Do Consumers Need Citibank’s High-Tech Credit Cards?

Citibank (a WalletHub advertising partner) plans to test a new credit card technology that will let consumers carry just one card and use it as both a debit and credit card.  With what is known as Card 2.0 or 2G technology consumers will also be able to cash in rewards at the register when they make a purchase.

But do consumers need that convenience? Will it create more problems than it solves?

Suppose, for example, that a consumer decides to make a major purchase at the end of the month.  He thinks he pressed the button on this new 2G card for his credit card, but he didn’t and the card was still operating in debit mode.  So this purchase, which was supposed to be a charge, gets deducted as a debit from his checking account.  Before the cardholder realizes the error, his mortgage check bounces because he didn’t have enough in his checking account to cover the payment.  The check gets returned for insufficient funds.  Now the 2G cardholder has a big problem with his mortgage company.

Ultimately, the convenience of carrying one card instead of two is really not worth the risk of damaging one’s relationship with his mortgage company, or other debtor, as well as his credit score.  Thus, most consumers should steer away from the risk these new high tech cards could create.

When you dig deeper into the purpose of these cards it appears they truly are more for the benefit of the banks than the consumer.  The key protection these new 2G cards offer is the fact that when the cardholder reports a loss, the card issuer can remotely deactivate the card, thereby turning it into a useless piece of plastic.

However, since the Fair Credit Billing Act  stipulates that consumers can only be held responsible for the first $50 charged on a lost or stolen card as long as it is reported within two days whose money is truly at risk?  It’s the credit and debit card issuers that must foot most of the bill for the use of lost or stolen credit or debit cards.

So let’s look at what’s really behind this new technology:  a sophisticated way to reduce the risk of credit and debit card theft.  The banks will be the big winners if this new technology is adopted, not the consumers.

Banks can still choose to introduce this technology as theft protection, but I think it’s best for them to drop the idea of a joint credit and debit card.  This new technology could increase the risk of consumer mistakes and problems with very little benefit for the consumer.