The debit dilemma

Banks like signatures. Stores like PINs. Buyers are torn.

Jackie Maxwell of Whitman feels like the rope in a tug of war between banks and retailers over the cost of debit card transactions.

Sovereign Bank pulls her hard in one direction. The bank charges her 50 cents every time she pays with a debit card and completes the transaction by hitting the "debit" button and punching in a personal identification number, or PIN. There's no charge when she pays with a debit card, hits the "credit" button, and signs the receipt without using a PIN.

But most retailers tug her in the other direction. They steer her toward PIN transactions, forcing her to spend more time at checkout if she wants to sign a debit card receipt. On a recent visit to the Macy's at the Westgate Mall in Brockton, store officials didn't even give her a choice. They told her she could only make her purchase if she used her PIN.

Not until Maxwell threatened to leave the store without making her purchase did a supervisor agree to override the payment system and let her sign the debit card receipt.

"Every time I use my debit card, the retailer asks for my PIN as if it is the only option available to me," Maxwell said. "Only after I say, 'Ring it as a credit,' do they process it in that manner. They're all trying to pull one over on us."

Checkout anxiety is rising as consumers flock to debit cards. The most recent data from the American Bankers Association indicate debit cards are now the preferred form of plastic, used for a third of all in-store transactions, the same level as cash.

On the Visa network, debit cards account for two-thirds of all transactions. Visa says 76 percent of the debit transactions on its network are completed with signatures, and 24 percent are run through Visa's Interlink PIN network.

Banks prefer the signature payments because they make more money when consumers use them. Rhonda Bentz , a spokeswoman for Visa, said a typical grocery store pays 35 cents in fees when a customer buys $40 worth of groceries with a debit card and signs for it. The same transaction with a PIN costs 31 percent less.

The fees are split between the bank that issues the debit card, any companies that help process the transaction, and the Visa or MasterCard network on which it is run. Bentz said individual banks often tack on extra fees, particularly for cards that come with reward benefits.

Retailers say the fees they pay for signature-debit transactions are much higher because the Visa and MasterCard networks face virtually no competition. By contrast, PIN-based debit transactions are handled by many of the same networks that handle automated teller machine transactions. Those networks have a much smaller presence at retail stores and face far more competition.

Leonard Bloomberg , president of Today's Home, a furniture store in Middleton, said the cost difference between PIN- and signature-based transactions is substantial. "If we put it through as a signature-based transaction, we pay significantly more, a couple percentage points more," he said. He declined to provide details.

Companies like Wal-Mart Stores Inc. and CVS Corp. have long steered customers to PIN transactions, but now J.C. Penney Co., Sears Holdings Corp., and many other retailers are installing or have installed payment systems that prompt debit-card holders to punch in their PIN. Only if the customer takes several other steps can they complete a signature-based transaction.

The Food Marketing Institute has produced a consumer brochure urging debit-card holders to always use their PIN. The institute says PIN-based debit transactions are faster, more secure, and allow cardholders to get cash back.

Jon B. Hurst , president of the Retailers Association of Massachusetts, said his members are promoting the use of PINs because they have the interest of their customers at heart. "Ultimately, the retailer has to pass that cost along to its customers," he said of the debit card fees.

Bentz, the Visa spokeswoman, said the company is well aware of what merchants are doing. "We allow merchants to steer consumers, but the consumer should make the ultimate decision," she said, noting Visa rules require retailers to offer customers a choice.

That didn't happen when Maxwell went shopping at the Macy's in Brockton. She was rebuffed when she tried to pay for her items and then again by a supervisor. "He told me they were phasing out the check cards with signatures," Maxwell said.

Katherine Wadhams , a Macy's spokeswoman, said officials at the Brockton store erred and should have let Jackson choose how she wanted to pay. "It's a training issue," Wadhams said.

Retailers aren't the only ones who sometimes get carried away in the battle over debit cards. Many banks deny reward benefits to debit card holders who pay by punching in a PIN. Visa also says its zero-liability fraud policy may be voided when customers use PINs because the transaction can be processed off its network.

Some banks, including Citizens Bank and Sovereign Bank, try to steer some customers to signature transactions by imposing a fee on customers who pay with a PIN. Citizens charges 35 cents; Sovereign charges 50 cents.

Both banks now acknowledge their PIN penalties were a mistake. Citizens still has the fee on its basic checking account, but that account is being phased out.

Sovereign still assesses the PIN penalty on its "totally free checking" account, but spokeswoman Ellen Molle said it will be removed sometime this year.

" We felt that the fee put our customers at a disadvantage, and that this was the right decision to make," Molle said.

Bruce Mohl can be reached at mohl@globe.com.