Debit Cards v.s. Credit Cards – Top Five Usage Considerations
1. On-line
Debit Cards are more vulnerable than Credit Cards because they have a direct link to your bank account, whereas Credit Cards normally do not. With a Debit Card, if your account is hijacked, your entire account balance may be at risk.
The Federal Reserve’s "Regulation E" stipulates that a consumers liability is limited to $50.00, so long as the theft of the card or card number has been reported within two days of the discovery of the theft. Additionally, some financial institutions, may have an internal policy that sets your liability at $0. However, it may not protect you against the overdraft fees, NSF check charges, or the hassle of having to deal with other creditors for which you may now have an NSF check on file.
With a Credit Card, your liability limit is typically $50.00 (as long as the theft has been reported within the time frame specified in your card holder agreement). In most cases, there is no direct link to your bank account, so your other account balances are protected.
So in most cases, it would be more advantageous to use a Credit Card.
2. Big Ticket Items.
With big ticket items, credit cards offer dispute rights if something goes wrong with the merchandise or the purchase. Debit Cards offer fewer protections in this area.
Some Credit Cards offer automatic extended warranty’s on purchases, and/or additional product property insurance.
So generally it’s best to use a Credit Card in these situations.
3. Deposit Requirements.
Some purchases such as rentals, require a sizable deposit
Using a Credit Card here affects your available credit, however, unlike your Debit Card, it doesn’t tie-up your bank account balance.
4. Gas Stations and Hotels.
Some gas stations and hotels will place temporary holds to cover who those who may leave without settling their entire bill. For Gas Stations, this may be anywhere from $50.00 – $100.00. For Hotels, this hold amount could be in the hundreds. For hotels, it’s a good idea to ask what their policy is up front.
5. Restaurants.
Restaurants are one of the most common areas of Debit and Credit Card theft. This is one of the few places where you have to let the card leave your sight.
The prevailing logic here would be just to not let the card out of your site, however, in most cases, this is not practical. So when using a debit card, it might be more prudent to pay at the register.
Also, many restaurants, anticipating a tip, may authorize your account for a much higher amount than the actual tab. Even if this is not used, this hold may take a number of days to clear your account.
Other considerations.
Up until recently, most banks would allow you to automatically let your Debit Card account go into overdraft mode. This means that charges could be allowed on your bank account that actually exceeded your physical balance. Due to oversight pressure, many banks are now limiting the amount of withdrawals to Debit Cards at the physical balance. You should check with your financial institution for their current policies.
As a more secure alternative to using a Debit Card that is linked to your main checking account, you could set-up a separate account specifically to be used for debit transactions only. An example, you might be putting your budgeted "Cash" spending allowance specifically into this account, so that it would also be separate from your regular checking account. This means that no matter what happens, the amount at risk would be limited to what is actually in this specific account.
As a merchant, it’s in your best interest to offer a variety of secure payment choices to your customers.
Do you know if your POS system is currently meets the Visa/Mastercard and American Express Credit Card security requirements? Please call the CCS Retail Systems Support Department to schedule a review.