In the aftermath of Equifax, Deloitte, SEC and other significant security breaches, the personal data of millions of individuals have been put in jeopardy. Against this backdrop, the impending holiday shopping season—from Black Friday into Boxing Day—might seem positively menacing to consumers and companies alike.
You may be cautious to use your credit card in light of recent events, but are debit cards actually any safer? Credit cards are often portrayed as the poster child of cybercrime, appearing at the middle of most stories about online safety, while debit cards are handled very differently. Especially around the holidays, debit is praised for the way that it can help you stay within your spending budget and also keep you from falling into debt during this high-spending season. But the truth is using your credit card is still the safer option.
Credit vs. Debit: The Consumer
The difference between credit and debit is simple: once you use your credit card, you’re borrowing cash from the card supplier, which you can either repay in full within 30 days or may earn monthly payments, together with interest, on the outstanding balance; once you use your debit card, on the other hand, you’re using money that’s already on your bank account. As a result of this, stolen debit card info is considerably more dangerous: if your debit card information is stolen, that usually means the thief has access to all of the cash in your bank account—and in any linked accounts. And that is not to mention all of the fees and overdraft charges you might need to pay on top of their stolen money.
Debit cards arrive with some limited protections for missing or stolen cards, but do not offer the consumer the identical level of fraud protection as credit cards. If you report a debit card transaction as fraudulent within two weeks, your liability is capped at $50, and over 60 days it’s capped at is $500. After 60 days have passed, you might no longer have the ability to file dispute a debit card transaction.
Having credit cards on the other hand, consumer protections are a lot stronger. If your card was reported stolen or lost, your maximum liability in the case of fraud is limited to $50—though most credit cards come with 100% fraud protection. Additionally, the card programs permit 180+ days to file a dispute on many online transactions, providing you with additional protection. Credit card providers also carefully monitor your transactions and will frequently pick up on fraud even before the cardholder has some reason to suspect anything is wrong. It’s only if the retailer can show that the transaction is not fraudulent the liability will shift back to you as the cardholder.
Even though fraudsters can steal just as much money with credit cards as debit cards, with credit card fraud, it’s not really “your money.” All you have to do is report the transaction as fraudulent and your provider will undo it.
But for merchants, it is a bit more complicated…
Credit vs. Debit: The Merchant
Merchants want what is best for their customers. Unfortunately, sometimes two different things that are good for the customer can be in conflict.
I’m referring to security and usability, an age-old debate that’s troubled online retailers since the beginning of eCommerce. It would be safer for your customer if retailers only accepted credit card transactions, but the customer wants to have a variety of payment options available to them. Therefore a retailer who doesn’t accept debit will probably have less fraud—that shields their customers—but will also see their conversion rate go down, as a few shoppers who prefer to use debit card—or who don’t have a credit card—will shop somewhere else.
Another thing which disturbs the credit vs. debit argument for merchants is chargebacks. From a retailer’s perspective, a significant advantage of debit card transactions is that cardholder can simply dispute a transaction within 60 days. Because of this rule, you will find fewer debit card disputes complete and there is less chargeback lag for debit card transactions than from credit cards. From the merchant’s perspective, disputing a chargeback is similar for the two types of payment cards, but you should be conscious of whether a chargeback is coming from a debit card or charge card so you can adjust your dispute procedure and increase your chances of recovering the funds. Don’t forget—if you can prove that the trade was not fraudulent, the accountability will shift back to the cardholder.
The great news is that retailers CAN have the best of both worlds. Yes, credit and debit have their downsides, but the two of these downsides disappear if you remain current with the latest fraud prevention and chargeback management practices. As we enter the busiest sales period of this year, the final thing retailers wish to do is produce any friction that cash turn clients away. It’s very important to provide shoppers the choice between paying by credit or debit, but it’s just as important to prepare for fraud and chargebacks. This year, after several significant data breaches, this is truer than ever.
This holiday season, fraudsters will be targeting every type of charge card. Debit card support allows merchants to cultivate their audience and increase their conversion. Credit cards offer consumers better fraud protection than debit cards, but also signify that retailers will probably have a greater chargeback rate. But if both shoppers and retailers behave safely and responsibly, it will be a happy holiday season for everyone.