General Question

Ltryptophan's avatar

Why do banks care if you use debit or credit when paying with your bank card?

Asked by Ltryptophan (10465points) April 1st, 2010

My bank wants me to use my debit card through the VISA network. Great. They are willing to share the wealth they are undoubtedly somehow earning from this as well. Whats going on behind the scenes?

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8 Answers

dpworkin's avatar

The law protects you if you use a credit card for purchases. You are not liable in case of fraud, etc. The bank must pay or go after the company, and you have limited liability. With a debit card you have all the liability and the bank has none. Never make a purchase on a debit card unless it’s something like gasoline or groceries. Instead, use your debit card to pay bills you are sure you owe, etc.

noyesa's avatar

A credit card is a short term loan. When you use debit, your funds are immediately transferred from your account. The bank has less liability if your debit card gets stolen.

When a credit card gets stolen, you’re spending the bank’s money (until you pay them back of course) which makes the bank responsible for remedying the situation.

In the other case, people who habitually go into credit card debt pay interest and make a profit for the bank, so it really depends on what kind of customer you are.

I have never once gone into credit card debt, and I frequently get junk mail telling me to use my debit card (by way of giving me some rewards plan), whereas a less than responsible friend of mine who has never paid anything on time in his life gets “pre-approved” credit cards in the mail on a daily basis.

Ltryptophan's avatar

Whoa, whoa….i’m talking the debit/credit feature on a debit card.

DarkScribe's avatar

They get the same fees without having to provide a “loan” which is a credit card does. Most credit cards have an interest free period, sixty days is common here, and if you pay before that time they cannot charge you interest, just fees but they are having to provide the funds. With a debit card they still get the fees but you provide the money from your account. A debit card however if properly used, is still the safest way to buy on-line. Properly means do not attach it to a primary account, create a separate one and transfer funds as required.

john65pennington's avatar

Each time you use your debit card, the merchant is charged approx. .75 cents per transaction. this charge is directly taken from the merchant and money in the banks pocket. using a credit card places “the use fee” in the pockets of the credit card company, not the bank.

jaytkay's avatar

Retailers pay a fee, approx 2% – 3%, to the issuing bank for Visa/Mastercard purchases, and not for debit card purchases.

JLeslie's avatar

When you use your debit card there is sometimes a temporary hold on a higher amount, and so the bank gets to use your money while you can’t. There is also no risk really for the bank on a debit card I think. They don’t have to worry about you paying anything back. But, if you maintain a balance on a credit card the high interest is a lot of money for the bank. So I am not exactly sure why the bank prefers one over the other.

Snarp's avatar

Also, they often charge you a fee for using debit over credit, so they make money on both ends.

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