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The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Spring 2007

Speed Paying and Banking

High-tech cards and phones could change the way you spend and manage your money

Photo of woman using wireless device
Picture source: Consumer Electronics Association
New technologies are constantly adding speed, convenience and flexibility to practically everything we do – including how we bank and pay for goods and services.If you think banking over the Internet is the latest trend, you may be in for some surprises…and for some revolutionary new ways to conduct your daily financial transactions using pre-paid cards, credit and debit cards, and cell phones.

"Banking and paying for goods and services is becoming increasingly wireless and mobile," said Ben Vaughn, an FDIC manager in the section that monitors technology use by financial institutions. "Radio waves are removing the tether from credit cards, debit cards and personal computers, allowing easier access to our bank accounts." The consumer benefits, Vaughn said, include "faster and easier purchases in the checkout line as well as being better able to monitor your bank accounts, which can help in the early detection of errors, fraud and identity theft."

Many financial institutions as well as retailers, cell phone service providers and other companies are also offering special incentives (including waiving or reducing fees) to consumers who use high-tech payment methods. "There's a lot of competition going on, and companies know that new banking services can create greater customer loyalty," noted Donald Saxinger, an FDIC electronic banking specialist.

But while the new services can provide benefits, they also can present questions and concerns about security. "There is always the possibility that a customer could lose a cell phone or bank card, so it is crucial to safeguard passwords, monitor your bank accounts and quickly report and deactivate a lost device so it can't be used to access an account or transfer funds," Saxinger explained.

To help introduce you to new forms of technology in banking, FDIC Consumer News offers this overview.

Cards With a Pre-Loaded Value

These cards come in several varieties that serve different purposes but generally enable a cardholder to pay for goods or services. With each purchase, as the card is swiped through a card reader, the value goes down. It also may be possible to add value onto some pre-paid cards. Sometimes fees may be associated with these cards, so be sure to ask about the potential costs. Examples of the increasingly common and popular pre-paid cards include:

• Gift cards. Think of them as high-tech gift certificates. Some are for use at a specific store or service provider. Others are "universal" gift cards that generally can be used at any retailer that accepts credit and debit cards but usually cannot be used to obtain cash from ATMs and other sources.

While gift cards are great for birthdays or other occasions, they come with potential risks and costs. That's why you should always read disclosures carefully and ask, for example, if a card has an expiration date that could wipe out a remaining balance after a certain time period (something prohibited under some state laws) or if fees will be deducted when the card is used – or not used.

• Pre-paid debit cards issued by financial institutions for use at a variety of businesses and ATMs. These cards generally can be used at most retailers that accept debit or credit cards. They also may be used to obtain cash from ATMs and are especially useful as substitutes for traveler's checks. Some pre-paid debit cards also can be used to make purchases on the Internet.

• Payroll cards. With these, an employer deposits salary or benefit payments into a bank account, which an employee can access using a special debit card to withdraw cash at an ATM or make purchases at a merchant sales terminal. "Payroll cards are primarily good as substitutes for paychecks for employees who don't have a bank account and might otherwise pay high fees to a check-cashing store," said FDIC attorney Christopher Hencke.

• Debit cards for Health Savings Accounts. Consumers who are eligible under IRS rules for these tax-advantaged savings accounts at banks and other financial institutions can save for certain medical costs, including doctor fees and long-term care insurance payments, and then use a debit card (or write a check) to pay for qualified medical expenses.

If a pre-paid card is lost or stolen: A consumer's liability for a lost card may vary depending on the type of card and who is issuing it. For example, a pre-loaded card issued by a bank or a major card network may provide more consumer protections than one issued by a retailer, "but to be sure you need to shop around, read the card's terms and conditions, and find out what to do if you lose your card," said David Nelson, a fraud specialist at the FDIC.

"Contactless" Credit and Debit Cards

You're probably used to swiping your credit or debit card's magnetic stripe through a sales terminal. But with the new generation of what are being called "contactless" cards, you can wave your card in front of the sales terminal (or quickly tap it on a screen) at participating retailers. A special reader at the sales counter will use a radio signal to gather the payment information from an electronic chip embedded in your credit or debit card. Another possibility (first introduced for use at gas pumps) is a small piece of plastic – perhaps a tag you can keep on your key chain or attached to your car's windshield – with a computer chip inside that can send information about which credit or debit card to charge. After getting a signal that your transaction has been recorded, you'll probably have the option to get a printed receipt. The transaction also will appear on your statement.

What's the benefit of contactless technology? It makes checking out faster, especially for small transactions (typically purchases under $25) at restaurants, convenience stores, movie theaters and other places.

If a contactless card is lost or stolen: You will have the same security protections and limits on loss under federal laws and financial industry policies as you would for any unauthorized use of your "regular" credit or debit card issued by a financial institution. That would include any zero-liability against losses that a financial institution may provide for a card. For details, contact your card issuer.

Banking by Cell Phone

Most cell phones today enable you to do much more than simply make a call. New cell phones allow you to send "text messages" (brief e-mails) to other phones and computers, take still pictures and videos, browse the Web, watch TV and, increasingly, conduct some of your banking business.

Depending on the services offered by your financial institution (such as your bank or credit card issuer) and your cell phone service provider, the options may include:

• Text messaging with your financial institution. This is the most basic level of cell-phone banking. It is commonly used for receiving alerts from your bank when your account balance reaches a certain level or when a certain transaction occurs. As with most text-messaging services, you may pay your cell phone company monthly or a per-message fee for sending or receiving these messages.

• Accessing your online bank account from your cell phone. You may be able to check balances, pay bills and transfer funds using your cell phone to connect to your online bank account (after keying in your password). "Think of this as online banking but on a miniature computer with a smaller screen and more limited images and options," explained Nelson.

• Instantly paying for purchases using your cell phone. Imagine going to the ball game, getting a hot dog from a vendor, using your cell phone to dial in to your credit or debit card account and immediately paying for your snack by sending a text message. "This form of mobile banking is mostly in limited use or in test stages, but as cell phones become equipped with special transmitter chips, there could be widespread use of phones for making payments," Saxinger said.

"Within the next couple of years," he added, "you may be using a cell phone to pay at checkout terminals and vending machines, send money to someone through a secure connection to your credit card or bank account, and even to download money (value) onto your phone."

Questions to Ask Your Banker Before Trying a High-Tech Service

How will this service make my banking simpler or more convenient?

Will mistakes or unauthorized transactions be simple to detect and correct?

What is my liability under federal law if a criminal obtains my account numbers and other personal information and commits fraud or steals money from my account? Does the bank or other company involved offer additional limits on liability beyond what's in the law?

What security procedures do you recommend for consumers?

What does the bank do to protect my privacy, such as information about my account balance and how I spend my money?

How much will it cost to use the service, including any equipment or cards I must purchase or any monthly or per-transaction fees?

If a cell phone is lost or stolen: Given how easy it is to lose a mobile phone, a consumer considering banking by cell phone should take some precautions. "First," Saxinger said, "make sure your bank requires a password or PIN to use a cell phone for banking. Also confirm with your bank that account numbers, passwords and other sensitive information are not stored on the phone, where they can be retrieved by a thief."

Saxinger also said that if you lose a cell phone that you used to do banking, you can take additional steps to protect against unauthorized access to your bank account. "Immediately contact your cell phone provider, which may be able to deactivate the phone or have sensitive information erased," he said. "Also consider calling your bank to find out about any additional precautions it may be able to take or what more you can do."

And what if a thief is able to obtain your password and then tap into your bank or credit card account? You'd have the same security protections and limits on liability as for other unauthorized electronic uses of your account. Contact your bank for more information.

Final Thoughts

If you're willing to consider a new high-tech banking and payment service, see our list of questions to ask your service provider before signing up. Also, considering the way technology is changing, these and other sophisticated new banking services are sure to get more user friendly. "What may seem to be futuristic, space-age banking services today may become very common in only a few years," said Janet Kincaid, FDIC Senior Consumer Affairs Officer. "Soon you could be one of the many people using a cell phone to buy a soda."

No matter what, Nelson added, "it's also nice to know that you'll still have options to bank at a branch, at home or wherever or however you're most comfortable."

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Last Updated 05/16/2007

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