A study by Payment Systems Inc. has confirmmed that debit cards are making their greatest inroads in the petroleum and supermarket industries, but each for different reasons.

"Food stores are driven more by competitive reasons - they are not necessarily doing it just for the customer," said Martha Rea, senior vice president of the Tampa, Fla.-based firm.

"The oil and gas companies do it mainly to attract the customer," said Ms. Rea, who supervised the research into merchant attitudes that was commissioned by Verifone Inc., the point of sale equipment manufacturer.

Room to Grow

Debit cards have plenty of room to grow across all types of merchants. As reported in a Sept. 28 American Banker article on the credit card findings of the PSI-Verifone study, debit cards accounted for 2% of the transactions and 3% of the sales volume at the 540 retailers surveyed.

Cash and checks combined for 80% of transactions and 73% of sales.

Financial institutions in the United States have issued more than 200 million debit cards, most of them initially for automated teller machines. Virtually all banks with significant shares of their retail markets have issued debit cards.

In the 1993 American Banker consumer survey, conducted last spring by the Gallup Organization, 13% of the respondents said they had conducted retail debit transactions, and 19% more expressed an interest in the service.

Debit cards' potential was greatest in the West, where point of sale networks and merchants' involvement are most advanced. In that region, 31% said they had the cards, 19% had used them, and 18% more expressed interest.

Need for Education Seen

Ms. Rea said further growth in point of sale debit transactions will require both customer and retailer education.

The American Banker/Gallup data indicated many consumers don't know they have debit cards. While 60% said they carried ATM cards, which in many cases would have been usable at the point of sale, only 18% said they had any type of debit card.

"Marketing directly to consumers could have a significant impact on the rate of debit expansion," Payment Systems Inc. concluded in its report on the Verifone study.

As for the retailers, "A lot of the smaller merchants still need to be told what debit is," Ms. Rea told a seminar in Washington last month sponsored by Verifone.

In telephone interviews early this year with the 540 retailers, PSI found that 18% of petroleum marketers and 12% of grocery companies were accepting debit cards.

Customer service was not a motivator: only 11 of 90 oil and gas respondents and one of 90 food stores said service was a factor in their decision to accept debit cards.

By contrast, 46% of the food stores said they were responding to competitive pressure by accepting debit cards, 28% said the policy would attract new customers, and 27% saw individual customer spending - the "average ticket" - rising as a result.

Among oil and gas retailers, 31% said competitive pressure moved them to accept debit cards, 38% did it to attract new customers, and 25% expected higher average tickets.

Overall Average 7%

In no other merchant category did more than 7% accept debit card payments, which was the average for all retailers in the survey.

The debit acceptance figures remain well below those for checks - which were taken by 86% of all in the survey - and credit cards.

The latter were accepted by 69% of the total sample and larger percentages of specialty retailers (90%), hotels and motels (86%), petroleum retailers (88%), and durable goods retailers (70%).

Below the norm for credit cards were eating places (43%) and food markets (36%), both of which have been the targets of aggressive marketinng campaigns by the bank card industry.

But only 28% of the restaurateurs and 28% of the grocers deemed credit acceptance essential, compared with 77% in the oil and gas industry, 80% in hotels and motels, and 80% in specialty retailing.

Only 19% of all respondents considered debit an essential payment method. When asked why they took debit cards, 35% mentioned competition, 27% said it was to attract customers, and 24% said debit card users tended to spend more per store visit.

Hurdles to Clear

The survey revealed several obstacles to debit card growth.

For example, only 7% of merchants said they were considering taking either ATM/debit cards or the Visa and MasterCard debit brands.

Only 5% said they would consider the card associations' online debit cards, Interlink or Maestro.

Only among food stores did thos percentages rise into double digits: 13% for ATM/debit cards, 14% Visa and MasterCard, 10% Interlink and Maestro.

When asked to identify obstacles to debit cards, 32% of all merchants - including 60% of the petroleum retailers and 49% of food retailers - cited consumer resistance. And 44% of the total group - among them 71% of specialty retailers and 57% of durable goods retailers - stated there was "no need."

A relatively low 15% saw the cost of the terminal device as an obstacle.

Unhappy with Rates

The survey also showed that 19% of all respondents, led by 36% in the food industry, were dissatisfied with the discount rates, or transaction fees, charged for debit acceptance.

But overall satisfaction with debit terminals, measured on a scale of one to five, averaged 3.9. That was below the 4.4 for credit devices but still more than adequate, Ms. Rea said.

Giant Food Buys 2,400 In-Store Terminals

Giant Food of Maryland Inc., a regional supermarket chain, has acquired 2,400 point of sale terminals to handle debit and credit payments in its 159 stores.

Giant Food, based in Landover, Md., selected International Verifact's C2000-Protege terminal to replace existing terminals in its Maryland stores. It will be the first fully integrated point of sales system in Virginia and District of Columbia stores.

The retailer plans to have the terminals in half of its checkout lanes in Virginia and Washington by No. 1. Then the Maryland stores will be retrofitted with the Verifact terminals.

Maryland Giant stores have been accepting cards in conjunction with a statewide electronic benefits transfer system.

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