The most preferred payment options today are debit and credit cards, but do you know when a credit card should be used and when using a debit card may be a better option?
With the advent of many new payment form factors, today the customer has many payment options available – debit cards, credit cards, prepaid cards, m-wallets, among others. The most-preferred options are debit cards and credit cards, but do you know when a credit card should be used and when you should go for debit cards? Here’s what you need to know:
1. Consumer behavior
If you are prone to unnecessary expenditure and want to stop being spendthrift, a debit card is a safer option. It allows you to spend only as much as you have in your savings account, so you can spend immediately and be done with it. But if you know how to use a credit card judiciously and can be responsible enough to pay monthly bills on time, then use a credit card by all means.
2. Associated benefits
Debit cards simply help you keep a grip on your expenses. Credit cards come loaded with benefits – there are umpteen reward points and loyalty programs that your card could be linked to, in addition to cash back and discount programs on various merchants in retail, travel, e-commerce, electronic retail etc. Many cards sweeten the deal with a joining bonus too. People often use credit cards for the frequent flyer miles that they can accumulate. So if you are looking for more rewards and benefits, credit cards are a great payment mode.
3. Type of purchase
If you are shopping at small establishments/mom-and-pop stores, you may want to use a debit card and save your credit card for expensive purchases, so your savings account is not debited of a large amount at one shot. (Just for information, debit cards are preferred by merchants as they have to pay lesser fees for accepting debit transactions as compared to the credit card fees they pay). Also, credit cards are preferred during foreign vacations as fraud monitoring is stricter and also because many countries accept only credit cards for bookings.
4. Safety against fraud
Both credit and debit cards are safe to use in India, thanks to the additional factor of authentication required to validate any transaction. The only drawback is that in case of fraud on a debit card, the fraudster could clean out your account in a jiffy before you raise an alarm. When it happens against a credit card, you can raise a chargeback and get appropriate reversals before the credit card bill hits you.
Nowadays, EMI (equated monthly installments) are available on both debit and credit cards. In reality, both forms of payment cards provide some very useful benefits, but if credit cards are not used wisely, you could end up with a bad credit score and pay late payment fees and interest charges. For debit cards, all you need to do is maintain a sufficient balance that allows you to spend as you want.
(By Vishal Maru, Head-Merchant Services, Digital Payments and Loyalty Business division of Worldline South Asia and Middle East)