It weighs but .176 oz. and costs pennies to produce. Yet the rectangular plastic card emblazoned with holograms, logos, numbers and codes is worth more than its weight in gold.
The number of charge, credit and debit cards in the country now approaches 700 million, according to the Nilson Report, a credit card industry trade publication in Los Angeles. Card-carrying Americans spent $294 billion last year.
The ever-increasing uses of money cards include variations on the basic functions of payment for merchandise and access to bank accounts. Today's credit cards are used for telephones, gasoline pumps, computerized catalogues, even food stamps. Extra services provided or offered with cards also have expanded to include free travel insurance, magazine subscriptions and temporary club memberships. But, in at least some cases, fees have been added as well.
Among the factors responsible for the growth are technology, competition and interest rates. New encoding and security methods have fostered multifunction cards, as have switches linking more and more electronic networks. Competition for the affluent customer has led to a series of "prestige" cards, and major bank companies issuing their own cards have tried to increase their share of the market against the established companies. Finally, a decline in the cost of funds for lenders, combined with the still-high cost of credit for card customers, has made the business lucrative once again.
Some cards come loaded with as many options as a luxury car. For instance, the MasterCard credit card issued by the Bank of Virginia carries logos for Most, Ginny and Master Teller. Through Most, a regional automated teller machine network, the cardholder can get a $200 daily cash advance at about 600 locations in Maryland, Virginia, Delaware and the District. The annual 18 percent interest charge is calculated from the moment the ATM transaction is completed. Ginny is the bank's own ATM system, with 81 terminals, and Master Teller is a national shared network at 300 locations. Although a customer may use machines in any of the three networks, the total daily limit on the amount that a customer may withdraw is $200.
This month, Bank of Virginia began offering Visa cards in addition to MasterCard. The new Visa cards will not be debit cards, but will have Most and Ginny ATM access.
A Visa debit card issued by First Virginia Bank has the Most and Network Exchange logos. (The two exchanges have merged under one holding company called Internet. Currently, separate Most and Network Exchange cards are not interchangeable, but Internet is in the process of making the terminals compatible.)
This new Visa card, issued since October only by First Virginia, also bears the Visa Electron card logo and hologram that enable the holder to get cash from 1,200 automatic teller machines across the United States and in Australia and Spain. In three months, Visa expects to add Italy, France, England and Puerto Rico to the system.
The debit card bears a magnetic stripe that identifies the ATM cardholder to the computer, and a series of optical character recognition (OCR) symbols used to identify the cardholder to a participating retailer who debits the account for payment.
The First Virginia card is being used in the region's first big retail point-of-sale program, announced more than a year ago, which began last month. J. C. Penney became the first store in this area to offer point-of-sale transactions, using the Visa Electron debit card. Woodward & Lothrop and Raleighs are scheduled to begin the program during the first quarter of this year, said Phillip A. Parker, president of First Virginia Services.
At the checkout, the debit card is inserted into a terminal that transfers money from the customer's bank account to the merchant's account. The customer receives a paper receipt, and a description of the transaction appears on the customer's monthly bank statement. The advantage of a debit card over cash is safety; over a check, guaranteed acceptance; over a credit card, no interest charges. Usage thus far has been limited because the chain has not yet publicized the innovation, Parker said.
In October 1983, Mobil Oil Corp. installed debit machines in 58 service stations in the Washington area; it since has expanded the program into California and Florida. After filling the tank, the motorist hands a debit card to the dealer, who inserts it in a terminal. Thomas Collins, Mobil's public relations manager for marketing and refining, reports excellent results, including increased sales at those stations. A high percentage of the customers are new to Mobil and formerly paid cash at other stations, he said.
Last week, Mobil said that in the next six months it will double the number of stations accepting debit cards for gasoline purchases. The next installations are planned for 12 more states, including Maryland and Virginia. As it does with cash sales, Mobil offers a 4-cent-a-gallon discount on debit card sales.
In late August, Giant Food began installing ATM machines in its Washington outlets; there are now 69, with the remaining 63 to be in place by summer. Shoppers use their debit cards to get sufficient cash to pay for groceries at the checkout counter and for errands elsewhere. Conversion of those machines to full debit terminals that would eliminate the cash step is "down the road a way," according to Giant spokesman Barry Scher.
Travel and entertainment card companies and bank card issuers also are adding services to attract new customers and, in some cases, to retain old ones. These range from guaranteed hotel reservations to luggage insurance. The services also help justify the annual service fees the issuers are charging in addition to high interest rates, said one local bank executive. George Fesus of MasterCard said that cards are becoming the way banks deliver their services to customers.
The American Express Gold Card offers a line of credit of at least $2,000, and there is no preset limit imposed on spending. A holder can use the card to cash personal checks of up to $5,000 or borrow up to $1,000 a week at more than 11,000 locations in the United States and Canada.
Add to that guaranteed reservations at 8,000 U.S. hotels; emergency replacement of a lost or stolen card (usually within 24 hours); $100,000 travel accident insurance for the holder and family, and membership in more than 85 private city, country and athletic clubs more than 50 miles away from home. The cost is a $65 annual fee if the holder qualifies financially.
For an annual fee of $250, the American Express Platinum Card offers check-cashing privileges of up to $10,000 per week, $1,000 cash from automated teller machines, and the services of an American Express travel agent 24 hours a day. It also offers temporary membership in clubs such as the St. James in London.
Internal surveys by credit card companies have identified 35 services offered in conjunction with cards. A fair number of them, such as free travelers checks, also are offered by banks to customers opening or maintaining a sizable account. Yet marketing studies show that few card customers are interested in anything more than the basics: the line of credit and instant and easy availability of funds, followed by emergency and security services. The proliferation of services is fueled by competition rather than by a demand from customers.
Few markets have as much competition, for both retail credit cards and bank cards, as greater Washington. One day last month, for instance, a crowd gathered on a busy downtown street to receive a free gift in exchange for signing a credit card application for Sears, Roebuck & Co. Sears employes, who get incentives for new accounts, gave away digital watches, designer sunglasses and steak knives. More than 300 people signed up during lunch hour that day, Sears said.
Sears, which has 40 million credit cards outstanding and an annual net card volume of more than $10 billion, is reported to be considering whether to issue a bank-type card to challenge Visa and MasterCard.
The entry of Citicorp into the market four years ago with its Choice card has added a new element to the bank card rivalry between Visa and MasterCard, which between them have 211 million cards in circulation nationwide. Half a million Choice cards are now in use in the Washington area. Unlike the other two leading bank cards, Choice exacts no annual service fee and, as an incentive, rebates one-half of 1 percent of the amount of purchases above $600 charged on it annually.
The vast numbers of credit cards in circulation have been a boon to counterfeiters. Losses from fraud increased tenfold between 1978 and 1982, to an estimated $80 million annually. But now the issuers have struck back. The addition of ultraviolet inks, fine-line printing and holograms to cards have aided significantly in reducing losses from counterfeiting, MasterCard announced recently. (A hologram is a three-dimensional, moving image created by laser technology.)
In 1983, counterfeit losses for MasterCard's bank members nearly doubled over the previous year, to $19.7 million. Yet this year the trend has been reversed. Losses have leveled off at about $1 million a month, said MasterCard President Russell E. Hogg. Visa, which had counterfeit losses of $22.5 million last year, has not yet reported the results of its security efforts.
The newest credit card experiment concerns the use of plastic cards to combat fraud and cut expenses in the food stamp program administered by the Department of Agriculture.
A General Accounting Office audit in September said fraud affecting the $11.7 billion program cost taxpayers $1 billion annually. The cost of printing and distributing paper food stamps amounts to $45 million to $50 million a year, and the administrative cost of processing them adds up to $850 million annually, according to USDA'a Virgil Conrad, deputy director for family nutrition programs.
To cut expenses, the government awarded a $2.2 million contract to Planning Research Corp. of McLean to develop and test an Electronic Benefits Transfer (EBT) system that substitutes electronic impulses for paper coupons. The principle is the same as that used in point-of-sale transactions.
Each food stamp household gets a plastic magnetic strip card with the participant's picture and account number, as well as a personal identification number. The amount of monthly benefits is entered into a computer. At the checkout stand, the clerk inserts the card into a terminal, and the customer inserts his or her ID number into an accompanying keyboard. If the two match, the customer's account will be debited automatically and the store's account credited with the same amount. The customer also can check his or her balance by using the card or by dialing the food-stamp account number on a TouchTone telephone.
This eliminates the need for a recipient to make monthly trips to the welfare office and for the store to sort and redeem the paper stamps. USDA authorities also are counting on a deterrent effect -- that people will not risk phony claims knowing the computer will catch them. The system, furthermore, is designed to eliminate the black market sale of paper food stamps, which are as anonymous as currency. However, the machines are not yet programmed to reject nonfood items that cannot legally be bought with food stamps.
The 18-month pilot program began this fall in Reading, Pa. Nearly 4,000 food stamp households and 100 retailers are participating. The $800 to $1,000 cost of equipping each checkout terminal is being borne by the government. However, according to PRC project director Charles E. Thorne, the terminals also can be programmed to accept commercial credit cards.
Reports from Reading merchants indicate there are still bugs in the system, meaning delays for both participants and regular customers. At times the wait has been as long as 15 minutes when the computer lines jammmed, but store managers said a transaction should not take more than 15 seconds. "I'm not 100 percent happy with the system," said Debbie Liedy, manager of Jewel T Discount Grocery, "but as a taxpayer, I have peace of mind that [food stamps] at least aren't being stolen."
Reading does not have a high incidence of fraud, according to the USDA. Nevertheless, Pennsylvania's Department of Public Welfare discovered that something less than 5 percent of the food stamp recipients dropped out of the program when the system was changed. The department says clients receive 1 1/2 hours training in card use and adapt easily. Only one complaint from a food stamp recipient has been received about the switch.
Another use for cards was announced just before the Christmas shopping season by the Stamford, Conn., firm Comp-U-Card. On one of a dozen Shopping Machines resembling arcade video consoles that Compu-U-Card has installed at stores around the country, a customer can call up an electronic catalogue. A video disk allows a demonstration of the product on the screen, along with the product description and the price of 60,000 brand-name items selling for up to 50 percent under the manufacturer's suggested retail price.
Once a selection is made, the customer runs a credit card through the reader on the machine. The merchandise is then sent to the customer by mail.