Joined: Feb 2009
Posts: 11
  United States
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 Feb 06, 2009, 11:11:53 PM | #1 |
Many debit cards are capable of accomplishing both types of transactions, depending on the availability of proper equipment at the POS. This is especially true in the United States where the credit card networks (which handle virtually all offline debit transactions) are far more ubiquitous at point-of-sale than the ATM networks that handle online debit transactions.
In some countries and with some banks and merchant service organisations (as of this writing), a "credit" or offline debit transaction is without cost to the purchaser beyond the face value of the transaction, while a small fee may be charged for a "debit" or online debit transaction (although it is often absorbed by the retailer). Other differences are that online debit purchasers may opt to withdraw cash in addition to the amount of the debit purchase (if the merchant supports that functionality); also, from the merchant's standpoint, the merchant pays lower fees on online debit transaction as compared to "credit" or offline debit transactions.
The fees charged to merchants on offline debit purchases -- and the lack of fees charged merchants for processing online debit purchases and paper checks -- have prompted some major merchants in the U.S. to file lawsuits against debit-card transaction processors such as Visa and MasterCard. In 2003, Visa and MasterCard agreed to settle the largest of these lawsuits and agreed to settlements of billions of dollars.
Many consumers prefer "credit" transactions because of the lack of a fee charged to the consumer/purchaser; also, a few debit cards in the U.S. offer rewards for using "credit". However, since "credit" costs more for merchants, many terminals at PIN-accepting merchant locations now make the "credit" function more difficult to access. For example, if you swipe a debit card at Wal-Mart in the U.S., you are immediately presented with the PIN screen for online debit; to use offline debit you must press "cancel" to exit the PIN screen, then press "credit" on the next screen.
One additional problem surrounding the use of debit cards is their use at a self-service gas pump like those common in the U.S. The customer might want to purchase fuel on their debit card, but the pump's computer does not know how much fuel the customer wants. The pump is activated by the customer presenting their card to a card reader (see methods described above) and possibly entering a PIN. At this point the pump will dispense fuel, though no sales transaction has completed. The pump has no way of knowing how much fuel will be sold, or more importantly, how much money is available in the customer's debit account. In a typical sale transaction, trying to spend more money than is available in your account (credit or debit) will result in a "no-sale" alert to the merchant, and the sale does not occur. At a self-serve fuel pump, the fuel is already in the customer's tank by the time the bank knows the final sale price. Several solutions to this problem are in place, but the concept of delivering the merchandise before the sales transaction plagues the debit card system.
In many countries, the use of PIN validated transactions with smartcard chip readers is being strongly encouraged by the banks as a method of reducing cloned-card fraud; to the extent that cardholder-present transactions will soon not be possible in these countries without knowledge of a PIN, and the POS terminal reading the smart card chip on the card.
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