A Debit Card is a plastic card we use as a payment method instead of cash when we buy things. We also call it a bank card or check card.
It is not the same as a credit card. Credit cards lend you the money when you buy things, while debit cards debit your bank account; hence the name.
A purchaser’s card may carry a stored value. However, most of them relay a message to the purchaser’s bank to withdraw funds from a specific bank account. Sometimes, the primary account number is assigned just for online payments; i.e., there is no physical card.
Debit card, check, and cash
In many countries, debit card use has become so common that their volume has exceeded that of checks (UK: cheques), and in some cases even cash payments.
The rollout of debit cards has largely been a country-specific process. Unlike credit and charge cards, which tend to follow more uniform international standards, debit card systems were initially developed independently around the world, often leading to incompatibility.
However, since the mid-2000s, various initiatives have made it possible for debit cards issued in one country to work abroad and to be used for internet and phone transactions
In recent years, advancements in global financial networks have further enhanced the interoperability of debit cards, allowing for seamless transactions across different currencies and banking systems.
This type of card also acts as an ATM card. In other words, we can use them to withdraw cash from automated teller machines (ATMs).
The sentences below explain the difference between the two types of cards simply and succinctly:
Debit Cards:
- When you use a debit card, the amount spent is immediately deducted from your checking account, ensuring you can only spend what you have available.
- Debit cards usually require a personal identification number (PIN) for transactions, directly accessing the funds in your bank account without accruing any debt.
- Many debit cards offer free withdrawals at specific ATMs, directly reflecting your account balance with each transaction you make.
- These cards are linked to your bank account, so if you lose your card and don’t report it promptly, fraudulent charges could drain the funds you have on deposit.
Credit Cards:
- Credit cards allow you to borrow money up to a certain limit, with the understanding that you will pay back the borrowed amount plus any applicable interest charges.
- When you make a purchase with a credit card, you’re essentially promising to pay back the credit card company later, which can help build your credit history if managed wisely.
- Many credit card companies offer rewards programs, providing points, miles, or cashback on your purchases, which is a form of incentive to spend on credit.
- If you fail to pay off your credit card balance in full each month, you’ll incur interest charges, potentially making your purchases more expensive over time.
Three types of systems
There are currently three main types of debit card systems:
Online debit
An online debit card requires electronic authorization for each payment. All approved payments appear on the purchaser’s account immediately. There may also be a PIN (personal identification number) authentication system.
Offline debit
The offline card has the logo of major credit card companies such as Maestro, MasterCard, and Visa. The cardholder uses it at the point of sale like they would do with a credit card (with signature).
Sometimes, these cards have a daily limit which may be the same as the maximum daily cash withdrawal.
With this type of card, details of transactions appear on the cardholder’s bank account after two to three days.
Electronic purse card
The card’s chip stores how much money is available for purchases. Therefore, the seller’s machine does not need to be online.
This type of card has been popular in Germany, Austria, France, and some other European countries since the mid-1990s.
Modern debit cards often include enhanced security features such as chip technology and contactless payment options to provide a safer transaction experience for users.