they were, there would be a tracking system that truly shows consumers where they are at with their money."

The Interac Association counters that debit actually "prevents overspending ... Unlike a credit card, you can't spend what you don't have. You can only spend what is already in your account ... You are able to keep track of your account by balancing it after every transaction."

Shoppers just have to keep track of sale receipts, Interac says.

Back at Dominion Christian Centre, pastor Rigo says he calls the debit machine "the beast, as in the mark of the beast."

But it's a necessary evil.

"We also take American Express, Visa, MasterCard," he says.