When purchasing something in a store with a credit card or a debit card, the cashier may ask "credit or debit"?
I was wondering what the point is using a credit card in a "debit" way? How is it compared to using a debit card directly?
What is the point of using a debit card in a "credit" way? How is it compared to using a credit card directly?
Thanks!
These are two different ways of processing payments. They go through different systems many times, and are treated differently by the banks, credit card issuers and the stores. Merchants pay different fees on transactions paid by debit cards and by credit cards.
Debit transactions require PIN, and are deducted from your bank account directly. In order to achieve that, the transaction has to reach the bank in real time, otherwise it will be declined. This means, that the merchant has to have a line of communications open to the relevant processor, that in turn has to be able to connect to the bank and get the authorization - all that while on-line. The bank verifies the PIN, authorizes the transaction, and deducts the amount from your account, while you're still at the counter. Many times these transactions cannot be reversed, and the fraud protections and warranties are different from credit transactions.
Credit transactions don't have to go to your card issuer at all. The merchant can accept credit payment without calling anyone, and without getting prior authorizations. Even if the merchant sends the transaction for authorization with its processor, if the processor cannot reach the issuing bank - they can still approve the transaction under certain conditions. This is, however, never true with debit cards (even if used as "credit"). They're not deducted from your bank account, but accumulated on your credit card account. They're posted there when the actual transaction reaches the card issuer, which may be many days (and even many months) after the transaction took place.
Credit transactions can be reversed (in some cases very easily), and enjoy from a higher level of fraud protection. In some countries (and most, if not all, of the EU) fraudulent credit transactions are never the consumer's problem, always the bank's. Not so with debit transactions.
Banks may be encouraging you to use debit for several reasons:
Merchants will probably prefer credit because:
Consumers will probably be better off with credit because:
Merchants will probably prefer credit... bit is a guess at best, and likely wrong: credit companies often charge merchants up to 3% of every transaction, I image real money for them would trump the conveniences you list.
It depends on your bank and your terms of service, but using the card one way or the other may affect things such as how long it takes to process, what buyer protections you have, etc. It also affects the store as I believe they are charged differently for debit vs credit transactions.
When using a debit card in a "credit" way, you don't need to enter your PIN, which protects you from skimmers and similar nastiness.
Also, assuming it's a Visa or Mastercard debit card, you now have access to all of the fraud protection and other things that you would get with a credit card.
The downside for the merchant is that credit card transaction fees are typically higher than debit card transaction fees.
I'm less familiar with using a credit card in a "debit" way, so don't have anything to offer on that part of your question.
Just to add about using debit card as "credit" vs "debit" way: In addition to the difference of having to enter the PIN when using "debit" mode (vs having to sign in "credit" mode), for stores that offer cash back (i.e. get cash out of your account at the same time as paying), you can only get cash back when using "debit" mode.
Credit in debit way - the card simply functions like a debit card for that transaction - pulling cash from your checking account. No difference.
You've simply discovered the fact that some banks are using the same piece of plastic for two functions, debit which draws funds directly from your checking, and credit which offers you time to pay a bill the comes in some time later. It's a personal choice.
I'm surprised by all the pro-credit answers here, debit has some definite advantages.
Most importantly, when you pay with a credit card, the merchant pays around 3% of the transaction to the credit company. In many states, they are forced to charge you the same amount, and this is frequently toted as ''consumer protection''. But consider what this means for the business: they loose money for every credit transaction, and they're legally forbidden to do anything about it. So you're taking 3% from a business and handing it over to a massive cooperation.
To make matters worse, the buisness is inevitably going to have to raise their prices (albiet by a small amount), so in the end the average consumer has gained nothing. On the other hand, the credit card company wins big, and they use their profits to pay lobbyists and lawyers to keep these rules in place. To put in the worst possible light, it's essentially legal extortion, verging on corruption.
As for the fraud protection offered, while it may be true that credit cards will offer a more hassle-free reimbursement (i.e. you just don't have to pay the bill) if your card is stolen, consumer protection laws also extend to debit: in many cases your bank is legally required to cut you a check for all the money you lost.
