Debit card
A debit card, also known as a check card, cheque 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 new cards now have a chip on them, which allows people to use their card by touch, or by inserting the card and keying in a PIN as with swiping the magnetic stripe. Debit cards are similar to a credit card, but 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, 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, 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 There are usually daily limits on the amount of cash that can be withdrawn.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, offline 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 and Solo in the United Kingdom; Interac in Canada; Carte Bleue in France; EC electronic cash 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 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 national card as well as Maestro. 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 authentication system; some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine cards.One difficulty with using online debit cards is the necessity of an electronic authorization device at the point of sale 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 debit cards. 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
-based electronic purse systems have been in use throughout Europe since the mid-1990s, most notably in Germany, Austria, the Netherlands, Belgium, Switzerland, and France. 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 or rechargeable 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.In recent years, online payment fraud has surged dramatically. Consumers frequently face account takeovers, phishing attacks, and data breaches at merchants where they use their standard bank or credit cards. Beyond these threats, the European Union has introduced stricter regulations on how and where citizens can spend their money; a move many interpret as an infringement on privacy. To safeguard their real bank and credit card details, people are increasingly turning to disposable debit cards.
Advantages
Advantages of prepaid debit cards include being safer than carrying cash, worldwide 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
Governments
As of 2013, several city governments are now offering prepaid debit cards, either as part of a municipal ID card in the case of Oakland or in conjunction with a prepaid transit pass. These cards have been heavily criticized for their higher-than-average fees, such as excessive flat fees added onto every purchase made with the card.The U.S. federal government uses prepaid debit cards to make benefit payments to people who do not have bank accounts.
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.Consumer protection
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 toward 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's liability for unauthorized charges is the same for both debit and credit cards.In 2010, Bank of America announced that "it was doing away with overdraft fees for debit card purchases."
In some countries, such as 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 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 goods or services in accordance with laws allowing them to do so. Banks consider the purchases to have 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 and debit cards with Visa or Mastercard swipe magnet strips are disabled by default if used outside of Singapore. The whole idea is to prevent fraudulent activities and protect the card holder. If customers want to use card swipe magnet strips aboard and internationally, they will have to activate and enable international card usage.