Debit Card
A debit card (also known as a bank card or check card in some countries)
is a plastic payment card that provides the cardholder electronic access to
his or her bank account at a financial institution. Some cards have a stored
value with which a payment is made, while most relay a message to the
cardholder's bank to withdraw funds from a payer's designated bank account.
The card, where accepted, can be used instead of cash when making purchases.
In some cases, the primary account number is assigned exclusively for use on
the Internet and there is no physical card. Unlike credit and charge cards,
payments using a debit card are immediately transferred from the
cardholder's designated bank account, instead of them paying the money back
at a later date.
Debit cards usually also allow for instant withdrawal of cash, acting as the
ATM card for withdrawing cash.
In Malaysia, there is one interbank network called the Malaysian Electronic
Payment System (MEPS) through which all the banks issue a multipurpose card
called bankcard. This acts as a debit card as well as an ATM card.
Advantages of Debit Card
The following points discuss important benefits or advantages of debit card:
1. Prepaid card
Debit card acts as a type of prepaid card. It is so, since it already has a
sufficient amount of cash balance in its holder’s bank account. It permits
to carry on the value of the transaction (i.e. purchases) to the extent of
available balance in its holder’s bank account.
2. No Annual fee
Due to its unpopularity in Malaysia, generally, bank issuing a debit card
without an annual fee as one of incentives to promote the usage and
acceptance of debit cards.
3. Alternative to cash
Debit card acts as an alternative mode of payment for executing various
cash-related financial transactions. It can be used for the purchases of
goods and receipt of services. In its presence, there is no need to carry a
large amount of cash. Thus, it helps to avoid carrying huge amount of cash
while traveling and minimize risk of loss due to theft, damage, etc.
4. Immediate transfer of funds
Debit card ensures immediate transfer of funds in the merchant’s or dealer’s
bank account. Such a transfer of funds takes place almost instantly at the
moment of purchases of goods and receipts of services. With its use, there
is no need to visit bank’s office premise and do a manual transfer of cash
in the merchant’s or dealer’s bank account.
Thus, it saves precious time and gives ease, safety, and comfort to its
holder in his or her’s finance-related activities.
5. Instant withdrawal of cash
The debit card facilitates instant withdrawal of cash from any nearest ATM.
This helps its holder to avoid a personal visit to bank’s office premise and
wait in a long time-consuming queue.
In short, it also acts as an ATM card to meet its holder’s cash-related
needs, anytime and anywhere.
6. Easy to manage
Debit card is very easy to carry, handle and manage while traveling to
outstations or overseas. Being small, thin, flat and having a negligible
weight it easily fits in any pocket. It can be handled very freely even with
just two fingers. Managing it is also not a big problem.
A cardholder must just take enough care to see to it that:
a) Debit card is always covered with a thick plastic cover to avoid
scratching of its sensitive surface.
b) It doesn’t come in contact with contaminated water and heat.
c) It doesn’t get folded accidentally; this helps to prevent its breakage.
d) It is placed safely in a convenient location which one remembers. This
helps to avoid it getting misplaced and lost due to negligence.
7. Earns bonus points
Now-a-days, the competition among debit card providers (banks) is
challenging. Today, most banks offer bonus points to encourage their
cardholders (customers) to make purchases using their debit cards. Banks are
able to offer such points to their cardholders as it’s merchants and not
them who actually run the reward program.
After every successful sale, a merchant gives the bank a small cut-off or
percentage as a commission. This commission is further shared or divided by
the bank with its holder (as a reward) who did the original purchase. Thus,
in return, it finally also helps the cardholder earn bonus points on
selected financial transactions executed by him or her via a debit card.
In this cycle, all, viz., bank, merchant, and cardholder are directly
benefited. Bank offers an incentive like this to improve the sale of the
products in the ordinary course of business and contribute in the economic
growth.
8. Gifts on redeeming points
As we have seen above, debit card helps to accumulate bonus points through a
reward program. These points can be redeemed by the cardholder (within
card’s expiration date) at any merchant website and/or outlet that bank has
already authorised. While redeeming accurred points, cardholder gets an idea
of its worthiness in terms of amount, and so he/she proceeds to claim gifts
nearly equal to that amount.
9. Cash back
In a cash back, cardholder gets a percentage of the total amount spent on
purchases made using his card. In other words, when a holder use his debit
card to buy something then a percentage of entire money he spent usually in
a month is credited-back to his account once every following month.
Consider for an example, a debit-cardholder spends 100 dollars three times a
month on shopping and the cash-back offer on shopping is 10 percent. In such
a case, cardholder will get back $30, which is 10% of $300 ($100 × 3)
returned to his account in the coming month.
However, to avail this offer some minimal amount must be spent on some
minimum number of transactions at least once a month in a specific currency
by eligible cardholders only.
10. Free insurance coverage
Debit-cardholders also gets free insurance coverage. Some bankers provide
such insurance facilities to attract new customers and to maintain their
current customer strength.
They provide various types of insurances for free to their cardholders:
a) Insurance on loss of debit card,
b) Purchase insurance,
c) Personal insurance,
d) Accidental insurance,
e) Travel insurance, and so on.
However, these types of insurances are given freely to cardholders depending
on which type of debit card they have possessed.
The cost of insurance premium is borne by the bankers who provide debit
cards to their customers.
11. Miscellaneous advantages
Miscellaneous advantages of debit card are as follows:
a) Debit card acts as an alternative to a traditional cheque payment.
b) It helps to budget one’s expenses and do a responsible spending of own
money within account limits.
c) Its holder uses his own money and not any borrowed (loaned) money. Unlike
a credit card, here, no interest is charged. Hence, its transactions are
interest free.
d) It is accepted internationally, by e-commerce websites, and almost
everywhere by merchants who display the logo of payment processing companies
like VISA, Master Card, American Express, etc. This ensures making
successful payments anywhere in the world with ease.
e) It offers optimum levels of security. This greatly minimizes the chances
of fraud, misuse and theft of money.
f) Overall, it enhances the banking experience of a cardholder.
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