After decades of fits and starts, the debit card is finally beginning to loom large on banks' strategic radar screens.

More merchants are accepting the cards, and consumers are gradually becoming more comfortable about drawing funds directly from their checking accounts to pay for purchases.

"We believe as a corporation that the time for debit cards has come," said Barbara Velte, vice president of electronic banking at Chase Manhattan Corp. Speaking of the New York market, she said, "There's not only more merchant acceptance, there's also a movement among consumers toward fiscal responsibility." And these consumers, she said, find the detailed monthly transaction statements appealing.

Banks that want to cash in on debit cards face a daunting array of choices -- between the Visa and MasterCard brands, between on-line and off-line processing, and on how much to charge for the service.

Their decisions could change the way Americans shop, while opening a way to attract deposits and fees to the banking industry.

Not all are Convinced

To be sure, there is still considerable skepticism that the debit product - Visa U.S.A. prefers to call it offering a "check card" - will ever take off.

"Why use a debit card to buy my groceries if I can use a credit card, get a 5% rebate and six weeks of float, and write a check to pay the bill?" asks Jerry Craft, president of the bank card unit at Wachovia Corp.

But even he acknowledges there are "a lot more forces blowing in favor of debit" than in the past.

Experts say the current spurt of interest in debit cards is being driven by growth in merchant acceptance, which in turn was driven by the proliferation of automated teller machine cards that can be used at points of sale.

Checkout-Line Rush

In the New York region alone, some 20,000 terminals have been installed this year by supermarket chains to accept cards issued by members of the NYCE ATM network, said Liam Carmody, president of Carmody & Co., Woodcliff Lake, N.J.

Some observers say NYCE's point-of-sale inroads - a focus of its advertising this year - were a factor in Citicorp's decision to revise its strategy of keeping its cash machines independent. Citicorp is reportedly negotiating to take an equity position in NYCE's operating company, New York Switch Corp. of Hackensack, N.J.

Nationally, merchants terminals geared to debit cards stood at 83,000 at yearend, up from 50,000 a year earlier, Mr. Carmody said. Among other advances, the U.S. Postal Service has announced plans to roll out debit acceptance at its 33,000 post offices within the next year and a half.

Faulkner & Gray's EFT Network Data Book said that as of last September there were 205 million ATM/debit cards nationwide. Consumer surveys by American Banker and others have shown a steady increase in debit usage at retail stores, though the users still are minority of the population.

According to Visa U.S.A., which recently launched a two-year debit education campaign, 700,000 transactions a day are being made with Visa debit products, double the 1989 figure. About 30 million Visa debit cards have been issued, and the association estimates there will be 110 million in 1995.

MasterCard International's members have issued 8.4 million debit cards in the U.S. and have made commitments to issue another 9 million, a spokeswoman said.

Brand Recognition

The associations claim their national service marks will enhance the utility of local cash cards at merchant outlets in much the same was as the Circus and Plus ATM programs enabled consumers to get cash when traveling.

Competition between Master-Card and Visa - which were barred by a 1989 court decision from jointly developing a debit card - has accelerated the marketing of the products, said New York attorney Lloyd Constantine.

Working for New York State at the time, Mr. Constantine spearheaded the fight against the proposed MasterCard-Visa debit venture.

Bankers say their choice of national brand is mostly determined by their historical ties to one card group or the other.

But as more, generally smaller banks that don't have credit card loyalties enter the field, the subtle distinctions between the associations could become more important.

These new entrants tend to view debit as a way to make deposit accounts more attractive, said Arthur D. Kranzley, chief executive office of Maestro USA, MasterCard's debit unit.

Brian O'Hare, president of Norwest Corp.'s bank card division, noted that Visa, the No. 1 credit card brand, is perceived as more attractive by consumers.

"It was the brand strength" that prompted Norwest's decision to align with Visa debit. But he acknowledged that "Master-Card's pricing is slightly more advantageous."

On-Line Versus Off-Line

After choosing MasterCard or Visa, the banker must consider the respective advantages of on-line versus off-line.

Off-line cards work like credit cards, debiting the consumer's account a few days after the purchase. The main advantage is that the cards are accepted throughout the worldwide MasterCard and Visa merchant networks.

The main negative is that because off-line cards require authrizations through the credit card networks, "you can't offer an off-line debit card to everybody," said Charles G. Raphael, director of retail delivery systems at NBD Bancorp, Detroit.

"In five years, you're going to see on-line displace off-line" as more merchants accept the former, Mr. Raphael said.

On-line cards - Visa's Interlink and MasterCard's Maestro - eliminate much of the risk to card issuer because the funds available for payment are verified instantaneously.

"We have a convenience strategy, and we view [on-line Maestro] debit as a natural extension of allowing customers to do their banking at their convenience rather than our convenience," said Kenneth L. Weinstein, first vice president of People Bank of Bridgeport, Conn.

Who Pays, and How Much

As for fees, since the cards carry no finance charges, and merchant fees barely cove costs, banks must charge consumers to generate profits. At the same time, they don't want to turn consumers off.

Neil Chambliss, director of research at Payment Systems Inc., Tampa, Fla., says it is probably easier to charge fees on off-line that on on-line debit cards. He recommends flat monthly fees, which don't penalize the consumer for using the card frequently.

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