U.S. Debit Essay Example for Free

U.S. Debit Essay Advancement in technology has challenged the traditional way of transacting as new financial services which offer reduced costs of transactions and incorporates innovations to delivery channels thereby increasing more value to businesses, customers and business activities have been introduced into the market place. For instance the electronic financial transaction services such as debit cards which are used as an alternative to cash when making payment of purchases. The funds are withdrawn from the buyer’s bank account or the balance in the card. Technological advancement has introduced a debit card to be used over the internet. This mode of payment has gained popularity in many countries because it is flexible and usually reduces the expenses that arise when a person operates cash funds outside the general account. This system was introduced to meet the demands of consumers who needed a safe and secure way of accessing their account anytime and at any place (Kobliner, 2009). In US the department of Treasury Financial Management Services (FMS) for federal agencies runs the debit card program allowing individuals to make nonrecurring and miscellaneous payment. This department also offers federal agents access to money when on official duty because it provides centralized payment services to the federal agency as it operates the collection and deposit systems of the federal government. Moreover, the use of the debit card is deemed to reduce the workload of accountants, auditors, staff members, drivers of indirect cost and enterprise resource planning (ERP) integration. Apart from this the debit card program offers management of various other programs such as benefits/ pension, disaster relief and travel expenses among others (Evans Schmalensee, 2005). Furthermore, the US debit card program emanates strict management control guided by powerful reporting mechanisms thereby ensuring ease in fund distribution. The reporting mechanisms are categorized into two; from the primary research sources for example conduction of interviews on financial analysts, consultants of the field, marketers and public relations officers. The other reporting mechanism is from secondary research sources which includes gathering data from the company reports of relevant trade businesses, consumer demographics from research bureaus and from government sources (Evans Schmalensee, 2005). The use of debit card in US has gained popularity that it overshadows the use of the credit card which was launched earlier. Statistics show that today more than 8 billion US citizens owns and uses a debit card in comparison to about 274 debit card holders in the year 1990 (Walden Peg, 2007). In the year 2008 about USD 206 billion dollars were received from debit card transaction in comparison to USD203 billion dollars received from credit card transactions in the same year (Walden Peg, 2007). This can be based on the fact that there are two types of debit cards which include the single deposit debit cards and multiple deposit debit cards. Single deposit cards are usually used to pay card holders incentives, bonuses, one-time stipend among other services while the multiple deposit debit card is usually designed to make payment to debt card holders for emergencies, payroll and recurring payments among others (Walden Peg, 2007). The use of debit cards has been credited as a secure means of transaction as it eliminates chances of fraudulent acts because of the imposed personal identification number (PIN) which is issued to the card holder once they become legal debit card holders. A card reader which is a small hand device that works independently from the computer is used to read the chip on the credit card which contains the eight digits pass code of the pin (the digits were increased from four to eight to increase security measures). This fact makes it difficult for fraudsters to get access to the PIN and thus reduces the overall number of debit card theft cases (Kobliner, 2009). The debit card programs offers an accurate and simplified reconciliation system because transactions are satisfied at the till as they are directly connected to the bank accounts of card holders. This is because the point of sale (POS) system offers reports that can be directly counter checked with reports created by the bank concerning the activities of the card holder’s bank account. The use of debit card programs also ensures that opening up of individual accounts is rapid and results to a low risk start up for bulk. This program also ensures immediate distribution of the debit cards because the issuance process is instant. Debit card holders have the freedom of accessing their accounts at anytime and from any place because the services offered by the debit card program run for twenty four hours, are available online and offers a real time funding system. The debit cards can also be used at any ATM points and by merchants such as online casinos among other vendors worldwide. While using debit cards transactions are done rapidly thus reducing the long queues that are witnessed in shopping parlors and other transacting sites. Debit card holders are therefore, comfortable and satisfied by the services extended by the debit card programs because of their convenience and the ability of fulfilling their demands (Kobliner, 2009). However, debit card issuers that is, the financial institutions are faced with a major marketing problem on their earnings and spending because they earn less profit when their customers use debit cards than when they use credit cards. This is because the finance charges, late fees and annual fees charged on credit card holders are not charged on debit card holders. Thus in contrast to the benefit and convenience consumers and merchants enjoy, debit card issuers struggle to increase the profit margins of their businesses. To overcome this drawback debit card issuers have implemented financial fee charges used to help the institution cater for expenses incurred when formulating and implementing reward programs tied to debt cards to attract more customers especially because the use of debit cards for financial transactions is growing rapidly. This initiative has created tension between the banks and merchants because of the fee that the financial institutions charge when accepting the use of the plastic cards in place of money. Merchants are complaining that the financial institutions have increased the amount of the fees that they charge on the use of debit cards while on the other hand they offer little reward benefits when they lower the amount of the fee they charge (Mann, 2006). Despite this hitches debit card issuers are still encouraged to continue supporting this technology as they have been able to survive and even earn profit during the 2009 economic recession that has had a standstill effects on many transaction and business activities (Kobliner, 2009). Therefore, from the above facts it is quite clear that US as a country will greatly benefit from the implementation of debit card programs because of increased levels of income generation. This will also improve the livelihood and lifestyle of US citizens. Reference List Evans, S. D. Schmalensee, R. (2005). Paying with Plastic: The Digital Revolution in Buying and Borrowing. 2nd Ed. Cambridge, MA: MIT Press. Kobliner, B. (2009). Get a Financial Life: Personal Finance in Your Twenties and Thirties. 3rd ED. NY: Simon Schuster. Mann, J. R. (2006). Charging Ahead: The Growth and Regulation of Payment Card Markets. Cambridge, UK: Cambridge University Press. Walden, M. L. Peg, T. (2007). Battleground: Business. Westport, Connecticut: Greenwood Publishing Group.