You might have had a debit card in your pocket, but have you considered how it works? Debit cards combine the basic functions of an ATM card and a credit card to allow consumers to instantly withdraw cash from their bank accounts. Rather than write a check, you can use a debit card to pay for online transactions at the cash register or through a mobile wallet app. A debit card is frequently provided when you open a checking or savings account at a bank or credit union. A debit card is sometimes free to use. Sometimes, you may be charged a fee to use it. Debit cards resemble credit cards. They do not, however, function in the same manner. Credit cards make use of borrowed funds. Debit cards make use of funds already in your checking account.
What is a Debit Card?
A debit card, often known as a check card or bank card, is a type of payment card that may be used to make basic transactions instead of cash. Unlike a credit card transaction, the funds for a debit card transaction must be in the cardholder's bank account at the moment of purchase. For a debit transaction, funds are transferred straight from that account to the dealer's account to pay for the purchase. Some debit cards include a stored value that may be used to make a payment (prepaid cards), while the majority send a message to the cardholder's bank to withdraw money from the cardholder's authorized bank account. In other circumstances, the payment card number is only assigned for usage on the internet, and no physical card is issued. This is known as a virtual card.
In the Philippines, the usage of debit cards has become so prevalent that they have either surpassed or completely replaced checks in terms of volume. Debit cards have mostly supplanted cash purchases as well. Unlike credit and charge cards, the development of debit cards has traditionally been country-specific, which means that the Philippines has its country-specific card. Since the mid-2000s, several projects have permitted domestic debit cards to be used in other countries and for internet and phone purchases.
Debit cards typically allow for a quick cash withdrawal, known as a cash advance, and operate as an ATM card. Merchants may also provide customers cashback services, allowing them to withdraw cash with their purchases. There are normally daily limitations on how much money may be withdrawn. Most debit cards are plastic, although others are metal and, in rare cases, wood.
How Does a Debit Card Work?
A debit card is often a rectangular piece of plastic, similar to a credit card. It connects to the user's bank, credit union checking, or savings account. The quantity of money that can be spent with it is proportional to the size of the account (the amount of funds in the account). In some ways, debit cards are a hybrid of ATM and credit cards. You can use them to obtain cash from an automated machine, as with the former, or to make purchases, as with the latter. Indeed, many financial institutions are replacing their basic, single-purpose bank cards with debit cards provided by large card-payment operators such as Visa or Mastercard. These debit cards are included with your checking account.
Whether used to receive cash or make a purchase, the debit card works the same way: it immediately withdraws funds from the associated account. As a result, your spending is restricted to what is available in your checking account, and the amount of money you have to spend varies daily, as does your account balance. Debit cards often have daily purchase restrictions, which means you can't spend more than a specific amount in 24 hours. Debit card purchases can be made with or without a PIN. If the card bears the logo of a large payment processor, it can frequently be used without one, much like a credit card.
Types of Debit Cards
Debit cards are classified into four categories. The primary distinction between the categories is the entity issuing the card.
-
Regular debit cards. These are linked to a checking or financial market account and are provided by your credit union or bank. They often have the Visa, Mastercard, or Discover logos and are available for in-person or online transactions. This card can also be used to make withdrawals and deposits from your bank account at ATMs.
-
Prepaid debit cards. Prepaid debit cards are linked to your bank account but are not issued by that bank. Instead, money must be put into these cards before they can be used. Most cards function similarly to ordinary debit cards. However, others charge fees for certain services. They call this bank's charge.
-
ATM cards. ATM cards, like conventional debit cards, are issued by your bank and linked to specific bank accounts. They are, however, only used to withdraw cash or, in certain situations, make deposits at ATMs. They cannot be used to make online or in-store purchases.
-
EBT (Electronic Benefits Transfer) cards. Government entities issue these debit cards to deliver social advantages to cardholders. Nutritional assistance programs, for example, pay monthly fees to the card balance. Cardholders and account holders can then use the card to make authorized purchases at merchants who accept EBT cards.
Debit card systems in the Philippines
Debit card transactions are now conducted in three ways: online debit or PIN debit and physical debit (also known as a trademark or offline debit). One physical card can perform the duties of all three types, which allows it to be employed in various situations.
-
Online debit cards. All electronic purchases with an online debit card require electronic authorization, and the debits are instantly reflected in the user's account. The transaction may also be safeguarded using a personal identification number (PIN) authentication mechanism; some online cards demand such authentication for every transaction, transforming them into upgraded automated teller machine (ATM) cards. One disadvantage of using an online debit card is the requirement of an electronic authorization device at the point of sale (POS) and, in some cases, a separate PINpad to input the PIN. However, this is becoming more prevalent for all card transactions in the Philippines. Overall, the online debit card is superior to the offline debit card because of its more reliable authentication mechanism and live state, eliminating processing lag issues for cashless transactions that may only provide online debit cards. Some virtual debit systems use standard Internet banking authentication mechanisms to allow real-time online debit transactions.
-
Offline debit cards. Offline debit cards have the logos of the credit card companies such as Mastercard and Visa and can be used offline.
Major types of debit card merchants in the Philippines
The two most common forms of debit cards in the Philippines are Mastercard and Visa. This section will go into detail about it.
Mastercard debit cards
Debit Mastercard is a debit card brand offered by Mastercard. They employ the same procedures as normal Mastercard credit cards but do not provide the user with a credit line. They instead depend on money in the customer's financial institution account. Major banks issue Debit Mastercard like BDO, Metrobank, Security Bank, RCBC, BPI, and PNB. Mastercard is accepted at the majority of Philippine points of commerce. It competes directly with Visa debit, largely issued by state-owned banks, and Bancnet, the national interbank network.
These cards provide simplicity and security, allowing you to focus on what is most important. Some of the advantages of using a Mastercard debit card are listed below:
-
Convenience. Mastercard debit cards are accepted globally at millions of merchant locations, including restaurants, hotels, and online merchants. You can also use your Mastercard to pay your monthly expenses automatically.
-
Security whenever you shop. Every transaction made with a debit Mastercard, whether online, by phone, or in-store, is protected by zero liability. That means you won't be held liable if someone uses your card to make an unlawful transaction.
-
International service. Get round-the-clock customer care support with lost and missing card reporting, urgent card replacement, and emergency cash advances, and help locate ATMs and answer card-related issues.
Visa debit cards
It functions similarly to currency, just better! Suppose you have a debit card with the Visa logo. In that case, you can access your financial institution account securely daily to make purchases, pay bills, or withdraw cash anyplace Visa is accepted.
Below are some of the benefits you get when you use a Visa debit card:
-
Saves time. There's no need to go to the ATM. You may also forget about your checkbook. You may use your Visa debit card everywhere Visa is accepted; sign for transactions or enter a PIN to verify, and you're done.
-
Enhances security. Visa monitors your account every hour a day, seven days a week, to assist prevent, identifying, and addressing Visa debit card fraud. And the new Visa debit cards include EMV chip technology to keep you extra safer.
-
Improves financial management. Your Visa debit transactions are immediately debited from your financial institution account, allowing you to view your current amount on your bank's website or by phone.
Fees associated with debit cards
Debit cards, for the whole, are free of charge. There are no yearly membership or cash-advance fees. However, they do not always allow you to avoid fees totally: you may be levied an ATM transaction fee if you withdraw money from an ATM that is not owned or operated by the institution that issued your debit card. What if you spend more money than you have in your account? Insufficient funds costs may apply, similar to those charged by a bounced paper check. Overdraft fees will apply if you have enrolled for overdraft protection. If your card is lost, damaged, or stolen, you may be charged a replacement cost and a foreign transaction fee if you purchase something in foreign currency.
Debit cards vs. credit cards
Since credit card firms issue many bank debit cards, the line between credit and debit cards might appear as thin as a piece of plastic. Apart from the phrase debit on the front, a debit Mastercard resembles a credit Mastercard and may be used everywhere Mastercard is accepted. Some debit cards, like credit cards, provide incentive schemes, such as 1% cashback on all credit and debit transactions. Many of the same consumer safeguards are available with a debit card containing the logo of a credit card provider, such as not holding you accountable for fraudulent transactions made by someone swiping your card information.
However, credit cards and debit cards function in fundamentally different ways. Making a purchase using a debit card is the same as writing a check or handing over cash: You pay for the item immediately, using funds from your bank account. Credit card users effectively borrow money from the card issuer to purchase goods. It pays the merchant and then bills you for the difference. When you receive your monthly statement, you reimburse it. If you do not pay the entire amount, you must pay interest on the balance, just like any loan.
Both debit and credit cards can be used to obtain cash. However, when you obtain it via a credit card, you use it to borrow money, as the phrase cash advance indicates. When you use your credit card to acquire cash from an ATM, the money comes from your credit card account, not your bank account. And you pay interest if you hold a balance—if you do not pay it back immediately (or sometimes even if you do). A debit card does not have a balance each time you use it. You are paying for the item in full or withdrawing money that already belongs to you. The main advantage is that debit cards do not put you in debt since you cannot spend more than you have. The disadvantage is that you are restricted to the amount in your account. As a result, credit cards are a superior alternative for financing significant expenditures.
Advantages and disadvantages of debit cards
Below are some of the advantages and disadvantages of using a debit card.
Advantages
-
It offers convenience. You must not carry cash when you use a debit card. This is especially useful when paying for many transactions at the same time. You can, for example, enjoy supper with family and friends and go grocery shopping the same night without worrying about having the precise amount of cash in your wallet. Furthermore, purchasing with a debit card is fast. Transactions are handled in seconds rather than minutes.
-
It can be used as emergency funds. A debit card can be a terrific method to keep your emergency fund safe while allowing you to access it whenever possible.
-
It is secured. Debit cards are extremely safe since you must enter a pin or sign every time you make a transaction. This prevents it from being abused. If you misplaced your card or it got stolen, you can quickly cancel it by reporting the theft to your bank.
-
It is easy to get. A debit card is simple to obtain and is frequently accessible when creating a new bank account. It does not necessitate long applications or endless credit checks. This is because banks consider debit cards a safer alternative than credit cards, and as such, you need a strong history of transactions to obtain a debit card.
-
It is good for budgeting. It's easy to check your spending and manage your budget since the money you spend comes immediately from your bank account. Debit cards are also popular since there is no risk of overspending.
-
It does not come with an interest charge. Debit cards, unlike credit cards, do not carry interest. The amount you expend is the amount you will be charged.
-
There is no debt. Unlike credit cards, which might cause you to overspend more than you can afford, debit cards prevent you from incurring further debt.
Disadvantages
-
It does not impact your credit history. When you use a debit card, your bank monitors the transaction. However, the transaction does not affect your credit score because no money is borrowed.
-
It has a spending limit. Your checking account is connected to your debit card. This implies you must adhere to your account's daily spending restriction. As a result, most debit cards cannot be used for big purchases, often over ₱20,000 to ₱50,000.
-
It can be a target for scammers. Criminals always develop new techniques to steal money from other people's accounts. Malware and phishing schemes are two of the most frequent frauds perpetrated by hackers these days, and your debit card may be vulnerable to them. Debit cards are hazardous because they offer more information than conventional payment methods. A rogue merchant or a computer virus can read your credit card number and other details. This can lead to identity theft and other types of fraud.
-
It may have hidden charges. When using a debit card, you should always be mindful of the fees and charges that may apply. Your bank, businesses, or ATMs can charge debit card fees.
How to get a debit card in the Philippines
To obtain a debit card, follow the points outlined below:
-
Open a bank account. You usually get a free debit card when you create a checking account with a bank or credit union. Follow the steps to activate it and set up your PIN for ATM use and transactions.
-
Consider getting a prepaid debit card. If you do not have good access to a bank account, a prepaid debit card, which also allows you to make purchases, is an option. The finest prepaid debit cards include beneficial features as well as cheap costs.
-
Look into connected items and accounts. A secured credit card might be better if you want to develop credit. If you cannot obtain a conventional checking account, consider opening a second chance checking account.
What to do if your debit card gets stolen
First and foremost, don't panic. Every day, cards are lost and stolen. Contact your bank as promptly as possible and inform them of the situation with your card. Some banks even allow you to report it online using their banking system, but others need you to call. If your card gets lost or stolen, you must report it immediately to limit your exposure to fraudulent purchases. If you report your card as lost or stolen within two days, you will only be responsible for up to ₱200 fraudulent charges (and some banks waive that fee as a courtesy). If you do not report your card lost or stolen within two days, but 60 days after receiving your statement, your responsibility increases to ₱1,000.
Considerations when choosing a debit card
Before selecting a debit card, there are a few factors to consider. We've compiled a list of several:
-
Online access. With web access, you can make purchases whenever and wherever you choose, as long as you have your card and card details. Please, make certain that your debit card is accepted by the majority of online retailers from which you purchase, as this could substantially improve its ease.
-
Spending and saving capability. Most debit cards provide additional functions to the standard debit cards and PIN. Some of these qualities may even make it easier for you to spend. One of the most popular benefits is cashback, which means you will receive a portion of your spending back on your card. Other debit cards offer frequent flyer points and discounts on certain transactions.
-
Maintaining balance. You may be charged an annual membership fee and extra transaction fees when using a debit card. Check the terms and conditions of your card to see whether there are any transaction or yearly fees.
-
Transaction charges and annual fees. You will be charged a transaction fee every time you use your card to make a purchase. Depending on the type of debit card and the bank, this cost might range from a few pesos to more than ₱25. With annual fees, you pay this cost once a year to keep your card active. These may appear as minor charges, but they will pile up over time, so use a debit card with minimal fees.
-
ATM accessibility. In the Philippines, ATMs are extensively available. You may check your account balance and withdraw cash from these ATMs with a debit card. The more ATM facilities your card can use, the more convenient it is. It's critical that you can withdraw money quickly, and nothing is worse than a card that doesn't have widespread ATM access.
-
Rewards. Most banks have incentive programs for several types of debit cards. This might include significant benefits such as gift cards and rebates on every transaction. Some even provide limited-time discounts on hotels, resorts, and other businesses.
Conclusion
A debit card is given to checking account customers by a bank or credit union. It enables customers to withdraw money from the account as cash from an ATM or to purchase products or services, much like a credit card. Funds are deducted directly from your bank within a short period, so the accessible balance reflects the amount in the connected account. Unlike credit cards, ATM or debit cards do not allow users to accumulate debt, except for very few negative balances that may occur if the cardholder has signed up for overdraft protection.
Debit cards typically have daily purchase restrictions, so making a very big purchase using a debit card may be impossible. A debit card is best used to get cash or to make modest transactions. While it keeps you from going into debt (you can only spend what you have), it does not help you establish your credit history as credit cards do. Credit cards can be more beneficial when making large purchases you cannot or do not want to pay immediately.
