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E-checks: Use Cash Locally

Some online retailers are touting the use of e-checks:

This process --... -- has been around for a number of years. It's common among utilities and others that send out monthly bills: They ask for your bank-account number and the "routing" number at the bottom of your checks, then withdraw what you owe when your bill's due.

For paying directly from my checking account I've been pretty happy using a debit card. But the retailers are looking for a bit more:

Retailers wish everyone would pay this way, as it saves them money. Take Fresh Direct LLC, a New York City online grocer. Deputy Chairman Jason Ackerman says the company pays 2.2 percent in fees on the average credit-card transaction, but its new e-check system costs it roughly half that amount.

I think any thoughtful online retailer will look seriously at this kind of savings. But, there may be drawbacks for some consumers:

For consumers, one of the best reasons to avoid e-checks is to keep earning rewards from a credit-card company. Retailers argue that's short-sighted. As Amazon notes on its site, if more customers were to pay through their bank accounts, Amazon could pass on its savings in the form of lower prices.

Amazon and the others need to incent customers on a per transaction basis if they want broad adaptation. The way to do this is to pass the savings directly to the customer. If a retailer saves a net of 1.1% when customers use an e-check then credit that to the customer on a per transaction basis. In the long run everyone except perhaps the banking and card industry will be better off: retailers become more competive, consumers save some money and the fees charged for using credit/debit cards probably come down (e-check fees may go up).

This is potentially good stuff for online purchases and it would be great to see more of the same when we shop locally. Remember that w hen you are buying in person you can ignore the cards and e-checks and simply pay with cash. This will definitely hit the bottom line of the banking industry and I'm ok with my local stores keeping the difference for a while. I would, though, rather see us getting an automatic discount for cash at the register!

And as to the rewardsmentioned above:

Some credit cards give you 5 percent refunds when you use them at the grocery or drug store.

If these card companies are charging a service fee high enough to give 5% refunds then we should damn well be all over retail outlets to give us discounts for cash!@!

Posted by Steve on November 16, 2005