Swipe hype: Debit the small stuff

Dana Conneally walked into Starbucks at Faneuil Hall one recent morning in desperate need of a coffee fix. The employee at a local law firm handed his debit card to the Starbucks worker, who swiped it, then handed it back -- no signature or personal identification number required.

The transaction took about 10 seconds. Starbucks kept its line moving, Conneally got his vanilla latte, and MasterCard made a few extra pennies in what has become a fast-growing market for credit card companies: no-signature transactions. Having penetrated high price tag and high volume locations such as department stores and grocery chains, credit card companies are targeting cash businesses such as fast-food restaurants and movie theaters by allowing customers to skip the step of signing receipts for small purchases.

The idea, which has been around on a small scale for years, received a massive boost in recent months as giant fast-food chains such as McDonald's Corp., Wendy's International Inc., and Jack in the Box Inc. have expanded the program to more restaurants or signed on for the first time. Starbucks started the practice in the spring. While the credit card companies make only a few cents on each transaction, the sheer volume of such business translates into millions of dollars.

Visa USA estimates that its no-signature transactions have increased 250 percent since it rolled out the service nationwide in October, while MasterCard International says similar transactions at fast-food restaurants increased 85 percent for all of 2003.

"There's some benefit across the board to the merchant and the consumer," said Anthony Gracia, MasterCard's vice president for retail and small-ticket markets.

The changes mark another advance for plastic over paper, as electronic payments become increasingly popular nationwide. Customers can use credit or debit cards for the quicker transactions; credit card holders do not have to sign a receipt, while debit card users do not need to enter a PIN. Debit cards deduct money from a customer's bank account, while credit card companies send customers a monthly bill.

Fast-food restaurants formerly had been among the last card holdouts, but those companies now are becoming some of the most ardent supporters of the payment method. Among the chief benefits of the new card policies, executives say: shorter wait times, less need for costly receipt paper, and little liability for businesses.

Even without signatures on receipts, credit card companies say they have seen no increase in fraud. Most people who steal credit cards are likely to use them on big-ticket purchases, not to buy a latte from Starbucks, so the problem is minimal, executives say. Credit card companies, which generally assume responsibility for fraudulent purchases, also hedge their exposure by restricting no-signature transactions to a small range of industries, including video stores, parking lots, and casual restaurants.

"We needed to make sure we could manage the risk," said William Sheedy, an executive vice president at Visa, added the company has no plans to expand its no-signature transactions further. "We have not seen any impact on fraud levels or consumer disputes. We think we have been able to focus the service appropriately."

Still, customers say the new policies take some adjustment.

"It threw me off at first, but I'm used to it now," said Conneally, the Starbucks latte drinker, adding he rarely pays with cash anymore.

Some industry watchers are hyping the card idea as a significant way to boost sales in the fast-food industry. Researchers at Credit Suisse First Boston wrote in February that if a third of fast-food purchases moved to credit cards, the industry could reap about $7 billion in extra sales. That is because customers tend to spend more when they use credit cards than they do with cash, according to fast-food companies and credit card executives.

"If I have to take a $10 bill out of my wallet, I know how much I'm spending," said Bruce Vermilyea, controller of Qdoba Restaurant Corp., a fast-growing Mexican cuisine chain from Colorado that converted to no-signature credit-card transactions about a year ago. "With a credit card, customers say: 'Oh well, those chips and guacamole look good. Maybe I'll get that, too.' "

The decision to eliminate credit card signatures on smaller-ticket items, generally less than $25, also has lessened a tricky problem for stores: what do to with all those credit-card receipts. Qdoba, for example, had asked its restaurants as far away as Texas to ship the signed receipts to its headquarters, where they were put in storage for three years in case customers alleged fraud. The pieces of paper took up 450 cubic feet in a warehouse -- about the size of a bedroom -- and cost the company $150 a month in storage, Vermilyea said.

In Boston, small restaurants and stores keep the receipts jammed in back-room file cabinets, in drawers, or in the case of one North End restaurant, inside trash bags in the basement.

"We're going to keep everything for six months. As much as a pain as that is, we have to," said Paul Savino, owner of Friendly Framer on Hanover Street, who was so pressed for office space that he recently bought a paper shredder in part to deal with unneeded credit card receipts.

Fast-food chains have been holdouts in installing credit card equipment, whether or not a signature was required, because they worried that cards would increase customers' wait time. But a spokesman for McDonald's, which expects that 8,000 of its 13,500 restaurants will accept credit card payments by the end of the year, said the notion of skipping signatures helped tip the scales in favor of accepting credit cards. The company said in March it would accept credit cards, catching up to the rest of the fast-food industry.

The changes in credit card payments have some customers waxing a bit philosophic. Gail Fenske, who was drinking Starbucks coffee outside Faneuil Hall one recent morning, said she worries the new emphasis on credit cards will let customers forget the tangible feeling of spending cash.

"We're losing sense of hard cash: what a nickel is, what a dollar is," she said. "You never know how quickly it flows or where."

Sasha Talcott can be reached at stalcott@globe.com.