Are Debit Cards the Future?

In the Washington Post is an article on the changes now underway with respect to Debit and Credit cards. Unless you are completely ignorant of the fundamental change from Debt based payment Instruments to pay as you go mechanisms. It is interesting to see how the paradigm is changing in the US. Prepaid Cards, ACH Check Conversion, and RCK are examples of ACH payment solutions.

Excerpts:
A couple days ago, I got some pushback for arguing that the credit industry's tiered model amounted to a subsidization scheme: Credit card users who fall into debt get socked with fees and interest rates that in turn subsidize reward programs and low APRs for the credit users with a steadier cash flow.

In the recent past, I worked as a management consultant for some major credit card issuers. I can tell you that internally, these companies have a common term for customers who pay off their entire balance every month: “freeloaders”. These “freeloaders” aren’t necessarily unprofitable; some are, most aren’t, on average the group is mildly profitable, but not nearly as profitable as those who carry a balance. If you’re wondering how a “freeloading” customer can be unprofitable, there are several factors. For one, about 0.8% of the 2%-3% interchange fee goes to rewards, but a diligent customer can push that to 1.5% or more by optimizing the collection and redemption of rewards points. Beyond that, the credit card issuer finances everything the “freeloader” buys on the card for 15 to 45 days. Finally, there are the various expenses a customer costs: printing and mailing cards and statements, call center service, various card benefits, etc.[...] There are tradeoffs for everything. If hotels were banned from charging $8 for a minibar beer and $2/minute for phone calls and $25 for breakfast, the hotel chains would have to reevaluate their pricing structure. The result would probably be higher room rates and some closed hotels. If airlines had a price limit put on their business class seats, you can bet coach tickets would go up in price and the number of flights would go down.

Link to article here.
http://voices.washingtonpost.com/ezra-klein/2009/05/wre_debit_cards_the_future.html?hpid=news-col-blog