A debit card is suited to those who desire to control spending on shopping within a pre-fixed budget. The card is therefore more suited for middle income account holers. The card is issued by the bank and is connected through the ATM. It is thus an electronic card that one can use as a convenient payment mechanism. Debit cards allow you to spend only what is in your account and purchases should be kept track of just as if you're writing a cheque. The card enables you to access your bank deposits for making payment. It is a deposit access mechanism in which whenever you make a payment through your card the amount is automatically debited from your account at the point of sale. The debit card thus combines the benefit of both cash and cheque without our having to carry either of the two. On the other hand unlike a credit card, debit card transactions give card holder no grace period. They are an immediate, pay-now deal.

• It is easier to obtain a debit card, as compared to a credit card. In fact if you are an account holder of the Bank issuing debit cards, you can easily secure a card. There are no more eligibility criteria.

• You can go for shopping etc. without carrying cash or your cheque book, but only with your debit card.

• Likewise when travelling abroad, it frees you from carrying a stock of travellers cheques.>

• Debit cards may be more readily accepted than cheques, as the merchant is assured of immediate payment.

• If a customer issues a cheque to a shop-keeper, the latter has no recourse to find out whether the customer has enough balance in his account and whether the cheque if presented would be honoured or not, but a shopkeeper will not find such a handicap in case of either a credit card or debit card. In these cases inquiries to the Card-issuing bank get a quick and categorical response. Hence the shopkeeper is assured of definite payment in respect of sales effected against either debit or credit cards.

• If you return merchandise or cancel services paid for with a debit card, the transaction will be, generally, treated as if it were made with cash or a check. Customers usually get cash back for on-line purchases; for off-line transactions, the amount is credited to your account.

• You have the advantage spending within your means and the problem of arranging payments at the receipt of the credit card statement is eliminated.

• n case of credit cards, delayed payments are penalized at 30% p.a. rates. This penalty situation never arises in debit cards.

When you present the card to the salesperson at the payment counter he swipes it through the reader. The card gets connected to your bank account and you are required to enter the ATM PIN (password) to make a transaction. The bank debits the account linked to the card for the value of the purchase of goods or services, cash, fee, charges and the payment effected by the use of the card (transaction). These transactions are reflected in the Account Statement of the Accounts that are linked to the card.

Today most of the debit cards are globally valid but can't be used for foreign exchange payments in Nepal, Bhutan and India. The card can be used till the last working day of the month indicated on the card, after which it expires. Banks send the renewed card before the expiry of the old one, with renewal charges.

There are two types of debit cards and two types of debit card transactions:

1. Direct Debit Cards allow only "on-line" transactions, also called point-of-sale. An on-line transaction works like a straight ATM transaction. It is an immediate electronic transfer of money from your bank account to the merchant's account. This requires you to enter your Personal Identification Number (PIN) at the store's terminal. The system checks your account to see if there is enough money to cover the purchase.

2. A Deferred Debit Card looks similar to a credit card, bearing a Visa or MasterCard logo, and can be used wherever your card's brand name is displayed. It is NOT a credit card. Rather, this card allows "off-line" transactions, as well as on-line. Off-line purchases resemble a credit card transaction. The merchant's terminal reads your card and creates a debit against your account. However, instead of debiting your account immediately, the transaction is stored for processing later -- usually within two to three days. Instead of using a PIN, the customer signs a receipt as they would with a credit card. Most off-line transactions are verified immediately to see whether there is enough money in the account.

Regardless of the type of debit card you have, when you use it, the money is subtracted from your bank account.

Both MasterCard and Visa International have already witnessed a huge rise in their debit card bases in the Asia-Pacific region. After 25 years in the region, MasterCard has built up a credit card base of 80mn, whereas its debit card base, in just four years, has touched 37mn. Visa too, in less than 18 months, built up a base of 48mn debit cards.

[Source - http://www.indiainfoline.com/pefi/news/debi.html]

The debit card base in India in March 2000 was already at 3,00,000. Moreover the usage figures are even more impressive. Seven out of 10 card holders use their card on a regular basis with the average monthly spend on a debit card was Rs 1,400, which puts total annual spends at over Rs.5bn.

In India Citibank was the first bank to offer this service to its customer (March '98). The first market to test this plastic variant was Bangalore. Latter on the concept was introduced in New Delhi and Mumbai. Other banks that have debit cards in their product portfolio are HDFC Bank and ICICI Bank and a few Nationalised banks. Debit cards can be used at the establishment, which displays the sign of the network each of the cards is linked to, like Visa, Master etc. The card is typically used for low value purchases and is not as popular as the credit card.