Credit or Debit?

For consumers, the difference between a "debit card" and a "credit card" is that the debit card deducts the balance from a deposit account, like a checking account, whereas the credit card allows the consumer to spend money on credit to the issuing bank. In other words, a debit card uses the money you have and a credit card uses the money you don't have.

In some countries: When a merchant asks "credit or debit?" the answer determines whether they will use a merchant account affiliated with one or more traditional credit card associations (Visa, MasterCard, Discover, or American Express) or an interbank network typically used for debit and ATM cards, like Plus, Pulse, Cirrus, or Maestro.

In other countries: When a merchant asks "credit or debit?" the answer determines whether the transaction will be handled as a credit transaction or as a debit transaction. In the former case, the merchant is more likely than in the latter case to have to pay a fee defined by fixed percentage to the merchant's bank. In both cases, the merchant may have to pay a fixed amount to the bank. In either case, the transaction will go through a major credit/debit network (such as Visa, MasterCard, Visa Electron or Maestro). In either case, the transaction may be conducted in either online or offline mode, although the card issuing bank may choose to block transactions made in offline mode. This is always the case with Visa Electron transactions, usually the case with Maestro transactions and rarely the case with Visa or MasterCard transactions.

In yet other countries: A merchant will only ask for "credit or debit?" if the card is a combined credit+debit card. If the payee chooses "credit", the credit balance will be debited the amount of the purchase; if the payee chooses "debit", the bank account balance will be debited the amount of the purchase.

This may be confusing because "debit cards" which are linked directly to a checking account are sometimes dual-purpose, so that they can be used seamlessly in place of a credit card, and can be charged by merchants using the traditional credit networks. There are also "pre-paid credit cards" which act like a debit card but can only be charged using the traditional "credit" networks. The card itself does not necessarily indicate whether it is connected to an existing pile of money, or merely represents a promise to pay later.

In some countries: The "debit" networks typically require that purchases be made in person and that a personal identification number be supplied. The "credit" networks allow cards to be charged with only a signature, and/or picture ID.

In other countries: Identification typically requires the entering of a personal identification number or signing a piece of paper. This is regardless of whether the card network in use mostly is used for credit transactions or for debit transactions. In the event of an offline transaction (regardless of whether the offline transaction is a credit transaction or a debit transaction), identification using a PIN is impossible, so only signatures on pieces of paper work.

In some countries: Consumer protections also vary, depending on the network used. Visa and MasterCard, for instance, prohibit minimum and maximum purchase sizes, surcharges, and arbitrary security procedures on the part of merchants. Merchants are usually charged higher transaction fees for credit transactions, since debit network transactions are less likely to be fraudulent. This may lead them to "steer" customers to debit transactions. Consumers disputing charges may find it easier to do so with a credit card, since the money will not immediately leave their control. Fraudulent charges on a debit card can also cause problems with a checking account because the money is withdrawn immediately and may thus result in an overdraft or bounced checks. In some cases debit card-issuing banks will promptly refund any disputed charges until the matter can be settled, and in some jurisdictions the consumer liability for unauthorized charges is the same for both debit and credit cards.

In other countries: In India and Sweden, the consumer protection is the same regardless of the network used. Some banks set minimum and maximum purchase sizes, mostly for online-only cards. However, this has nothing to do with the card networks, but rather with the bank's judgement of the person's age and credit records. Any fees that the customers have to pay to the bank are the same regardless of whether the transaction is conducted as a credit or as a debit transaction, so there is no advantage for the customers to choose one transaction mode over another. Shops may add surcharges to the price of the goods or services in accordance with laws allowing them to do so. Banks consider the purchases as having been made at the moment when the card was swiped, regardless of when the purchase settlement was made. Regardless of which transaction type was used, the purchase may result in an overdraft because the money is considered to have left the account at the moment of the card swiping.