Science Fair Project Encyclopedia
A debit card is a ISO 7810 card which physically resembles a credit card, and, like a credit card, is used as an alternative to cash when making purchases. However, when purchases are made with a debit card, the funds are withdrawn directly from the purchaser's checking or savings account at a bank.
Online and offline cards
Two different types of debit cards are in use today: online and offline. Online debit cards use the same underlying technology as ATMs (bank machines) that dispense cash; authentication may consist of the use of a numeric PIN (personal identification number) known only to the cardholder. PINs can be used only where the POS (point of sale) terminal is properly equipped; in particular, a separate keypad is needed to allow the customer to enter his or her PIN and select the account from which funds should be drawn. This is the only method used in some countries, particularly Canada.
Offline debit cards carry the logotypes of, and can be used in a manner nearly identical to, major credit cards (e.g. Visa or MasterCard). The use of a debit card in this manner may have a daily limit, with the maximum limit being the amount of money on deposit. A debit card used in this manner is similar to a secured credit card.
"Credit" and "debit" purchases
Some terminals allow the user of a Visa or MasterCard debit card to choose whether the purchase is a "credit" or "debit" purchase. In a "credit" purchase, the user signs a charge slip (as in a traditional credit card purchase); in a "debit" purchase, the user enters a PIN. In either case, the user's bank account is debited.
In some countries - with some merchant service organisations, (as of this writing) a "credit" transaction is without cost to the purchaser beyond the face value of the transaction, while a small fee may be charged for "debit" transactions (often absorbed by the retailer, however). Other differences are that "debit" purchasers may opt to withdraw cash in addition to the amount of the debit purchase (if the merchant supports that functionality); also, from the merchant's standpoint, the merchant pays lower fees on a "debit" transaction as compared to "credit" transactions.
The fees charged to merchants on "credit" debit card purchases -- and the lack of fees charged merchants for processing "debit" debit card purchases and paper checks -- have prompted some major merchants to file lawsuits against debit-card transaction processors such as Visa and MasterCard. Visa and MasterCard recently agreed to settle the largest of these lawsuits and agreed to settlements of billions of dollars.
Many consumers prefer "credit" transactions because of the lack of a fee charged to the consumer/purchaser -- and many terminals at PIN-accepting merchant locations now make the "credit" function more difficult to access.
To the consumer, a debit transaction is real-time; i.e. the money is withdrawn from their account immediately following the authorization request from the merchant. This is in stark contrast to a typical credit transaction which can have a lag time of a few days before the money is actually removed from the account.
Chip and pin
In many countries, the use of PIN validated transactions with smart-card chip readers is being strongly encouraged by the banks as a method of reducing cloned-card fraud; to the extent that cardholder-present transactions will soon not be possible in these countries without knowledge of a PIN, and the POS terminal reading the smart-card chip on the card.
Debit cards, and secured credit cards, are popular among college students who have not yet established a credit history. There are also forms of debit cards (e.g. Visa Buxx) that are purchased by parents for teenagers as young as 13. The parent retains a great deal of control over the child's use of the cards.
Debit cards are also similar to stored-value cards in that they represent a finite amount of money owed by the card issuer to the holder. They are different in that stored-value cards are generally anonymous, while debit cards are generally associated with an individual's bank account. Debit cards usually offer some protection against loss, theft, or unauthorized use while stored-value cards usually do not.
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