A debit card (also known as a bank card, plastic card, or check card) is a payment card that can be used in place of cash to make purchases. It is similar to a credit card, but unlike a credit card, the money for the purchase must be in the cardholder’s bank account at the time of purchase and is immediately transferred directly from that account to the merchant’s account to pay for the purchase.
Some debit cards carry a stored value with which a payment is made (prepaid card), but most relay a message to the cardholder’s bank to withdraw funds from the cardholder’s designated bank account. In some cases, the payment card number is assigned exclusively for use on the Internet and there is no physical card. This is referred to as a virtual card.
In many countries, the use of debit cards has become so widespread they have overtaken cheques in volume, or have entirely replaced them; in some instances, debit cards have also largely replaced cash transactions.
The development of debit cards, unlike credit cards and charge cards, has generally been country-specific, resulting in several different systems around the world, which were often incompatible. Since the mid-2000s, several initiatives have allowed debit cards issued in one country to be used in other countries and allowed their use for internet and phone purchases.
Debit cards usually also allow an instant withdrawal of cash, acting as an ATM card for this purpose. Merchants may also offer cashback facilities to customers so that a customer can withdraw cash along with their purchase. There are usually daily limits on the amount of cash that can be withdrawn. Most debit cards are plastic, but there are cards made of metal and rare wood.
Types of debit card systems
There are currently three ways that debit card transactions are processed: EFTPOS (also known as online debit or PIN debit), offline debit (also known as signature debit), and the Electronic Purse Card System. One physical card can include the functions of all three types so that it can be used in several different circumstances. The five major debit card networks are UnionPay, American Express, Discover, Mastercard, and Visa. Other card networks are STAR, JCB, Pulse, etc. There are many types of debit cards, each accepted only within a particular country or region, for example, Switch (now: Maestro) and Solo in the United Kingdom,
Interac in Canada, Carte Bleue in France, EC electronic cash (formerly Eurocheque) in Germany, Bancomat/PagoBancomat in Italy, UnionPay in China, RuPay in India, and EFTPOS cards in Australia and New Zealand. The need for cross-border compatibility and the advent of the euro recently led[dubious – discuss] to many of these card networks (such as Switzerland’s “EC Direkt”, Austria’s “Bankomatkasse”,
and Switch in the United Kingdom) being re-branded with the internationally recognized Maestro logo, which is part of the Mastercard brand. Some debit cards are dual branded with the logo of the (former) national card as well as Maestro (for example, EC cards in Germany,
Switch and Solo in the UK,[dubious – discuss] Pinpas cards in the Netherlands, Bancontact cards in Belgium, etc.). The use of a debit card system allows operators to package their products more effectively while monitoring customer spending.
Online debit system
Online debit cards require electronic authorization of every transaction and the debits are reflected in the user’s account immediately. The transaction may be additionally secured with the personal identification number (PIN) authentication system; some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine (ATM) cards.
One difficulty with using online debit cards is the necessity of an electronic authorization device at the point of sale (POS) and sometimes also a separate PINpad to enter the PIN, although this is becoming commonplace for all card transactions in many countries.
Overall, the online debit card is generally viewed as superior to the offline debit card because of its more secure authentication system and live status, which alleviates problems with processing lag on transactions that may only issue online debit cards. Some online debit systems are using the normal authentication processes of Internet banking to provide real-time online debit transactions.
Offline debit system
Offline debit cards have the logos of major credit cards (for example, Visa or Mastercard)
The electronic purse card system
Smart-card-based electronic purse systems (in which value is stored on the card chip, not in an externally recorded account so that machines accepting the card need no network connectivity) are in use throughout Europe since the mid-1990s, most notably in Germany (Geldkarte), Austria (Quick Wertkarte), the Netherlands (Chipknip), Belgium (Proton), Switzerland (CASH) and France (Moneo, which is usually carried by a debit card). In Austria and Germany, almost all current bank cards now include electronic purses, whereas the electronic purse has been recently phased out in the Netherlands.
Prepaid debit cards
Prepaid debit cards are reloadable and can be also called reloadable debit cards.
The primary market for prepaid debit cards has historically been unbanked people; that is, people who do not use banks or credit unions for their financial transactions.
Advantages of prepaid debit cards include being safer than carrying cash, worldwide functionality due to Visa and MasterCard merchant acceptance, not having to worry about paying a credit card bill or going into debt, the opportunity for anyone over the age of 18 to apply and be accepted without checks on creditworthiness, and the option to deposit paychecks and government benefits directly onto the card for free. A newer advantage is the use of EMV technology and even contactless functionality, which had previously been limited to bank debit cards and credit cards.
If the card provider offers an insecure website for the cardholder to check the balance on the card, this could give an attacker access to the card information.
If the user loses the card and has not somehow registered it, the user likely loses the money.
If a provider has technical issues, the money might not be accessible when a user needs it. Some companies’ payment systems do not appear to accept prepaid debit cards.
There is also a risk that the prolific use of prepaid debit cards could lead data provider companies to miscategorize a user in unfortunate ways.
Prepaid cards vary by the issuer company: key and niche financial players (sometimes collaborations between businesses); purpose of usage (transit card, beauty gift cards, travel card, health savings card, business, insurance, others); and regions.
As of 2013, several city governments (including Oakland, California, and Chicago, Illinois) are now offering prepaid debit cards, either as part of a municipal ID card (for people such as illegal immigrants who are unable to obtain a state driver’s license or DMV ID card) in the case of Oakland or conjunction with a prepaid transit pass (Chicago). These cards have been heavily criticized for their higher-than-average fees, including some (such as a flat fee added to every purchase made with the card) that similar products offered by Green Dot and American Express do not have.
The U.S. federal government uses prepaid debit cards to make benefits payments to people who do not have bank accounts. In 2008, the U.S. Treasury Department paired with Comerica Bank to offer the Direct Express Debit MasterCard prepaid debit card.
In July 2013, the Association of Government Accountants released a report on government use of prepaid cards, concluding that such programs offer several advantages to governments and those who receive payments on a prepaid card rather than by check. The prepaid card programs benefit payments largely for cost savings they offer and provide easier access to cash for recipients, as well as increased security. The report also advises that governments should consider replacing any remaining cheque-based payments with prepaid card programs to realize substantial savings for taxpayers, as well as benefits for payees.
Impact of government-provided bank accounts
In January 2016, the UK government introduced a requirement for banks to offer fee-free basic bank accounts for all, having a significant impact on the prepaid industry, including the departure of several firms.
Consumer protections vary, depending on the network used. Visa and MasterCard, for instance, prohibit minimum and maximum purchase sizes, surcharges, and arbitrary security procedures on the part of merchants. Merchants are usually charged higher transaction fees for credit transactions since debit network transactions are less likely to be fraudulent. This may lead them to “steer” customers to debit transactions. Consumers disputing charges may find it easier to do so with a credit card, since the money will not immediately leave their control. Fraudulent charges on a debit card can also cause problems with a checking account because the money is withdrawn immediately and may thus result in an overdraft or bounced checks.
In some cases, debit card-issuing banks will promptly refund any disputed charges until the matter can be settled, and in some jurisdictions, the consumer liability for unauthorized charges is the same for both debit and credit cards.
In some countries, like India and Sweden, consumer protection is the same regardless of the network used. Some banks set minimum and maximum purchase sizes, mostly for online-only cards. However, this has nothing to do with the card networks, but rather with the bank’s judgment of the person’s age and credit records. Any fees that the customers have to pay to the bank are the same regardless of whether the transaction is conducted as a credit or as a debit transaction, so there is no advantage for the customers to choose one transaction mode over another. Shops may add surcharges to the price of the goods or services in accordance with laws allowing them to do so.
Banks consider the purchases as having been made at the moment when the card was swiped, regardless of when the purchase settlement was made. Regardless of which transaction type was used, the purchase may result in an overdraft because the money is considered to have left the account at the moment of the card swipe.
According to Singapore’s local Financial and banking laws and regulations, All Singapore-issued Credit Card and Debit Card visas or MasterCard swipe magnet strips are disabled by default if used overseas outside of Singapore. The whole idea is to prevent fraudulent activities and the protection of the cardholder.
If customers want to use card swipe magnet strips aboard and internationally. Customers will have to activate and enable international card usage.
Debit cards and secured credit cards are popular among college students who have not yet established credit history. Debit cards may also be used by expatriate workers to send money home to their families holding an affiliated debit card.
Issues with the deferred posting of offline debit
The consumer perceives a debit transaction as occurring in real-time: the money is withdrawn from their account immediately after the authorization request from the merchant. In many countries, this is correct for online debit purchases. However, when a purchase is made using the “credit” (offline debit) option, the transaction merely places an authorization hold on the customer’s account; funds are not actually withdrawn until the transaction is reconciled and hard-posted to the customer’s account, usually a few days later. This is in contrast to a typical credit card transaction, in which, after a few days delay before the transaction is posted to the account, there is a further period of maybe a month before the consumer makes repayment.
Because of this, in the case of an intentional or unintentional error by the merchant or bank, a debit transaction may cause more serious problems (for example, money not accessible; overdrawn account) than a credit card transaction (for example, credit not accessible; over credit limit). This is especially true in the United States, where check fraud is a crime in every state, but exceeding one’s credit limit is not.
Debit cards may also be used on the Internet, either with or without using a PIN. Internet transactions may be conducted in either online or offline mode. Shops accepting online-only cards are rare in some countries (such as Sweden), while they are common in other countries (such as the Netherlands). For comparison, PayPal offers the customer to use an online-only Maestro card if the customer enters a Dutch address of residence, but not if the same customer enters a Swedish address of residence.
Internet purchases can be authenticated by the consumer entering their PIN if the merchant has enabled a secure online PIN pad, in which case the transaction is conducted in debit mode. Otherwise, transactions may be conducted in either credit or debit mode (which is sometimes, but not always, indicated on the receipt), and this has nothing to do with whether the transaction was conducted in online or offline mode, since both credit and debit transactions may be conducted in both modes.
Debit cards around the world
In some countries, banks tend to levy a small fee for each debit card transaction. In other countries (for example, the UK) the merchants bear all the costs, and customers are not charged. There are many people who routinely use debit cards for all transactions, no matter how small. Some (small) retailers refuse to accept debit cards for small transactions, where paying the transaction fee would absorb the profit margin on the sale, making the transaction uneconomic for the retailer.
Some businesses do not accept card payments at all, even in an era of declining use of cash. This still happens for a variety of reasons, tax avoidance by small businesses included.
In 2019, £35,000 million in tax revenue was lost in the United Kingdom due to cash-only payments. Many businesses such as barbershops, fish & chip shops, Chinese takeaways, the black market, and even some building sites are known for cash-in-hand payments in the UK, meaning high amounts of money can be unaccounted for.
The banks in Angola issue by official regulation only one brand of debit cards: Multicaixa, which is also the brand name of the one and only network of ATMs and POS terminals.
ArCa (Armenian Card), a national system of debit (ArCa Debit and Arca Classic) and credit (Arca Gold, Arca Business, ArCA Platinum, Arca Affinity, and Arca Co-branded) cards popular in Armenia. Established in 2000 by 17 largest Armenian banks.