Why do banks push for signature-based debit card purchases? This New York Time article describes why:
When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.
The article reviews the history of debit cards and how signature-based purchases have become more common than PIN-based purchases:
How this came to be is largely a result of a successful if controversial strategy hatched decades ago by Visa, the dominant payment network for credit and debit cards. It is an approach that has benefited Visa and the nation's banks at the expense of merchants and, some argue, consumers.
A big chunk of the fees of a debit card purchase that stores pay to banks is what's called an interchange fee. According to the article this can be about 1 to 3 percent of each purchase. The article describes how interchange fees have been growing:
The banks have used interchange fees as a growing profit center and to pay for cardholder perks like rewards programs. Interchange revenue has increased to $45 billion today, from $20 billion in 2002, driven in part by the surge in debit card use.
I can see why merchants are mad, but it should be noted that we may not have had reward checking accounts or cash-back credit cards without these interchange fees. On the other hand, we are paying more for goods and services because of these interchange fees. From the article:
merchants say they inevitably pass on that cost to consumers; the National Retail Federation says the interchange fees cost households an average of $427 in 2008.
This seems high. Assuming an average 2% interchange fee, $427 of interchange fees would require over $21,000 in purchases. For consumers, very few stores give discounts for cash payment. So you're paying more regardless of how you pay. Thus, it makes sense that you share in your banks' profits by using either a cash-back credit card or a reward checking debit card.
To learn more about reward checking, please refer to this reward checking overview.