A debit card (also known as a bank card or check card) is a
plastic card that provides the cardholder electronic access to his or her bank
account(s) at a financial institution. Some cards have a stored value with
which a payment is made, while most relay a message to the cardholder's bank to
withdraw funds from a payee's designated bank account. The card, where
accepted, can be used instead of cash when making purchases. In some cases, the
primary account number is assigned exclusively for use on the Internet and there
is no physical card.
In many countries, the use of debit cards has become so
widespread that their volume has overtaken or entirely replaced cheques and, in
some instances, cash transactions. The development of debit cards, unlike
credit cards and charge cards, has generally been country specific resulting in
a number of different systems around the world, which were often incompatible.
Since the mid 2000s, a number of initiatives have allowed debit cards issued in
one country to be used in other countries and allowed their use for internet
and phone purchases.
Unlike credit and charge cards, payments using a debit card
are immediately transferred from the cardholder's designated bank account,
instead of them paying the money back at a later date.
Debit cards usually also allow for instant withdrawal of
cash, acting as the ATM card for withdrawing cash. Merchants may also offer
cashback facilities to customers, where a customer can withdraw cash along with
their purchase.
Advantages of debit cards
- A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions. For example, legislation often prevents minors from taking out debt, which includes the use of a credit card, but not online debit card transactions. Research has shown that consumers with lower credit scores use debit cards more intensively than those with higher credit scores.
- For most transactions, a check card can be used to avoid check writing altogether. Check cards debit funds from the user’s account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check, containing the account holder’s personal information.
- Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored.
- Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.
Disadvantages of debit cards
- Use of a debit card is not usually limited to the existing funds in the account to which it is linked, most banks allow a certain threshold over the available bank balance which can cause overdraft fees if the user's transaction does not reflect available balance. This disadvantage has lessened in the United States with the requirement that an issuer obtain opt-in permission in advance to allow an overdraft on a debit card. Lacking this opt-in, overdrafts are not permitted for electronic transactions.
- Many banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may be unknown until later discovery by account holder).
- Many merchants mistakenly believe that amounts owed can be "taken" from a customer's account after a debit card (or number) has been presented, without agreement as to date, payee name, amount and currency, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks.
- In some countries debit cards offer lower levels of security protection than credit cards.Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. However, theft of users' PIN codes using skimming devices can be equally easily accomplished with a debit transaction PIN input, as with a credit transaction PIN input, and theft using a signature-based credit transaction is equally easy as theft using a signature-based debit transaction.
- In many places, laws protect the consumer from fraud much less than with a credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. Because debit cards allow funds to be immediately transferred from an account when making a purchase, the consumer also has a shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card and recover the lost funds,whereas with a credit card, this time may be up to 60 days, and the transactions are removed without losing any credit. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer's bank account, and the consumer will have no recourse.