BREAKING: Bankers are greedy and evil

CC photo by Flickr user TheTruthAbout...

JPMorgan Chase wants you to sign the slip.

According to the American Banker, in a mailing from JPMorgan Chase to customers whose debit cards had been switched from Washington Mutual when JPC bought WaMu, the bank strongly urged cardholders to sign the slip rather than enter their PIN when making debit card purchases. The mailing continues, “It’s not a credit card, so the money still comes out of your checking account. But by choosing ‘credit,’ you won’t have to enter your PIN in public.”

Brilliant. JPMorgan Chase wants you to be safe. Sadly, it’s also terribly dishonest. Security experts agree that entering ones PIN is far and above the safest method.

“From a technical security standpoint, there’s no question about it, a PIN adds a level of safety, which is why ATM transactions have required a PIN for years,” Avivah Litan, a security analyst at Gartner Inc., told the American Banker.

So why does JPMorgan Chase want you to sign the slip instead?

Short answer: Signing makes the bank significantly more money per transaction than entering a PIN. And, it’s not inconsequential. Signing the slip makes it an offline transaction, which is basically the same way a classic credit card is charged, and entails a higher interchange fee than online transactions, which require a PIN, and charge a lower interchange fee. The difference is enormous: offline transaction interchange fees are around 2% or more, while online transactions can be as low as .5%. These fees are invisible to the shopper (it’s illegal to pass on transaction fees), but cost retailers billions of dollars a year. If you ever see a sign at a store similar to “Five dollar minimum to use credit card,” this is why, because for small purchases, the fees wipe out any semblance of profit (or, in some cases, even cost).

Here’s a chart from the GAO that explains how interchange fees work (click for slightly larger):

JPMorgan Chase is not alone in enticing customers to sign the slip. However, most banks that offer debit cards offer some variety of reward for making signature transactions: points, miles, etc. JPMorgan is alone in attempting to scare its customers into thinking that signing is safer, which is untrue. It’s also cheaper than offering rewards.

So, in conclusion, think about greedy bankers and poor merchants when using your card. I suggest entering your PIN every time: It’s safer, and costs those businesses a lot less money. And, it doesn’t make a lick of difference to you.

Contact Poplicola at poplicola@veritiesandvagaries.com