DEBIT CARD BASED-ELECTRONIC PAYMENT SYSTEM - E-Commerce Concepts

Debit Card in E commerce

What is a debit card?

A debit card (also known as a gift card) is a plastic card which provides an alternative payment method to cash when making purchases. Physically the card is an ISO 7810 card like a credit card; however, its functionality is more similar to writing a cheque as the funds are withdrawn directly from either the cardholder’s bank account (often referred to as a check card), or from the remaining balance on the card. Depending on the store or merchant, the customer may swipe or insert their card into the terminal, or they may hand it to the merchant who will do so. The transaction is authorized and processed and the customer verifies the transaction either by entering a PIN or, occasionally, by signing a sales receipt.

In some countries the debit card is multipurpose, acting as the ATM card for withdrawing cash and as a check guarantee card. Merchants can also offer “cashback”/ ”cashout” facilities to customers, where a customer can withdraw cash along with their purchase.

The use of debit cards has become wide-spread in many countries and has overtaken the check, and in some instances cash transactions by volume. Like credit cards, debit cards are used widely for telephone and Internet purchases.

Types of debit card

A Finish smart card. The 3 by 5 mm security chip embedded in the card is shown enlarged in the inset. The gold contact pads on the card enable electronic access to the chip.

An example of the front of a typical debit card:

  1. Issuing bank logo
  2. EMV chip
  3. Hologram
  4. Card number
  5. Card brand logo
  6. Expiry date
  7. Cardholder’s name

An example of the reverse side of a typical debit card:

  1. Magnetic stripe
  2. Signature strip
  3. Card Security Code

Although many debit cards are of the Visa or MasterCard brand, there are many other types of debit card, each accepted only within a particular country or region, for example Switch (now: Maestro) and Solo in the United Kingdom, Carte Bleue in France, Laser in Ireland, “EC electronic cash” (formerly Eurocheck) in Germany and EFTPOS cards in Australia and New Zealand. The need for cross-border compatibility and the advent of the euro recently led to many of these card networks (such as Switzerland’s “EC direkt”, Austria’s “Bankomatkasse” and Switch in the United Kingdom) being rebranded with the internationally recognised Maestro logo, which is part of the MasterCard brand. Some debit cards are dual branded with the logo of the (former) national card as well as Maestro (e.g. EC cards in Germany, Laser cards in Ireland, Switch and Solo in the UK, Pinpas cards in the Netherlands, Bancontact cards in Belgium, etc.).

Debit card systems have become popular in video arcades, bowling centers and theme parks. The use of a debit card system allows operators to package their product more effectively while monitoring customer spending. An example of one of these systems is ECS by Embed International.

Online and offline debit transactions

Typical debit card transaction machine, branded to McDonalds. There are currently two ways that debit card transactions are processed: onlinedebit (also known as PIN debit) and offline debit (also known as signature debit). In some countries including the United States and Australia, they are often referred to at point of sale as “debit” and “credit” respectively, even though in either case the user’s bank account is debited and no credit is involved.Online debit (“PIN debit” or “debit”)

Online debit cards require electronic authorization of every transaction and the debits are reflected in the user’s account immediately. The transaction may be additionally secured with the personal identification number (PIN) authentication system and some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine (ATM) cards. One difficulty in using online debit cards is the necessity of an electronic authorization device at the point of sale (POS) and sometimes also a separate PINpad to enter the PIN, although this is becoming commonplace for all card transactions in many countries.

Overall, the online debit card is generally viewed as superior to the offline debit card because of its more secure authentication system and live status, which alleviates problems with processing lag on transactions that may have been forgotten or not authorized by the owner of the card. Banks in some countries, such as Canada and Brazil, only issue online debit cards.

Offline debit (“signature debit” or “credit”)

Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and other countries, but not the United States) and are used at point of sale like a credit card. This type of debit card may be subject to a daily limit, as well as a maximum limit equal to the amount currently deposited in the current/checking account from which it draws funds. Offline debit cards in the United States and some other countries are not compatible with the PIN system, in which case they can be used with a forged signature, since users are rarely required to present identification. Transactions conducted with offline debit cards usually require 2-3 days to be reflected on users’ account balances.

Advantages and Disadvantages

Debit and check cards, as they have become widespread, have revealed numerous advantages and disadvantages to the consumer and retailer alike. Advantages are as follows:

  • A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions.
  • Use of a debit card is limited to the existing funds in the account to which it is linked, thereby preventing the consumer from racking up debt as a result of its use, or being charged interest, late fees, or fees exclusive to credit cards.
  • For most transactions, a check card can be used to avoid check writing altogether. Check cards debit funds from the user’s account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder’s personal information.
  • Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored.
  • Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.The debit card has many disadvantages as opposed to cash or credit:
  • Some banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may not even be known by the client).
  • Many merchants mistakenly believe that amounts owed can be “taken” from a customer’s account after a debit card (or number) has been presented, without agreement as to date, payee name, and dollar and cent amount, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks.
  • Debit cards offer lower levels of security protection than credit cards. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction.
  • When a transaction is made using a credit card, the bank’s money is being spent, and therefore, the bank has a vested interest in claiming its money where there is fraud or a dispute. The bank may fight to void the charges of a consumer who is dissatisfied with a purchase, or who has otherwise been treated unfairly by the merchant. But when a debit purchase is made, the consumer has spent his/her own money, and the bank has little if any motivation to collect the funds.
  • For certain types of purchases, such as gasoline, lodging, or car rental, the bank may place a hold on funds much greater than the actual purchase for a fixed period of time. Until the hold is released, any other transactions presented to the account, including checks, may be dishonored, or may be paid at the expense of an overdraft fee if the account lacks any additional funds to pay those items.
  • While debit cards bearing the logo of a major credit card are accepted for virtually all transactions where an equivalent credit card is taken, a major exception is at car rental facilities. Car rental agencies require an actual credit card to be used, or at the very least, will verify the creditworthiness of the renter using a debit card. These companies will deny a rental to anyone who does not fit the requirements, and such a credit check may actually hurt one’s credit score.

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