Thursday, February 14. 2008
Credit or Debit???
Please tell me why the credit/debit card producers cannot put a bit on their cards to let systems automatically determine if the card is a debit or credit card? What a waste of my time and the employee's time to ask me this question over and over again. 
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Mike,
Any card with a visa or mastercard symbol on it can act as either a credit or debit card. It's not a traditional credit card with a balance that can be carried from month to month but instead it subtracts the transaction amount from your checking account much like a debit card. There are a couple of differences that the average card user would most likely not notice. The debit charge is subtracted instantly from your account but the credit option takes a couple of days to show up. No big deal there but the reason they act differently is that they are processed differently. The debit option is free to the merchant. Actually, your financial institution offers you, their customer, this service as a courtesy. When you choose the credit option it cost the merchant a small fee just like a traditional credit card has been charging for years. It's usually a small percentage of the total sale. It's one reason I try not to use credit cards with small business owners. Your financial institution may limit the number of free debit transactions per month as somebody has to pay for this free service. My credit union does charge a small fee after 15 debit transactions in a month, which is not unusual. The big change I have noticed recently is that merchants are defaulting the transaction as debit and making the consumer take extra steps to use the credit option. This saves them money and may cost the consumer a small fee. Somebody has to pay for the electronic transfer and that somebody has been the retailer but they have managed to shift the cost to consumers and financial institutions with debit transactions. There may also be buyer protection advantages to using the credit option over debit. I personally use the credit option for most purchases, especially gasoline. I'm sure there will come a day when the question will go away and retailers will save a fortune in credit card fees.
Any card with a visa or mastercard symbol on it can act as either a credit or debit card. It's not a traditional credit card with a balance that can be carried from month to month but instead it subtracts the transaction amount from your checking account much like a debit card. There are a couple of differences that the average card user would most likely not notice. The debit charge is subtracted instantly from your account but the credit option takes a couple of days to show up. No big deal there but the reason they act differently is that they are processed differently. The debit option is free to the merchant. Actually, your financial institution offers you, their customer, this service as a courtesy. When you choose the credit option it cost the merchant a small fee just like a traditional credit card has been charging for years. It's usually a small percentage of the total sale. It's one reason I try not to use credit cards with small business owners. Your financial institution may limit the number of free debit transactions per month as somebody has to pay for this free service. My credit union does charge a small fee after 15 debit transactions in a month, which is not unusual. The big change I have noticed recently is that merchants are defaulting the transaction as debit and making the consumer take extra steps to use the credit option. This saves them money and may cost the consumer a small fee. Somebody has to pay for the electronic transfer and that somebody has been the retailer but they have managed to shift the cost to consumers and financial institutions with debit transactions. There may also be buyer protection advantages to using the credit option over debit. I personally use the credit option for most purchases, especially gasoline. I'm sure there will come a day when the question will go away and retailers will save a fortune in credit card fees.
I guess that makes sense; I didn't realize some cards served both purposes. For some reason I have separate cards for debit and credit. Maybe they could just pre-answer the debit/credit question for my cards. 
