Credit and debit cards have been in existence for decades and provide a familiar and convenient way to pay. The question is though, with the dash from cash, accelerated by Covid-19, what are the preferences of today’s Australian consumers when choosing between these two options? And what are the differences between debit and credit card protection?
To begin, we will explore the credit and debit card landscape in Australia.
Debit and Credit Card Stats
In recent years there has been a shift from credit to debit cards. According to Finder, in October 2020 there were 13,720,907 credit cards and 34,861,747 debit cards in circulation in Australia. Since 2017, there has been a slump in credit card figures and according to the Reserve Bank of Australia, the Global Financial Crisis has contributed to the popularity of debit cards. More consumers are now opting for debit cards to complete their purchases, so much so, that debit card payments accounted for 45% of all consumer payments whereas credit cards attributed to only 19% of consumer payments in 2019.
Interestingly, analysis by the RBA also shows that since March this year, Australians have paid off $4.2 billion from loans and closed almost 400,000 credit card accounts. Further demonstrating the preference to use debit cards and other alternative payment options.
The Debit over Credit Trend
Both debit and credit cards provide a secure way to transact with various benefits that appeal to different consumers, so why exactly is debit currently leading the way? This could be due to a number of reasons including:
- The desire to use savings over credit which ultimately gives consumers more control over their finances.
- A generational trend, analysis by RBA shows that debit card usage grew for all ages between 2016 and 2019 but figures show that younger people under 40 made two thirds of their in-store payments with a debit card compared to 36% for consumers in the older age bracket. Moreover, millennials are 37% less likely to own a credit card because they view them as costly and risky.
- The surge in contactless payments, Australia is one of the most highly developed contactless markets in the world and this is further propelled by the growth in Point of Sale devices – globally Australia has among the highest penetration of POS devices and in 2018 consumers had access to over 960,000 POS devices.
Debit Card Vs Credit Card Protection
Do you use debit cards, credit cards or both? With the flexibility to ‘borrow money,’ credit cards provide an option to shop with interest–free deferred payments (if made on time) which can then be made in a single consolidated payment at the end of the month. Debit cards on the other hand are linked directly to your checking account so when you make a purchase you are using your own money. The major difference between debit and credit cards is the added level of protection credit cards provide against fraudulent, disputed, or failed transactions.
This is because any fraudulent activity that happens on a debit card results in your own money being deducted from your own bank account. Conversely, your credit cards funds and spending limit is allocated to you by the issuer and any fraudulent dispute will therefore be resolved by the issuer and your personal funds are unaffected. Furthermore, if your debit card details gets stolen or hacked you will have to contact your bank immediately to block your card and resolving the issue and receiving reimbursement may take some time because an investigation will have to be conducted to prove the transactions were not made by yourself. In the meantime, all access to your funds will be frozen until the dispute has been resolved. Credit cards on the other hand come with protection against fraud and theft and any fraudulent activities reported will be reimbursed in full by the issuer immediately.
Credit cards also protect purchases made online, so if you buy an item that is broken, faulty or misrepresented then the issuer will reimburse your money and will solve the dispute on your behalf with the supplier. Additionally, credit cards offer extended warranties, so if an item suddenly breaks after the manufacturer warranty expires, the issuer will replace or repair the item. Lastly, credit cards can also offer price protection, so should you find the same item cheaper after you have made a purchase, the issuer will reimburse the price difference.
However, with that said, debit cards also provide a convenient and safe payment tool and also offer chargeback as a way to claim money back from your bank if you purchase faulty goods, or a service isn’t delivered or the company you bought from goes onto liquidation. Chargeback isn’t a legal requirement but is part of Visa, Mastercard and Amex’s own rules.
Regardless of which plastic method you prefer, and it does entirely depend on individual preferences, you are safe in the knowledge that debit and credit cards overall provide a safe and secure way to transact.
Behind the scenes and unbeknown to most consumers, there is a mission critical and complex infrastructure which protects our sensitive cardholder data including PINs to mitigate card fraud. At the heart of this ecosystem lies a Payment Hardware Security Module which essentially encrypts PINs at the point of entry and throughout the whole payment ecosystem. At every stage during the transaction process a PIN needs to be encrypted, decrypted authenticated and re-encrypted within the secure boundary of the Payment HSM.