Debit Networks

Debit cards that instantly deduct funds from a designated account when you make purchases have made substantial inroads in recent years vs. credit cards. And debit networks, the electronic devices, pathways and terminals around the world that enable them to function, have grown as well.

Many people are abandoning their credit cards with high interest rates, user fees and penalties in favor of debit cards that incur almost no cost for a similar convenience. Both cards allow the holder to shop within a fixed limit, either a credit line or the actual amount of funds on hand, without having to carry cash.

Merchants prefer debit cards because they receive their money instantly without having to surrender a percentage of the total sale to the issuing bank. Debit networks are designed to function like firms that handle financial transfers in batches in that they charge a small, nominal fee for their services and have nothing whatever to do with the amount of money being sent from one account to another.

For example a $100 charge on a credit card costs the merchant approximately 1.60% or $1.60 plus a transaction fee of .24 for a total of $1.84. That same $100 purchase made on a debit card costs the merchant a flat fee of .54 for a savings of $1.30 for every $100. It adds up fast when you consider the billions and billions of transactions that occur daily.

If you live in a small town, get a debit card from your local bank and then use it at the market down the street, the system functions the same, exact way as if you lived in a major city and used your debit card while on vacation anywhere in the world. When the debit card is first issued you are asked to create a PIN (personal identification number) to verify your account and that number can be entered into any terminal in the world to verify your account and grant you access to your funds.

There are many companies such as MAC, Cash Station, NYCE, Pulse and STAR that are independent debit card processing networks. When they first started they allied themselves with certain banks and certain batch processing firms to handle their growing transactions. They put individual terminals in as many locations as possible to attract more and more customers to their service.

But as time went by these independent networks started working together which is why you see debit terminals today that feature many or all of the different services in one location. And as the independents started working together, one company, Concord, formed to link them all together, thus reducing the cost and adding to the explosive growth of debit card usage, especially online.

Concord has recently become the largest debit network processor in the U.S. and the world. It has purchased the retail providers Cash Station and STAR, which gives it vertical integration in an industry still growing at a double-digit rate. In fact, since 2003 Concord has more than doubled in size, handling more than twice the number of transactions, more than twice the number of customers and more than twice the total dollar amounts.

What Concord accomplished was to position itself neatly between the debit card issuing banks and the retailers who accept debit transactions. By linking all the independent services together, Concord took the debit card network to the next level, streamlining the service, reducing the cost and setting itself up as a global provider of cashless, paperless, non-credit transactions.

More recently Concord starting acting more like a bank than a service provider, in that it now allows any retailer to accept a debit transaction whether or not that retailer is affiliated with the customer’s bank. Concord guarantees payment to the retailer, actually makes the payment and then accesses the customer’s account to reimburse itself. Concord, more than any other single entity in the debit card industry, is responsible for making debit cards a major player in the new computer-driven world of international commerce.