While shuffling through the various cards in your wallet, hunting for a card to complete a purchase, suddenly you find yourself pondering which card to use- a debit card or a credit card. If you’re absolutely a newcomer into this world of plastic money, this confusion can be as hard as resolving an algebra equation! One might think both are a form of plastic cash after all!
Pondering what is a debit card and how it’s different than a regular credit card? In simple terms, debit cards blend the functions of an ATM card and a credit card. They enable the cardholders to access the cash from their bank accounts instantly. Debit cards are popularly known as easily approachable plastic cash that offers access electronically to our savings account in any bank via ATMs or card swipes. They function similarly to credit cards, with the major difference being the fact that the amount gets directly and instantly deducted from the cardholder’s account instead of the money being paid by them at a later date.
In this blog, Fintra will journey you into the world of debit cards by highlighting the following topics:
Various banks issue debit cards, and they are like an ATM card with the functionality of a credit card. A debit card is a payment card that enables one to make secure and easy transactions online and in-person by drawing money directly from the individual’s checking/savings account. In other words, the individual is not borrowing funds from a line of credit as it would have with a credit card; the money on the debit card belongs to the individual. One can also use this card to access its cash at ATMs. Along with cash registers and ATMs, these cards also work with mobile payment platforms such as Samsung Pay, Apple Pay, and Google Pay, as well as with many other money transfer apps.
Some other names used for debit cards are cash cards, bank cards, or check cards. Due to the widespread usage in the globe, a debit card issued from one country is mostly valid to be used in another country. Debit cards can be used for making payments for purchases done over the internet or phone. The chief four issuers of debit cards are American Express, Discover Card, Master Card, and Visa. Apart from these four issuers, some countries might have their country-specific debit cards that could be popular in those countries along with a few more. Some examples of the country-specific debit card issuers would be RuPay in India, UnionPay in China, and Maestro in the United Kingdom.
In India, debit cards have various variants. They are usually classified based on the technology used, based on payment platform, and based on usage. Following is a brief description of each category:
1. Based on Technology used
A. Contactless Debit Card- These cards use the technology of radio frequency identification (RFID) or near field communication (NFC) secure transactions. Just by a tap transactions through these cards are done.
B. Magnetic Stripe Debit Card- Such types of cards use the technology of tiny iron-based particles on a magnetic band. Known as a swipe card, such cards can be swiped past a magnetic reading head for any transaction.
C. Chip and Pin Debit Card- This debit card uses a more evolved version of the technology. It is inbuilt with a chip that stores and transacts data in an encrypted format. Each transaction made via this requires a PIN (Personal Identification Number).
2. Based on Usage
A. Prepaid Debit Card- These types of cards unlike other debit cards aren’t linked to an individual’s account. To use this card, one needs to pay in advance and load the funds into its card. Later on, the person can use the funds in it. One of the most common forms of the prepaid debit card is the Forex (Foreign Exchange) Card, it is a convenient way to carry and spend funds overseas.
B. International Debit Card- The International Prepaid Debit Card is a debit card that can be used overseas to perform transactions and withdraw funds at international bank ATMs. Sometimes an extra charge, Foreign Exchange Markup, will be added to the total transaction value. This markup might be up to 3.5% of the transaction amount. Additional charges may arise when withdrawing foreign currency overseas using the debit card.
C. Virtual Debit Card- Such cards are not physical debit cards, they are accessed via phone or internet for doing online payments, but that too only once.
D. Business Debit Card- Business Debit Cards are only issued to corporate people for uses pertaining to business purposes.
3. Based on Payment Platform
A. Visa Debit Card- This is a debit card issued by Visa, a payment platform based out of North America. Such cards provide a Verified by Visa (VbV) platform for online transactions.
B. Visa Electron Debit Card- A sister card to Visa debit card. Visa Electron Debit Card's distinguishing feature is the fact that funds are needed to be available in the account at the time of payment since there is no overdraft limit.
C. Maestro Debit Card- Popularly known as the worldwide trademark of master card that requires debit card PIN for making any transaction.
D. Master Debit Card- Master Debit Card is a type of card that provides secured and convenient access to funds. It comes in two types- Cirrus Debit Card and Maestro Debit Card.
E. RuPay Debit Card- Launched under the domestic card scheme of National Payments Corporation of India (NPCI), RuPay Debit Card supports online transactions and payments over the discover network.
Besides the above, debit cards are allotted by the name of metals like Gold Debit Cards, Titanium Debit Cards, or Platinum Debit Cards. Such cards have nothing to do with the metal in particular, but they are named after them due to the benefits they offer to the cardholder. These benefits may vary from company to company and bank to bank.
Following are some guidelines on how to take care of debit cards:
In general, debit cards usually partner with the major credit card brands, such as American Express, Discover Card, Master Card, and Visa, to allow an individual to use its debit card for making payments anywhere those branded cards are accepted.
While using debit cards for an in-person purchase, the cardholder will have to either swipe it, insert it, or use contactless pay at the card terminal just like the credit cards. The holder will then be asked to enter their debit card PIN into the machine, although some merchants do allow to use the debit card without a PIN. The PIN is a security measure that verifies the person's identity. Do note when making any payment for a purchase, the funds get directly pulled from the cardholder's savings/checking account. Once the bank verifies that the cardholder has the funds to make the purchase, its transaction will be approved. One can glance at the bank statement to note if the purchase is done or it’s still pending. If the transaction appears as pending, it means the bank hasn’t transferred the funds to the merchant, although the cardholder's account is been debited. As soon as the bank transfers the funds to the merchant, the transaction will appear as approved.
While using the debit card to pay for a purchase or withdraw funds from an ATM, one can complete their transaction because it already has the funds necessary in its linked account. Moreover, depending on each individual’s bank, the bank may provide the individual with the facility of overdraft their account by a certain number of Rupees if it has the additional funds available in a backup account, such as a savings account. However, to spend money using the debit card, the required money must be presented in the cardholder's account.
Usually, debit cards won’t typically have fees or charges for using them every day, but some debit transactions do carry fees, though a few of them often can be avoidable. For example, some fees might be applied for using an ATM outside the bank’s network or using the debit card in another country.
These charges will vary from bank to bank, but the following are a few fees and charges associated with debit cards that most of the banks levy:
Debit Cards and Credit Cards resemble each other in appearance: both have a unique 16- digit card number, month and year of expiry, and a 3-digit CVV (Card Verification Value) number on the back of the card. However, the features of both along with their usage pattern do vary drastically.
Following is a brief description of how both differ from one another:
Whenever your debit card gets lost or stolen, stay calm and don’t panic. Cards do tend to get misplaced and stolen every now and then. The first thing to do in such a situation is immediately to contact your bank and inform them about the card. Some banks allow you to report the loss online through their online banking portal, and some banks will require you to call them. Depending on how critical is the situation, some banks will freeze the debit card until you’ve found it, and at other times, banks will immediately deactivate that card and send the cardholder a new debit card. Do note reporting the loss or stolen of the card promptly is essential because it will reduce your liability for any fraudulent charges.
Following are some other precautions to take for preventing debit card frauds:
Whenever opening a saving or checking account, the financial institution will automatically issue a debit card for free. At times you can request for availing one with your account. Later on, to activate the card, you'll be required to follow the instructions received by the bank and set up its PIN for ATM use and purchases. Users who don’t have access to bank accounts can opt for a prepaid debit card that enables them to make purchases. If seeking to build credit, then opting for a secured credit card will be a better option. One can apply for a debit card online or offline. Nowadays, it may not be required to apply for a debit card because it is readily offered while opening a new savings account.
Using Debit Card At ATM
Using Debit Card At POS (Point-of-sale)
Using Debit Card Online
In short, like credit cards, debit cards also offer the flexibility of paying with a plastic card instead of writing checks, both online and in person. It’s strongly advised and vital to match the cards presented in your wallet with your spending habits. Thus, compare the various credit cards, debit cards, and prepaid cards being available in the market before settling on one. One or a combination of the three can enable you to gain the flexibility you’re craving with the seamless access to the cash required to fulfill your daily activities. Recognizing what a debit card provides in terms of convenience and how it works will enable you to pick the correct card that suits your needs, and you must use it responsibly.