A Debit Card is an electronic card interconnected to a checking account. It is used to get immediate access to the account’s funds through instant money withdrawal from an ATM machine or through the cashback scheme. Cashback on debit card transactions refers to the service offered by certain merchants (mostly supermarkets) to their customers to withdraw money when making a purchase. Likewise, in order to pay for goods or services at an establishment, a debit card can be simply swiped and an automatic transfer of funds will take place.
Furthermore, debit cards can also be used for Cardholder Not Present (CNP) payment transactions such as online or telephone shopping. One of the main benefits of debit cards is that (normally) the only money that can be spent is the one available in the customer’s account.
Methods to Process Debit Card Transactions
There are currently three ways that debit cards transactions are processed:
- Electronic Funds Transfer at Point of Sale (EFTPOS): This is when the debit card is swiped through the terminal and after the total amount of the transaction has been entered into the device, a personal identification number (PIN) is requested to authenticate the purchase.
- Signature Debit: This method is very similar to processing credit card transactions since both are authorized by means of a signature. However, what makes the difference is that when using a debit card the funds are deducted directly from the cardholder’s account instead of being charged to a line of credit. In order to process transactions this way, debit cards should have the logo of a credit card company (e.g. Visa or MasterCard) on them.
- Electronic Purse Card System: The use of this system is widely spread in Europe. Its main feature is that money is stored in the chip of a smart card that allows for contactless payment of small amounts of money.
Depending on your debit card issuer certain fees might apply, the most common are the following:
- Not sufficient funds (NSF): This refers to the cases in which a check cannot be processed due to insufficiency of funds in the bank account from which it is drawn. This kind of checks are colloquially known as “bounced checks” and are always followed by a NSF fee, which can vary depending on the issuing bank.
- Overdraft: Some debit cards allow its customers to go overdrawn; however, they always charge a fee for doing this.
- Maintenance: Although there are exceptions, a number of checking accounts will charge a fee if the account holder cannot maintain a minimum balance.
- ATM usage: Cash withdrawal is usually a service offered for free if it is done inside the bank’s ATM network, otherwise fees might apply. Yet, cash machines will always inform you in the case a fee might apply. More often than not, using an ATM in a foreign country involves having to pay a fee.