The Pittsburgh Post-Gazette postulates that there are 5purchase types that a consumer should never put on his or her debit card. In general, the reporter is pro-credit carduse and anti-debit card use due to “security, peace of mind, rewards.” The five types of purchases that he feelsabsolutely should be not be paid using a debit card are:
- Onlinepurchases –
due to the fact that the consumer will be without his/her fundswhile the charge is in dispute,
- Gas –
purchasing gas often leads to a short-term hold on funds ($50-$100 for a fewhours to overnight) until the charge clears, potentially leading to potentialoverdrafts for individuals with low DDA balances,
when checking into hotels, a hold of several hundred dollars is often placedon the payment card to cover incidental expenses at the hotel, leading topotential overdrafts for individuals with low DDA balances,
- LargePurchases –
in the case where a purchase of a large ticket defective itemis paid with a debit card, the payment cannot be stopped and the funds are inthe hands of the merchants the next day. The only recourse by a consumer is a charge-back, and again it will takesome time before the funds are placed back in the consumer’s account – if thechargeback is approved.
- DubiousPlaces –
when payment is being made in a dubious merchant establishment orif the payment situation makes the consumer feel like a problem might arise,let say with fraud on the transaction, a debit card will lead to a delay in theconsumer’s own funds being replaced.
Ultimately, the reporter says that although credit card haveadvantages over debit cards, as long as consumers are sensitive to the“monetary hold issue” and the fraud impact on DDA funds, the consumer canprobably make due with debit cards. AS per Jeffrey Weber, the writer of thispiece, says:
“Those who aren’tfully ready to make the switch to a credit card-only lifestyle shouldn’t beoverly concerned; simply being informed about monetary holds that can impactbalances and the dearth of protection available relative to credit cards shouldbe considered whenever you have a choice between using a debit card vs. credit card.”
Individually, each recommendation espoused by the writer isreasonable and sound. However, h
is ultimate conclusion says it all. “Simply being informed about monetary holds”when making a choice between use of a debit card vs. a credit card will enablethe consumer to choose which payment method works best for him or her. The advice, while true, impacts only thatsubset of the population that maintains a low balance on their DDAaccount. Further, the choice for thatsubset of the population might not include a credit card, since they might notqualify for that product.
We don’t disagree with the proposition that retrievingpayments using one’s own funds on a debit card is more onerous for the consumerthan using a credit card open-to-buy line. However, the problems presented occur on rare occasions and might not bethe best policy as suggested by the writer. Finally, the reason debit cards have become so popular is that consumersrecognize using a debit card forces the consumer to budget his or her funds andcannot opt for revolving the payment on the purchase.
Debit cards offer better money management functionality fora large number of consumers than cash or credit cards and the presumption thatcredit cards or cash solves those problems is missing the bigger picture ofdebit card benefits. Additionally, debitcards also offer security, a different type of peace of mind, and many debitcards offer rewards programs today.
Overview by Ron Mazursky, Director, Debit Advisory Service for Mercator Advisory Group
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