A Bank Service On Retail Floors

June 16, 2003
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GRAND RAPIDS — More and more consumers seem to be taking advantage of the option of receiving cash back when making a PIN-based debit card purchase at stores.

And it’s a convenience many retailers readily extend to their customers.

There are two types of debit card transactions — PIN-based and signature-based, referred to as “online” and “offline,” respectively.

A signature-based debit card transaction is routed through the Visa, MasterCard or Discover credit card networks.

A PIN-based transaction is routed through the rival debit networks, such as NYCE, STAR, PULSE, JEANIE, CIRRUS and PLUS.

It’s the debit networks that allow cardholders to withdraw cash from their accounts at the point of purchase.

Merchants are precluded from offering cash back on signature-authorized debit transactions.

Most of the cash-back business is coming out of the retail grocery stores and discount stores, said John Mayleben, vice president of sales and marketing for the Michigan Retailers Association.

“The grocery business has been the greatest avenue of penetration for cash-back,” he said.

“Most grocery stores still do a fairly significant cash business, so the grocers use it as a way to get cash out the front door rather than out the back door.”

That means the stores don’t have to pay a courier or armored truck service to run money to their financial institution quite so often. Thus, providing ready cash to customers can represent some cost savings.


Mayleben said the practice helps get consumers into stores, because if they can get some cash when making a purchase it saves them a stop at an ATM or their bank or credit union branch office.

“We clearly have retailers who want PIN-based debits because they don’t have an ATM in the community,” he added.

“In the more rural communities where there is no ATM, they use it as a draw to get consumers into their stores. If consumers know they give cash back in the store, they might buy a 20-ounce Diet Coke and bag of chips and then get $20 to $50 back.”

By providing the PIN-based cash-back option, the retailer is providing a service for its customers, as well as for its customers’ financial institutions it would seem.

But the financial institutions don’t give merchants any kind of per-transaction incentive to do so, Mayleben said. The retailer pays a fee on every debit card transaction, whether PIN based or signature based.

“Most of the PIN-based debit transactions are charged to the retailer at a flat fee,” he said.

“You’re going to pay that flat fee whether you do a $27 sale or a $77 sale, if the customer wants $50 back. So from a retail perspective, there’s no increase in cost.”

And again, that’s $50 going out the front door rather than the back, and coupled with the customer service and goodwill the cash-back option presents, it’s generally positive for retailers, he said.

The option not only represents an added convenience for customers, it also can save them the higher fees involved in using a foreign ATM. 

Even for consumers whose financial institutions charge a flat fee for PIN-based transactions, the fee is lower than the fee the consumer would be required to pay for withdrawing money from a foreign ATM, Mayleben pointed out.

Retailers are not under any obligation to give cash back on PIN-based debit transactions.

They can simply accept PIN-based debit card payment for purchase price only if they prefer, Mayleben noted. 

Not only can retailers choose whether or not to give cash back, he said, but they also are within their rights to set a limit on the amount of cash they will hand out at the point of purchase. Most retail grocers are setting limits to minimize the drain on cash drawers, he added.

“I have had discussions with retailers about internally setting a limit to make sure their drawers don’t get cleaned out. It doesn’t do them much good to give out all the cash in the drawer and not be able to make change for the next guy in line.”


But so far, he hasn’t heard any retailers complaining about being strapped for cash due to customer cash-back requests.

There are enough places for consumers to get money that it’s not likely the grocery retailers and discount retail stores will run out of cash because, he explained, there’s still a lot of cash in the pockets of consumers coming through the front doors.

He said retailers would likely start setting limits if it got to that point because they’re not in the business of storing money and don’t want to store money because there are added security risks inherent in doing so.

e’s heard anecdotally that many Michigan retailers that do set limits are capping cash-backs at $20 to $50. 

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