Whether you’re using a debit card to help keep you on track after a bankruptcy filing or simply because it’s so much more convenient than cash, you’ve probably encountered the checkout decision of whether to enter a PIN or sign your name on a digital screen.

Have you ever wondered about the difference between these options? If not, you may be surprised to learn that the apparently arbitrary decision you make at the counter is part of a multi-billion dollar industry.

The Cost of Convenience

Here’s how debit cards work:

• Stores pay a fee: For each transaction made with a debit card, retailers must pay the company that issues the card.
• Prices go up: Because of the widespread use of debit cards, stores have had to raise all prices slightly to balance the money lost for this service. Some retailers even offer cash discounts to avoid paying these fees.

Essentially, customers are absorbing the cost of using these cards, but whether or not this is “fair” is a bit murky. In some ways, everyone wins:

• Consumers benefit by having the super-convenient debit card at their disposal. They lose out because prices have inched higher to accommodate this convenience.
• Retailers benefit because increased convenience means more customers can make more purchases—no more putting back items at the checkout when you realize you’re short on cash.
• Banks benefit because they collect fees retailers must pay to use the cards.
• Card companies benefit because they collect money from the banks using their cards.

Protect Yourself When Using Debit

In truth, there may not much you as a consumer can do about this structure, whether you like it or not. But you can take steps to make sure your information and money are as safe as possible when you use debit:

• Punch the PIN: The New York Times reports that typing your personal identification number is more secure than signing. Heed this warning and use your digits. Credit card companies can also charge a higher fee for signature purchases, so your PIN could help prevent the next price hike.
• Read your contract: Though the Credit CARD Act takes full effect next month and offers some spiffy new protections for users of plastic, make sure you understand the terms of your debit card so that you’re not charged excessive fees and fines for using it improperly.

Additional Resources

The Credit CARD Act of 2009