FIGHT BACK : HANDLE DEBIT CARDS WITH CARE.

Byline: David Horowitz 

I've always thought debit cards were a handy idea. They work like credit cards except that instead of building up debt in a credit card account, the money comes right out of the user's checking account, like a paperless check. I especially like the convenience of not having to write out a check by hand, then provide photo identification and wait while the sales clerk transfers that information to the check. I also have to buy checks less often.

Debit cards are not a new idea. They've been around for at least 10 years. But until recently, their use has been marginal compared to cash, checks and credit cards - even when you include ATM cards used for purchases at supermarkets and gas stations. Now, that seems to be turning around. Debit card transactions have risen 63 percent this year, mainly because banks are actively promoting debit cards bearing the Visa and MasterCard logos.

That connection with MasterCard and Visa makes a huge difference because just about any merchant who accepts MasterCard or Visa bank cards can also accept their debit cards. Retailers like debit cards because transactions are quick, they don't bounce like checks and the transaction fees are lower than those for credit card purchases.

Banks also have a financial incentive to promote debit cards - lower overhead. It typically costs a bank 68 cents to clear a handwritten check and 27 cents to process an ATM transaction. But debit card purchases cost the bank only 14 cents to process. Multiply those savings a few million times a day and it adds up to a lot of money.

Not content with just lowering their costs, some banks are also imposing a small fee on each debit card transaction. But most industry experts don't seem to think that will hamper the growth of debit cards. Competition may even force some banks to give up those fees.

Debit cards should be handled with some care, however. If you lose your card, report it to your bank within two business days. If you do, your losses are limited to $50. But if you miss that reporting deadline, your liability for unauthorized purchases goes up to $500. You should also keep careful track of debit card purchases, just like checks.

So-called ``smart cards'' may be a step closer to reality. These are cards with an interactive computer chip imbedded in them. They come preloaded with a cash value that diminishes each time the card is used to make a purchase. The cards may be either disposable or ``refillable'' at your bank's automated teller machine.

Several banks tested smart cards in Atlanta during the Olympic Games, and the results, they say, were good - but not great. People who had them did use them to buy things, but total dollar volume was modest. Visa reported only 260,000 smart card transactions during the Games. The banks say that's good enough for them to go ahead with another market test in New York City toward the end of this year.

Retailers need special terminals to process smart card sales. But the cards also can be used in specially equipped vending machines, parking meters and pay phones.

MEMO: David Horowitz's column appears on Saturdays.