Debit Card

Jai Ganesh · 2023-11-07 16:45:12

Debit Card

Gist

A debit card is a small plastic card that can be used as a method of payment, the money being taken from your bank account automatically.

Summary

A debit card is a payment card that deducts money directly from your checking account. Also called “check cards” or "bank cards," debit cards can be used to buy goods or services or to get cash from an ATM. Debit cards can help you reduce the need to carry cash, although using these cards can sometimes entail fees.

A debit card is a card linked to your checking account. It looks like a credit card, but it works differently. The amount of money you can spend on a debit card is determined by the amount of funds in your account, not by a credit limit such as credit cards carry.

Unlike with a credit card, you do not go into debt when you use a debit card because you are using it to access funds you already have. You do not have to make monthly minimum payments on a debit card because there is no debt to repay.

You can use a debit card to get cash from an ATM or you can make purchases with it like you make purchases with credit cards. With debit cards, you may need to enter your PIN (personal identification number), although many debit cards can be used to make purchases without a PIN.

Debit cards draw the funds immediately from the affiliated account. So, your spending is limited to what’s available in your checking account, and the exact amount of money you have to spend will fluctuate along with your account balance.

Details

A debit card, also known as a check card or bank card, is a payment card that can be used in place of cash to make purchases. The card usually consists of the bank's name, a card number, the cardholder's name, and an expiration date, on either the front or the back. Many of the new cards now have a chip on them, which allows people to use their card by touch (contactless), or by inserting the card and keying in a PIN as with swiping the magnetic stripe. These are 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 the 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 cards), 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 that they have overtaken checks 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 a number of different systems around the world that are 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.

Debit cards usually also allow an instant withdrawal of cash, known as a cash advance, acting as an ATM card for this purpose. Merchants may also offer cashback facilities to customers so that they 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, rarely, 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 it can be used in a number of 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 (since merged with 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 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, 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). These cards connect straight to a person's bank account, but there is a delay before the money is taken out.

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) have been 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:

Nomenclature

Prepaid debit cards are reloadable and can also be called reloadable debit cards.

Users

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

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.

Risks

* 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, they will likely lose 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.

Types

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, etc.); and regions.

Governments

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 in conjunction with a prepaid transit pass (in Chicago). These cards have been heavily criticized for their higher-than-average fees, including some (such as a flat fee added onto 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 benefit payments to people who do not have bank accounts. In 2008, the U.S. Treasury Department partnered 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 a number of advantages to governments and those who receive payments on a prepaid card rather than by check. The prepaid card programs benefit payments largely for the 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 in order to realize substantial savings for taxpayers as well as benefits for payees.

Impact of government-mandated fee-free bank accounts

In January 2016, the UK government introduced a requirement for banks to offer fee-free basic bank accounts for all, which had a significant impact on the prepaid industry, including the departure of a number of firms.

Additional Information

A debit card is a small card, similar to a credit card, offering means of paying for a purchase through transfer of funds from the purchaser’s bank account to the vendor. Financial institutions that process these transactions benefit from cheaper transaction costs (it is more expensive for banks to process transactions paid with checks) and immediate payment. Although the financial institution receives the credit immediately, the vendor is credited in the same way as in a credit card transaction—usually within a matter of days. Debit cards differ from stored-value cards (also known as smart cards), which simply subtract the transaction amount from cash value stored on the card.

Math Is Fun Forum

#1 2023-11-07 16:45:12

Debit Card

Board footer