It’s been a year of data theft. In the wake of Equifax, Deloitte, SEC and other major security breaches, the personally identifiable information of millions of people has been put in jeopardy. Against this backdrop, the imminent holiday shopping season – from Black Friday to Boxing Day – may look positively menacing to consumers and businesses alike.
You may be wary to use your credit card in light of recent events, but are debit cards really any safer? Credit cards are often portrayed as the poster child of cybercrime, appearing at the center of most stories about online security, while debit cards are treated very differently. Especially around the holidays, debit is praised for how it can help you stay within your spending budget and prevent you from falling into debt during this high-spending season. But the truth is – using your credit card is still the safer option.
Credit vs. Debit: The Consumer
The difference between credit and debit is simple: when you use your credit card, you are borrowing money from your card provider, which you can either pay back in full within 30 days or can make monthly payments, with interest, on the outstanding balance; when you use your debit card, on the other hand, you’re using money that is already in your bank account. Because of this, stolen debit card information is much more dangerous: if your debit card information is stolen, that means the thief has access to all the money in your bank account – and in any linked accounts. And that’s not to mention all the fees and overdraft charges you may have to pay on top of the stolen money.
Debit cards come with some limited protections for lost or stolen cards, but don’t offer consumer the same level of fraud protection as credit cards do. If you report a debit card transaction as fraudulent within 2 days, your liability is capped at $50, and within 60 days it’s capped at is $500. After 60 days have passed, you may no longer be able to file dispute a debit card transaction.
With credit cards on the other hand, consumer protections are much stronger. If your card has been reported lost or stolen, your maximum liability in the case of fraud is limited to $50 – though most credit cards come with 100% fraud protection. Additionally, the card networks allow 180+ days to file a dispute on most online transactions, furnishing you with additional protection. Providers also carefully monitor your transactions and will often pick up on fraud even before the cardholder has any reason to suspect anything is wrong. It’s only if the merchant can prove that the transaction is not fraudulent that the liability will shift back to you as the cardholder.
Even though fraudsters can steal just as much money using credit cards as debit cards, if it’s your credit card information that they’re using then it’s not really “your money”. All you have to do is report the transaction as fraudulent and your provider will reverse it.
But for merchants it’s a little more complicated.
Credit vs. Debit: The Merchant
Merchants want what is best for their customers. Unfortunately, sometimes two different things that are good for the customer can be in conflict.
I’m referring to security and usability, an age-old debate that has troubled online merchants since the very beginning of ecommerce. It would be safer for the customer if merchants only accepted credit card transactions, but the customer wants to have a variety of payment options available to them. So a retailer who doesn’t accept debit will likely have less fraud – which protects their customers – but will also see their conversion rate go down, as some shoppers who prefer to use debit – or who don’t own a credit card – will shop somewhere else instead.
The other thing that complicates the credit vs. debit debate for merchants is chargebacks. From a merchant’s perspective, a major benefit of debit card transactions is that cardholder can only dispute a transaction within 60 days. Because of this rule, there are fewer debit card disputes overall and there is less chargeback lag for debit transactions than credit transactions. From the merchant’s perspective disputing a chargeback is similar for both types of payment cards, but you should be aware of whether a chargeback is coming from a debit or credit card so you can adjust your dispute process accordingly and increase your chances of recovering the funds. Don’t forget – if you can prove that the transaction was not fraudulent, the liability will shift back to the cardholder.
The good news is that merchants CAN have the best of both worlds. Yes, debit and credit both have their downsides, but both of those downsides disappear if you stay up to date with the latest fraud prevention and chargeback management practices. As we enter the busiest sales period of the year, the last thing retailers want to do is create any friction that money turn customers away. It’s important to offer shoppers the choice between paying by credit or debit, but it’s equally important to prepare for fraud and chargebacks. This year, after several major data breaches, this is truer than ever.
This holiday season, fraudsters will be targeting every type of payment card. Debit card support allows merchants to grow their audience and increase their conversion. Credit cards offer consumers much better fraud protection than debit cards, but also mean that merchants will likely have a higher chargeback rate. But if both shoppers and retailers behave safely and responsibly, it will be a happy holiday season for everybody.
A pioneer in data analytics and industry-specific risk management, Suresh Dakshina is the President of Chargeback Gurus. He is a certified e-commerce fraud prevention specialist and a Certified Payments Professional who knows firsthand the challenges business owners face, especially when it comes to chargebacks and fraud. Suresh holds a Master’s degree from University of Southern California and has consulted Fortune 5000 companies for over a decade on chargeback and fraud minimization. Suresh Dakshina is a veteran speaker and works closely with Card Networks such as Visa, American Express on chargeback process optimization and compelling evidence policies. To learn more, visit www.chargebackgurus.com
