Writing checks from one’s personal checking account has become nearly passé. The online debit card is one reason for the cultural shift. Unlike with a traditional check, the use of an online debit card will instantly deduct funds from one’s bank account after a transaction has transpired. As a result, funds for a purchase must be present in the user’s bank account prior to the transaction, or the purchase is in jeopardy of being denied. Another alternative is that the transaction can be approved even with insufficient funds, but the user will be charged a bank fee.
Most online debit cards are physical cards that are used similarly to the way that credit cards work. Like a credit card, an online debit card will bear the brand name of a major credit card company. Unlike a credit card, however, the debit purchase initiates an automatic reduction in the card holder’s bank account balance.
In the United States, users typically are required to enter a personal identification number (PIN) in order to complete a transaction. This usually is a four- to seven-digit number code that only the cardholder knows, and it is equivalent to the cardholder’s signature in a normal credit card transaction. After the PIN is entered, the terminal at which the transaction is being completed automatically makes contact with the bank of the online debit card holder. The PIN is checked for authenticity, and the transaction is either approved or denied. The use of PIN numbers is designed to cut down on fraud in the debit card industry.
There are several advantages surrounding the use of an online debit card. For the cardholder, it eliminates the potential of taking on excessive debt that can occur with the use of credit cards. It also means that there will be no bill at the end of the month, because the funds are automatically deducted from the account. For merchants, the fees associated with debit cards typically are smaller than those tied to credit cards. The use of these electronic debit cards saves the customer and the merchant time, because customers writing out checks or fishing for change can turn into cumbersome events at the check-out counter.
A risk associated with debit cards includes the possibility of fraud if a card is lost or stolen. If this happens, the cardholder should contact his or her bank immediately to cancel the debit card. Depending on the bank, the cardholder might not be held responsible for any unauthorized purchases.