What is the difference between paying online with a credit card versus debit card?
By ATB Financial 25 June 2020 4 min read
Online shopping has grown increasingly popular over the past decade, but it’s seen even more of an uptick in recent months. A question is—what should you use to pay for the purchases you make online? Most commonly, consumers lean towards their credit cards because it’s historically known to be the only option. But, did you know that you can use some debit cards in the same way?
An example of a debit card you can use for online purchases is a co-badged debit card. A co-badged debit card has two logos on the front of the card—an Interac® logo as well as another payment brand, such as the Visa* logo for the Visa Debit* card. This card allows you to make online purchases in addition to traditional debit purchases.
So, what is the difference between making an online purchase with a co-badged debit card, like Visa Debit, versus your credit card? Let’s go over the advantages and disadvantages of the two.
How can you pay for online purchases using a co-badged debit card?
Just like any traditional debit transaction, when you make a payment online with your co-badged debit card, the payment comes directly from your bank account as you would in-store. The difference? You don’t swipe, tap or enter a pin to confirm the purchase.
To make an online debit card payment, you will enter the 16-digit number, similar to a credit card. From there, you’ll verify the account details by providing the expiry date listed on the front of the debit card and the three-digit CVV (Customer Verification Value) number on the back of the card for security verification. Most online merchants will also require you to share the mailing address and postal code saved with your bank account.
For online payments made using a co-badged debit card, the transaction is processed through the appropriate network and the amount will be taken from your account right away. If it is for a pre-authorization, like for a hotel or car rental, then the funds will be held and you will not have access to them until the transaction is completed.
Keep in mind that not every website accepts co-badged debit cards as their chosen type of payment. Canadian retailers must state on the website that they accept debit cards in order for this payment form to be accepted.
What are the advantages of using a co-badged debit card for online purchases?
The most obvious benefit of using a debit card to make any purchase, online or otherwise, is that you are paying for the item upfront rather than making the payment later as you might with a credit card.
Debit cards help consumers manage their money because you only spend what is already within your account balance. In that sense, using your debit card can help you keep costs low. Not only do they help control your spending, but debit cards do not have an annual fee like most credit cards.
For those who are unable to access credit cards, a co-badged debit card is an excellent alternative to buy subscription services, like Netflix or Spotify.
Are there disadvantages to paying online with a co-badged debit card?
Although debit cards are essential to managing money, they also don’t offer the same flexibility that a credit card might.
As mentioned above, if the payment is for a pre-authorization, like a hotel or car rental, you will not have access to those funds in your account until that transaction is complete. Whereas with a credit card it is the credit limit that is held rather than the funds in the account. With a debit card, if your account does not have sufficient funds to accommodate the pre-authorization, you could risk dipping into overdraft.
Also, debit cards may not have the same reward structure that most credit cards carry. Your credit card may have travel rewards, points rewards or cash-back advantages that typically aren’t available on a debit card.
What are the advantages and disadvantages of using a credit card for online purchases?
There are many advantages to using your credit card for online purchases, given you shop responsibly. Unlike debit cards, credit cards allow you more flexibility to repay a more significant investment.
Another advantage of using a credit card for online purchases is to help build your credit rating. A credit rating is how lenders assess your creditworthiness as a borrower and provide you more pull as a renter and potential homebuyer.
Lastly, as we touched on previously, credit cards have perks, like travel rewards and cash-back options, depending on which card you have.
The most significant disadvantage, though, is hard to ignore. With a credit card, you are at risk of overspending and having to repay that loaned money at a higher interest rate over time.
Both credit and debit cards have their advantages and disadvantages depending on the situation. The choice is yours to determine which option makes sense to you when shopping online. Regardless of your decision, though, the most important thing to remember is to protect yourself and your money from fraudulent transactions by taking the appropriate precautions. Be sure to remove any stored information and only shop online if you can do so from a secure connection on a secure site.
In July 2020, ATB launched a new Visa Debit enabled ATB debit card for all debit users. You can find more information about the card, the features and how to get one here.
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® Trade-mark of Interac Inc. Used under license.
* Trademark of Visa International Service Association and used under license.