Random Rambling: Checking Account Direct Debit

I very rarely use cash. Basically, all of my at-a-store purchases are done with my debit card, and all of my recurring expenses are done through direct debit from my checking account. (Side note: it’s called a checking account, but very few transactions in it involve checks.) I feel very secure with my debit card. In person I need to either sign something or use my PIN, and remotely I use my CVV2 value. In case of a card compromise, it’d be very easy to just disable that card and give me a new one.

Direct debit feels less secure somehow. The numbers needed to set it up are printed on every check that I write, and usually they’re on checks that I deposit as well. I have no doubt that if I find a fraudulent transaction on my account that my bank would stop it immediately and not hold me liable, but it seems like that could be a pain. If someone has my account number and is using it fraudulently, then they’d need to give me a new account number (I assume), which would mean getting new checks printed and re-setting up all of my automatic withdrawals.

So, to deter fraud presumably, most places that I set up direct debit with ask for me to send them a voided check. While I suppose this could increase security, it seems really silly that I have to physically mail something just so that I don’t have to mail it again. Isn’t there some kind of electronic authentication that could work just as well here? Also, all of their material on setting it up is usually only on their first bill (“Would you like to set up automatic withdrawals so you don’t have to mail checks again?”), and there isn’t usually an indication when first signing up for a service that there’s a way to have them automatically deduct things.

I guess I’m just saying that the whole process seems inefficient to me, and it feels like there ought to be a better way to do things somehow. We particularly need a way to deal with making it easier (= cheaper) for smaller companies and organizations to accept e-checks and payment cards, and it’d be nice for an easy way to transfer money between people. (Paypal might be okay, but last I checked they were getting really fee-hungry too.)

Digital Anonymous Cash would also be nice, but at the moment I trust my bank with my financial information. I can certainly see the appeal of it though, and think it’d be a good idea.

(Another side note: since I appreciate merchants allowing me to pay them electronically, I want to thank them by using the payment method that gives them the lowest fees. I *think* that cheapest-to-worst for them is electronic-check, debit (PIN-based) card, and credit (signature-based) card, although I’m not sure. Any thoughts on that?)

1 thought on “Random Rambling: Checking Account Direct Debit

  1. Credit cards are certainly very expensive for merchants. There are roughly 3% fees charged by the credit-card companies, which are held high by anti-competitive behavior by Visa and Mastercard that provoke an occasional anti-trust lawsuit by merchants. Other methods of money transfer are usually cheaper, but I don’t know the details. I think some states have laws limiting the ability of merchants to charge different prices for cash or credit, making this problem worse.

    The unreasonably high fees for credit cards is what causes credit card issuers to pay customers to use their cards. For example, my primary credit card, from Fidelity Investments, offers 1.5% back (delivered in $50 increments). So about 1% of the 3% fee can be reclaimed by a careful consumer.

    Legislation that would prohibit Visa and Mastercard from prohibiting merchants from negotiating with banks individually would probably help, as would legislation allowing merchants to give discounts to users of cheaper cards (and prohibiting Visa and Mastercard from prohibiting that contractually).

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