Will security concerns about credit, debit cards boost use of cash?

The Fresno BeeFebruary 7, 2014 


The convenience of swiping a credit or debit card through an electronic reader at a checkout counter for day-to-day purchases has made plastic the most common form of payment.


It was just a couple of months ago that technology hackers gave new meaning to the phrase "swiping your card" by stealing credit and debit card information for as many as 40 million customers who shopped at retail giant Target during the peak of the holidays.

In addition to the compromised cards, personal information for another 70 million Target customers was stolen in the massive security breach, which also has been linked to other major retailers.

The convenience of swiping a credit or debit card through an electronic reader at a checkout counter for day-to-day purchases has made plastic the most common form of payment used by customers, surpassing cold, hard cash and relegating paper checks to being downright quaint. Even a growing number of vending machines are equipped to handle credit or debit cards as well as dollar bills and jingling coins.

The Target breach, however, has sparked widespread concern among customers, law enforcement agencies and legislators about the security of credit and debit cards and the vulnerability of computerized card systems — and prompted renewed interest in good old-fashioned folding money and change as legal tender.

INTERACTIVE CHART: Cash vs. credit usage in U.S.

"I tell people to use cash whenever possible," said Dave Ramsey, a nationally syndicated radio host, financial counselor and author. "Cash doesn't bring the security breach risks that debit cards do."

According to the Nilson Report, an industry trade publication that documents payment trends, cash was still the single most popular way for customers to pay for things as recently as 2004, when it was used for more than 40% of all transactions, followed by checks at 21%, credit cards at 16% and debit cards at about 15%.

By 2012, debit cards represented almost 32% of all transactions, overtaking cash at 31% and credit cards at about 17%, while checks dropped to less than 9%.

And before the Target breach made headlines for all the wrong reasons, the Nilson Report's research indicated that cash will decline even further by 2017, falling to 22% of all transactions, compared to almost 40% for debit cards and 22% for credit cards.

Few experts hold any grand illusion that cash ever will regain its title as King of Currency. But they suggest that fear of data theft could prompt some customers to retreat to cash — or at least stem their reliance on plastic — as a way to keep their private banking information private.

"The scale of the Target breach makes it a huge story," said David Robertson, publisher of the Carpinteria-based Nilson Report. And as additional information trickles out about more retailers stricken by the same software hack and others, "it's going to stay in the news and have a real effect."

Robertson said his newsletter hasn't accumulated any statistics on payment-system use by the public since the Target breach. But the durability of the story "could serve to move customers to pay more transactions with cash," he added. "Debit cards as so well established, I don't think there will be any big stampede to cash, but there will be some people who will move."

The real impact, Robertson predicted, "is I think it's going to become clear to the public that there's a big difference between credit cards and debit cards when it comes to data breaches."

A credit card, after all, represents an extension of credit to the cardholder by the card issuer, usually a bank. A debit card, on the other hand, draws directly from a customer's bank account.

"A stolen credit card is the bank's problem, because it's the bank's money," Robertson said. He acknowledged the inconvenience that customers have in terms of canceling and replacing a hacked credit card or resetting accounts for which they have electronically registered their card for payment.

"But it's different when it's a debit card because now it's your money, not the bank's money," he said. "That check that you put in the mail when the bank shut down the account could have been your rent check or your mortgage check, and then it bounces."

That potential makes any card-data breach "a real customer service problem on the part of the bank, and a real inconvenience for consumers."

Ramsey, who dispenses advice with his show on more than 500 U.S. stations and a newspaper column in more than 300 publications in the U.S. and Canada, said he hasn't used a credit card in more than 20 years. Instead, he recommends using cash whenever you can.

"But there are some situations that you need a debit card for — renting a car, buying online or checking into a hotel," he said. "So if you can't use cash, use a debit card."

And because most debit cards carry a Visa or MasterCard logo and can be used like a credit card, Ramsey suggests that customers swipe their card as a credit transaction instead of using their personal identification number, or PIN, for a debit transaction. In addition to keeping your PIN secure, "this ensures you receive the full protection that you would (have) if you were using a credit card."

Even before the Target disaster, the Web bristled with blogs discussing the use of cash as a way to control personal or household spending. Cash is tangible — when you're pulling bills from your wallet, you know exactly how much money you are parting with. If you only carry a certain amount of cash, you know when you run out and you're more prone to pinch pennies. As the FamilyMint.com blog advised in April 2013, "you can't spend cash you don't have."

A debit or credit card, on the other hand, is like a plastic insulator between a customer and his or her money — a $10 swipe here at the grocery store, a $4 swipe at the coffeehouse or a $40 swipe at the gas station pile up over time.

Credit cards carry the danger of accumulating interest if you don't pay the full balance each month. As for debit cards, depending on your bank, each transaction may trigger a fee, and it could cost even more in overdraft charges if you don't keep careful track.

"Forgetting the fees, a debit card's main failure is that it trivializes purchases," Investopedia.com contributor Andrew Beattie wrote in a 2012 blog post. "Being a square of plastic, it is hard to tell how much of your money is flowing through your debit card."

The bottom line is being diligent to detail if you're using a debit card when cash isn't an option.

Ramsey said he never has run into any problems living without a credit card for the past two decades. "Some people think you need a credit card to rent a car, check into a hotel or buy online," he said. "I buy things online and stay in hotels across the country, all using a debit card."

"You can do everything with a debit card that you can do with credit card," Ramsey added, "except go into debt."

The reporter can be reached at (559) 441-6319, tsheehan@fresnobee.com or @tsheehan on Twitter.

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