Gartner: Banks Push Less Secure Debit

STAMFORD, Conn. -- Banks and credit card issuers have put significant efforts into marketing contactless and signature-based debit card payments, but they have failed to win over consumers, according to a survey by Gartner, Inc.

According to a survey of 4,500 online U.S. adults, conducted in August of 2007, (which was representative of the online U.S. adult population), consumers prefer alternative payment types that earn banks less revenue, but which consumers believe are more secure.

“Despite significant marketing campaigns by banks and card issuers to steer consumers towards using debit cards with a signature — ostensibly so that the banks can earn more interchange revenue — consumers prefer entering their personal identification number (PIN) to pay for groceries with their debit card over all types of signature-based card payments, whether credit or debit,” said Avivah Litan, vice president and distinguished analyst at Gartner.

“Banks promote signature-based debit payments because they earn more fee revenue from card-accepting merchants, on the premise that they are riskier and more prone to theft, so the banks need to earn higher fees to compensate,” Ms. Litan said. “Fraud rates on signature-based debit card payments are at least 10 times higher, and banks usually eat these costs if they are incurred in a card-present (or store) environment. Higher interchange fees paid by merchants to banks and card issuers for signature-based transactions must offset these costs or else banks wouldn’t promote the signature variety.”

Gartner Inc.