Are people falling in love with their debit cards?

During the quarter ending December 31, 2008, people made $203 billion in purchases using their Visa credit cards.  During that same period, people made $206 billion in purchases using their Visa debit cards.  (You can read more by viewing Visa’s latest SEC Filing.  These figures are for U.S. purchases only.)

Also, during the year 2008, the number of credit cards in use rose 2%, from 706 million to 813 million, as compared to the year 2007.  Over that same time, the number of credit cards in use rose 14%, from 795 million to 905 million.  (These figures appear to be for world-wide use.)

Either way you look at it, debit cards are becoming more popular.  I stopped using my credit card four years ago, and I do not miss it.  I’ve managed to reserve hotel rooms with my debit card, and I’ve even researched how to rent a car with a debit card.  My current bank treats debit card transactions with the same security as credit card transactions.

As debit cards become more popular, I’m sure that debit card-related fraud will increase, as well.  Such is the nature of how the world works.  No matter the system, or mechanism for transferring money from one party to another, there are those who will find ways to manipulate that system or exploit that mechanism.  Keep this in mind when you use your debit card.  Be careful.  Be mindful.  Be smart.

I am not sure if this move towards debit cards is short term – driven by the recent downturn in the economy – or long term – signaling a move away from credit and towards paying with cash-on-hand.  It will be very interesting to take a look at Visa’s next SEC filing, to see if this is a trend, or a one-time blip.

What about you?  Are you using your debit card more than you used to use it, as compared to your debit card?  What are you worries when you use your debit card?  Do you use your debit card for online purchases, and if you do, do you feel comfortable when doing so?  Do you know your bank’s debit card security policies?

I recently asked a representative from Visa’s debit card division (site sponsor) several questions about my favorite alternative to the credit card – the debit card.  Here’s what the representative stated about debit card rewards programs, transaction limits, and debit card holds.

Are there rewards programs for using debit cards?

About 85 percent of U.S. households participate in at least one rewards program. Increasingly, consumers are looking for rewards and value for the transactions they make every day, like paying bills, buying groceries, or filling up their gas tank. As consumers turn to debit cards for these types of purchases – instead of cash and checks – more financial institutions are introducing debit rewards programs.

Often, issuers will pair up with a partner like an airline or hotel to give you the ability to earn points on a debit card toward rewards you care about. Some financial institutions also offer the ability to earn points for qualified purchases that can be redeemed through an online catalog, for items like gift cards, airline vouchers and hotel accommodations.

Many financial institutions also reward their debit cardholders for other relationships they have with the institution – like a car loan, savings account, mortgage, etc. – giving those customers the ability to earn additional points or other benefits.

It’s important to understand how you can earn points toward rewards – what purchases qualify, whether you earn points when you enter a PIN or sign for your purchases, etc. Make sure you ask these questions of your financial institution, as policies may vary.

If my debit card is associated with my savings account, are there limits to the number of transactions I can have in one month?

Most financial institutions will allow you to make transactions from your savings account, but this may be limited by federal regulations. You should check terms and conditions with your financial institution.

Why are there holds placed on a debit card?

Holds are often placed on a debit card as a precautionary method when you use your card in places like express/video checkout at hotels, at the pump or restaurants where the exact amount of a transaction may not be known when the merchant first requests an authorization for a purchase.

Some financial institutions that issue Visa cards decide whether to place a hold on your funds in order to protect themselves against the risk that you will spend more money than you have in your accounts. They place this hold in anticipation of the final transaction amount. The hold, which can be higher than the cost of the purchase, is what allows you to use your Visa cards even when the exact final amount of a transaction may not be known and when the merchant first requests an authorization for a purchase.

To clarify, Visa does not determine the hold – that’s up to the financial institution. But to help ensure that holds do not disrupt your access to funds in your account, Visa requires that card issuing financial institutions release all holds within three business days of the authorization request or when the transaction clears, whichever is earlier.

Ask your own financial institution about any available rewards programs. Personally, I use Wachovia Possibilities, which rewards me for signature-based debit card purchases.

I recently asked a representative from Visa’s debit card division (site sponsor) several questions about my favorite alternative to the credit card – the debit card.  Here’s what the representative stated about debit cards and zero liability protection.

Is there a difference between the protection for a debit card and a credit card?

Despite the popularity of debit cards, consumers are often confused about the security features and consumer protections debit cards offer. Many of the same features and protections provided by credit cards are also offered with debit cards.

It’s important to know that Visa debit cards carry the same protections as Visa credit cards. For example, all Visa cardholders are protected by Visa’s Zero Liability policy. This policy means you pay nothing if unauthorized purchases are made on either a credit card or a Visa Check card when you choose to sign for your transactions. Some financial institutions offer Zero Liability protections for certain PIN debit transactions as well, but the best way to ensure you are protected is to sign for your purchases. Visa’s Zero Liability policy also applies to purchases made on the Internet.

Continually monitor your account and review your monthly statement to identify any unauthorized transactions. If you notice fraudulent activity on your card, you should contact your financial institution as soon as possible and report it – this may help to reduce your liability.

If your account is compromised, Visa is committed to setting things right without further aggravation or inconvenience to you. Visa’s cardholder protection policy requires all financial institutions issuing Visa products to extend provisional credit for losses from unauthorized card use within 5 business days of notification of the loss. Many institutions will provide replacement funds even faster, sometimes within 24 to 48 hours.

I highlighted the part about signature-based transactions.  When I use my debit card, I usually swipe the card, choose “credit card” when prompted, and then sign my name.  For added protection, I use a debit card which is not associated with my primary checking account.  Instead, my debit card is associated with a secondary checking account, where I keep a limited amount of cash, at a bank that does not allow overdrafts.

Ask your own financial institution about their liability protection and security procedures.  Do not assume you are protected.  A few, direct questions about liability protection today might save you thousands of dollars in the future.