Both debit cards and credit cards are forms of plastic money (although metal cards are also available nowadays) that make our lives convenient by allowing us to purchase products and services online and make cashless transactions at offline merchants. While both debit cards and credit cards are physically very similar and offer more or less the same level of security as per RBI norms, as you will learn in this article, credit cards offer more protection to the buyer.
Also Read: Advantages of Credit Cards Over Debit Cards
This difference in the protection offered by debit cards and credit cards can be largely attributed to the fundamental difference in the way money is transferred in the case of debit cards and credit cards.
Debit Cards vs Credit Cards- The Fundamental Difference
If you are a regular reader of the Card Insider Blog, you must be already aware, still, just to reiterate for the uninitiated, the fundamental difference between debit cards and credit cards is the way the money is transferred from the card issuer to the merchant (in case of online/POS transactions) or the cardholder (in case of ATM cash withdrawals).
A debit card is directly linked to your savings/current bank account. Whenever you make a transaction with your debit card – whether online/POS or at an ATM – the amount is instantly deducted from the bank account your debit card is linked to and transferred to the merchant at which you are shopping or is delivered to you as cash through an ATM.
A credit card on the other hand is always issued against a line of credit- a loan of variable amount- granted to you by the card issuer. Therefore, whenever you make a transaction with your credit card, you are essentially availing of a loan from your card issuer which is to be repaid as the credit card bill at the end of the billing cycle (almost all credit cards have a monthly billing cycle). In other words, whenever you make a payment with your credit card, the payment is settled between the card issuer and the merchant- i.e. the card issuer pays to the merchant on your behalf, and you are supposed to repay this amount to your card issuer as what is known as credit card bill or credit card statement.
Credit card and debit card transactions are however similar in the sense that both credit card and debit card transactions are processed via a payment network such as Visa, MasterCard, Ameican Express, or Diners Club that act as an intermediary between the card issuer and the merchant. Moreover, in most cases, another intermediary called the payment gateway is also involved in the case of both credit card and debit card transactions.
Why Are Credit Cards More Secure Than Debit Cards?
Now that you are aware of the fundamental difference in the way credit cards and debit cards transactions take place, it will be easier to understand why and how credit cards offer more protection to the cardholder than debit cards-
Protection Against Fraudulent Usage
While banks will block both credit/debit cards on reporting the loss of the card to the bank, many credit cards offer additional protection with a complimentary insurance cover against fraudulent usage of the card. Although this fraudulent usage cover is not available on all credit cards, most travel and premium/super-premium credit cards do offer a complimentary insurance cover against unauthorized usage of the card.
Protection at the Time of Transaction
Since money is directly deducted from your savings/current bank account in case of debit card transactions, if a transaction fails, the amount will be debited from your account while it is not received by the merchant. Although usually, any such failed transaction is identified by the bank within a couple of days and the amount deducted is reversed, you do lose your money at the time of the transaction. This can be really problematic if a transaction of a large amount fails and you do not have enough funds in your account to reattempt the transaction.
This problem is not possible with credit cards because when you make a payment using your credit card, the amount is not deducted from your bank account, instead, it is paid to the merchant by the card issuer on your behalf at the time of transaction. Therefore, even if the transaction fails, you do not lose your money. All that happens is, the amount is added towards your credit limit utilization, and as soon as the failed transaction is identified by the card issuer, your credit limit is also replenished. So, you do not lose any of your money even for a second if a credit card transaction fails.
Many credit cards come with a purchase protection benefit- an insurance plan for products purchased with the credit card. These purchase protection plans offer an insurance cover up to a certain amount against loss/damage of products purchased with the card. For example, Axis Bank Vistara Infinite Credit Card offers a purchase protection cover against loss/damage of an item purchased with the card due to fire/burglary.
It should be noted that most credit cards in India do not offer any purchase protection benefit. Purchase protection cover is usually offered only with super-premium and premium travel credit cards.
Comprehensive Travel Insurance Plan
Many credit cards, especially travel credit cards and super-premium credit cards offer a complimentary travel insurance plan that not only includes a life cover against accidental death but also a cover against the delay of flight, loss/delay/damage of the check-in luggage if the flight ticket was purchased using the card. Card issuers seldom provide this benefit on debit cards.
It must have become clear to you by now that credit cards offer better financial security than debit cards. You are not only covered against any unwanted loss of money due to failure of transaction but also, in many cases, get multiple insurance benefits if you use a credit card instead of a debit card. Apart from this enhanced security, one obvious advantage of using credit cards is that you get an interest-free loan for a period of up to 50 days while earning Reward Points/cashback at the same time.
We at Card Insider have always advised you to use your credit cards for the majority of your expenses as long as you are sure that you will be able to pay your bill in full by the payment due to date.