First, it was a free toaster. Then came travel perks, quickly followed by free checking. And within the past year, in an attempt to retain customers and snare new consumers, Minnesota's two largest banking organizations, First Bank System and Norwest Corp. unveiled their newest incentive, the debit card.
While previously not a major factor in the Midwest banking operations, debit cards have been in use for decades on the East and West coasts. Debit cards have the physical characteristics of credit cards and automatic teller machine (ATM) cards offered by most banks and can access cash at ATMs. The difference between a credit card and a debit card lies in the source of the funds that are used to pay for a purchase.
While a credit card purchase is automatically posted to a customer's account and that charge is carried until the customer is billed, a debit card bypasses the credit operation and deducts the cost of the purchase directly from the consumer's checking account. In essence, the debit card is a paperless check.
In April 1990, Norwest introduced its Instant Cash & Check debit card. Customers were invited to apply for the card, with the provision that the service charge would be refunded to dissatisfied users at the end of one year.
A few months later, First Bank System provided customers with its version—CHEXTRA. Wendy Raway of First Bank's public relations department says that the marketing strategy of First Bank was to "... create a critical mass of users ..." by giving a one-year free trial of the card to all qualifying checking customers in Montana, Wisconsin, North and South Dakota, and Minnesota.
Both institutions are pleased with the success of their cards, but there are those who feel that debit cards are not necessarily an innovative financial tool. Another major banking concern in Minnesota, TCF Financial, has not entered the debit card field. William Cooper, chief executive of TCF, states, "Would I want to go out and get a card that deducts my purchases from my checking account immediately, when I can use a credit card and get up to 45 days of float ...?"
Others feel that debit cards may prove to be less successful here for other reasons. Fred Lange of the Upper Midwest Automated Clearinghouse Association contends that consumers' comfort level with debit cards has not yet been raised high enough. He feels that when customers don't use cash, they prefer to do their record-keeping in their checkbook at the point of sale, or they use their credit card knowing that they will not have to pay for the merchandise immediately.
Lange also suggests that the marketing strategies of the past have done little to enhance the desirability of debit cards. "Debit cards have not been marketed as well as they could have been. If there were incentives to use them—like a 5 percent discount on purchases, extended warrantees on goods or points that could be used for free gifts—the use would increase."
For the present, the two Minneapolis based banks are the dominant providers of the debit card service in this area. But that dominance may end soon. A group of smaller independent banks, saving and loan institutions, and retailers have organized through the Minnesota Transfer System in an attempt to provide themselves with a funds transfer system through which they can offer debit card services.
—Dean Davis
