Debit cards also known as a bank cards or check cards provide the cardholder electronic access to his or her bank account(s) at a financial institution. Debit cards are similar to credit cards, except debit cards pull money out of an underlying checking or brokerage account. Debit cards do not create or increase a loan like credit cards do. However, debit cards do not help the cardholder build credit the way credit cards do. Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash. Retail merchants may also offer cashback to customers, where a customer can withdraw cash along with their purchase.
Debit card transactions are automatically deducted from the checking or savings account and typically posted within 24 hours of the purchase. Updated balance and transaction records are posted on the card issuer’s website or by phone. The merchant must acquire an electronic authorization device at the point of sale (POS) and sometimes also a separate PINpad to enter the PIN.
MasterCard and Visa have introduced a debit card, which is widely accepted internationally. International transactions are generally in the local currency, requiring a currency exchange by the card company to the currency of the primary account.
There are three ways that debit card transactions are processed…
Debit and credit cards are embossed plastic cards complying with ISO/IEC 7810 ID-1 standard. Cards have an embossed bank card number conforming with the ISO/IEC 7812 numbering standard.
When the cardholder signs for purchases, the money comes directly from their checking account, but they also get security protections that help prevent, detect and resolve fraud, including:
Both credit and debit transactions may be conducted in both modes…
“Debit” (PIN) – Online debit cards are generally viewed as superior to the offline debit cards because of their more secure authentication system and live status. On-line debit systems use the normal authentication processes of Internet banking to provide real-time on-line debit transactions; the most notable of these are Ideal and POLl.
Merchants are charged a flat fee for each on-line (PIN based) debit transaction instead of a percentage rate (discount fee) plus transaction fee. PIN based debits are not subject to chargebacks, the merchant enjoys immediate funding, and a low transaction fee.
“Credit” (Signature) – Offline debit cards are used at the point of sale like a credit card (with payer’s signature). These transactions do not use a real-time payment processor.
This type of debit card may be subject to a daily limit, and/or a maximum limit equal to the current/checking account balance from which it draws funds. Transactions conducted with offline debit cards require 2–3 days to be debited from the cardholders account.
Debit cards that have a VISA or MasterCard logo on them can be processed without entering a PIN code. Cards that do not bear the Visa or MasterCard logo cannot be processed off-line and will not be approved. These types of transactions are referred to as “off-line” debit transactions. In this type of sale the merchant accepts a debit card the same way in which they would accept a normal credit card. The card is swiped through the terminal and the consumer signs the receipt. As far as the merchant is concerned there is no difference in the way a credit card or an off-line debit card is processed. Funds are transferred from the consumers bank account just as in a PIN based (“on-line”) debit transation. However, the main disadvantage to the merchant is that the same discount fees charged to credit card transactions also apply to off-line debit transactions, increasing the expense of processing. With signature-based debit, the merchant pays a little more to process a transaction, has no customer cash-back option, and receives little protection against potential chargebacks.
Online vs. Offline Fees
A “credit” or offline debit transaction is without cost to the cardholder beyond the face value of the transaction, while a fee may be charged for a “debit” or online debit transaction. However, the merchant typically pays lower fees on an online “debit” transaction as compared to “credit” (offline)
Debit vs. Credit Cards
Federally Imposed Maximum Liability for Unauthorized Card Use (United States)
Maximum Card Holder Liability
|Credit Card||Debit Card|
|Within 2 business days||$50||$50|
|After 2 but before 60 business days||$50||$500|
|After 60 business days||Unlimited||Unlimited|
Debit cards are used on the Internet either with or without using a PIN. Internet transactions may be conducted in either online or offline mode. 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 the transaction is Card Not Present (CNP).