Will Debit card transactions change?

JPMorgan Chase, one of the nation’s largest banks, is considering capping debit card transactions at either $50 or $100, according to a source with knowledge of the proposal. And the cap would apply even if you run your debit card as credit. The reason for this is interchange fees. as part of the Wall Street reform legislation that was passed last year, these fees are being slashed. As part of the Wall Street reform legislation that was passed last year, these fees are being slashed from $0.44 to about $0.12 per transaction. Banks say that they need this additional revenue to offset money lost from fraudulent transactions and without it, they will have to limit their losses with these caps.

Questions:

1. Based on this video and article, who will be most affected if the banks set these limits? Would this change affect you?

2. What is the name of the Wall Street reform legislation?

3.  From the accounting point of view, is there a difference in how a merchant records a debit card purchase as compared to a credit card purchase? Explain the journal entry or entries.

Sources:

Ellis, B. (2011) Debit Cards: $50 spending limit coming? CNN.com, March 10 (Retrievable online at http://money.cnn.com/2011/03/10/pf/debit_cards_limit/index.htm?hpt=T2)

CNN video. (2011). Rumored Debit Card Limit, March 10.

Just Say No to Debt During the Holidays

According to this year’s National Retail Federation holiday survey, the average American will spend close to $700 this season on gifts, cards, decorations, and the like. This is one time when you want to be below average — way below. In fact, if you are in debt, just say no to gift buying this holiday. There is absolutely NO reason for you to go further into debt buying gifts for others. There are still 13.6 million Americans who are trying to pay off holiday debt from last year.

 Questions:

 1.  Which of the tips mentioned in the article would help you the most in steering clear of holiday debt? Explain.

2. Go to GiftCards.com and click on Discounted Gift Cards.  Select “View All Available Gift Cards” and then pick one of the merchants that you would normally visit.  Assume that you buy the card.  What journal entry would this merchant make for the sale of this card? (In your answer, assume that the merchant must pay GiftCards.com a transaction fee of 1%.)

3.  Assume that you redeem the card that you purchased in Question 2.  What journal entry would the merchant make for the redemption?

 Source:

Pagliarini, Robert (2010). 10 Tips to Save Big Money This Christmas.  HuffingtonPost.com, December 8 (Retrievable online at http://www.huffingtonpost.com/robert-pagliarini/10-tips-to-save-big-money_b_793857.html)

Accept Credit Cards at Garage Sales and Bake Sales

Why can’t everyone accept credit cards? Now there is no good reason because the Square Up system eliminates card reading equipment by providing cell phone users with an app that snaps into a headphone jack. The plug is free and you are spared the contracts, the minimums and the monthly fees. For each transaction, Square charges you 2.75 percent of the total, plus 15 cents. Alternatively, you can accept credit card payments without the card itself — over the phone, for example. You just need the card number, expiration date and security code, although these transactions cost you more (3.5 percent).

Questions:

1. Assume that you sold a surfboard on Craigs List to someone who paid you $100 and gave you a credit card. If you swipe the card, how much would you pay to Square for the use of their system?
2. Assume the same facts as in Question 1, except that you do not have the card to swipe, but enter the number, expiration date and security code. How much would you pay for Square to process the transaction?
3. Assume that you sold the surfboard from your small business. What journal entry would you make in Questions 1 & 2?
4. Why do you think that Square has restrictions on deposits over $1,000 for first time users?

Source:
Pogue, D. (2010). A Simple Swipe on a Phone, and You’re Paid, The New York Times, September 30 (Retrieved online at http://www.cnbc.com/id/39438067/)

Tighter Regulations on Swipe Fees

On May 13, 2010, retailers won a victory over the fees they pay to banks for credit cards. An amendment by Sen. Richard J. Durbin is just one more element of the financial regulation overhaul currently underway the Senate.  The measure allows stores to give customers discounts for paying with cash or using cards with cheaper fees, and it would permit retailers to set price thresholds for accepting credit cards. It also tasks the Federal Reserve with crafting regulations for determining whether swipe fees for debit cards are “reasonable and proportional.”

QUESTIONS:

1. What is the average amount that retailers pay to credit card companies?

2. Explain how a retailer makes a journal entry for a credit card sale that includes these swipe fees.

3. Explain how you believe retailers will make journal entries for sales with cash discounts, under the new regulations.

SOURCE:

Dennis, B. and Y. Mui. (2010). Senate Passes Amendment on Debit and Credit Card Swipe Fees,  The Washington Post, May 14. (Retrievable online at http://www.washingtonpost.com/wp-dyn/content/article/2010/05/13/AR2010051303571.html)

Opting for Electronic Transactions

More companies are cutting eliminating the acceptance of check payments from their business plans. According to Karen Aho, Whole Foods Markets, Fresh & Easy, and Banana Republic (a brand of Gap, Inc.) are just a few of the companies that refuse checks as payment from customers. According to the Federal Reserve, paying by check has declined by 6.4% since 2003. Financial services consultant, like James Neckopulos, believe that checks will be a thing of the past in 10 years.

QUESTIONS:

1. The article talks about how “paper costs money.” What are these costs associated with taking checks and where would they be accounted for on the financial statements?
2. Are there any costs associated with accepting credit card payments from customers? If so, how are these recorded in journal entries?
3. While some companies cite faster check-out lanes as an advantage of no-check policies, what are the financial advantages of accepting only cash, credit cards, or debit cards? What are some of the disadvantages in terms of customer relations?
4. Are payments by check reported separately on financial statements? If not, then where?

SOURCE:

Aho, K. (2009). Still Use Checks? Join the Dinosaurs. MSN.Money (Retrievable online at
http://articles.moneycentral.msn.com/Banking/BetterBanking/still-use-checks-join-the-dinosaurs.aspx)