Tips for using debit and credit cards

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The security of credit card transactions is subject to stricter legal safety requirements and higher liability protection than debit cards. However, the security policies implemented by card networks and issuers differs leading to variance in the level and functionality of the fraud claims process among both credit and debit cards. Even though credit card transactions are thought to be safer than debit cards, other factors also influence and test this belief. These factors include the card's unique security features, safety practices of the card carrier and the technology used to process and monitor transactions.

Credit cards and debit cards operate differently, and this affects their security in some ways. Sally Herigstad, a certified public accounting reporting via CreditCard.com suggests credit cards offer more financial protection in terms of actual cash-flow because with credit cards a disputed charge is not immediately drawn from an account as is the case with debit cards. Additionally, the Bank of America states credit cards are more secure for shopping via the internet because consumer fraud protection is stricter than debit cards for these kind of purchases. 

The brand and issuer of both debit and credit cards also affects the quality of their security. For example, a Visa credit card issued by Bank of America has different security features and services than a MasterCard credit card issued by the Navy Federal Credit Union. Moreover, according to Visa, both its credit and debit cards are protected by perpetual fraud monitoring via its no liability policy. MasterCard also has its own trade marked security features such as a holographic magnetic strip called “Holomag” on the back of its card.

Demographic factors can also influence if credit cards are safer than debit cards and by how much. For example, according to CreditCard.com, women are more likely than men to be victims of identity theft. Thus, if a woman is carrying a credit card and a man carries a debit card, the probability is higher that a woman will be victimized regardless of what card is carried by the man. In other words, in this example, gender plays an increased role in security than the type of card.

The Federal Reserve Bank of San Francisco states the Credit Card Fraud Act protects both credit and debit cards. However, also per the San Francisco Federal Reserve Bank, debit cards are regulated by the Electronic Funds Transfer Act whereas credit cards are protected by the Fair Credit Billing Act and the Truth in Lending Law. Since these laws are not the same, and more laws exist for the regulation of credit cards, the security afforded to debit cards is less expansive than that protecting credit cards.

Debit card review: Maestro debit card

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Maestro debit card services is a division of MasterCard that is licensed to financial institutions that issue debit cards. These debit services allow clients to make payments from their checking accounts or using pre-paid debit cards. Maestro cards use the MasterCard Maestro transaction network which is a payment system that communicates between merchants and financial institutions to authorize debit transactions. Cards that use Maestro debit card services can be used to make payments at merchant locations that subscribe to the Maestro network. The cards can also access a vast number of ATMs findable using the MasterCard ATM locator.

Interchange fees

The costs charged for allowing Maestro card consumer debit transactions across European Economic Area country borders were limited by a December 2007 ruling by the European Commission per MasterCard’s 2011 Q1 Form 10-Q. However, in 2009 this ruling was bypassed with MasterCard’s compliance with the EU's condition that MasterCard “create efficiencies that outweigh the restriction of competition.” For Maestro debit card transactions this fee is limited to .003 percent of the transaction cost.

Wireless transactions

A unique feature of the Maestro debit card service network is that it includes the Maestro Paypass. This is allows Maestro Debit Card holders to simply tap their Maestro card instead of swiping and entering in a personal identification number. Only merchants with tap technology equipment are able to process debit card transactions in this way. As easy as the wireless tap payment method is for the Maestro card holders, it is limited to 10 pounds sterling and is only functional at merchants with tap technology equipment. This may protect against the wireless theft of account information or funds, but also limits the functionality of the technology.

International use

The Maestro debit card service can be used in numerous countries and primarily serves the United Kingdom and European Economic Union countries including France, Germany and Italy. According to MasterCard, The Maestro debit card is accepted at over 960,000 locations within the U.K. Additionally, MasterCard claims there over 100 countries with Maestro card access in its 2011 Q1 Form 10-Q. This network integration assists with making payments while overseas and limits the need for cash. MasterCard’s quarterly report also claims these types of transactions are also more profitable for them as a corporation.

Prepaid debit cards

In addition to account based debit cards, Maestro cards can also be acquired using a prepaid method. Prepaid Maestro cards do not require a credit check, but do require identification to be purchased; these cards are also re-loadable. According to Maestro card services, Maestro prepaid cards can be used at millions of retail locations worldwide and allow both internet transactions and internet access to card information via the Masestro debit card online services.

Security features

Maestro debit cards issued by HSBC, NatWest and The Royal Bank of Scotland can be registered for a security protection feature called SecureCode. SecureCode protects transactions with an additional secret code. A transaction history is also recorded when transactions are made using these cards. Since debit card transactions are recorded on account statements, the identification of possible fraudulent transactions in real time and via historical records also facilitates the security of using the Maestro card.

A closer look at the "Durbin Amendment" debit card interchange rule

On May 26, 2011 Moneycation posted an entry about the Debit Card Rule. On May 14, 2011 the 'Durbin rule', named after the Senator from Illinois passed the Senate as a provision within the Dodd-Frank Wall Street Reform and Consumer Protection Act according to the Washington Post. It is to be implemented by the Federal Reserve Bank.

An interesting piece of information about this rule is if a bank or credit union has assets under $10 billion, they are exempt from the rule which places restrictions on fees charged during retail debt card transactions. What previously cost merchants 1.5 percent in 'interchange fees' i.e. debit card transaction costs could now only cost .12 cents per transaction

Despite the exemption, the rule was still challenged which raises an eyebrow. Why challenge something if there is an exemption? A closer look at the rule shows the exemption may be unenforceable due to a mandatory choice of transaction networks according to Nerd Wallet. In other words, if there is a choice between an exempt network and a cheaper one, merchants can choose the latter depriving banks or credit unions of transaction fees.

Essentially, if merchants will in fact have a choice of networks, credit unions and banks are concerned they will not earn enough to prevent fraud due to a lack of financing. Since its original approval a delay on the implementation of the Durbin Amendment has been forgone. The result consumers may face include potential banking fees for services that were previously free, minimum card purchase requirements or surcharges.

If fees are implemented on individual banking accounts a return to cash transactions or alternate payment methods may bypass debit card minimum purchase rules and possibly even checking account fees. Consumers are capable of lowering their expenses as well which makes the interchange fee change seem more like a mere re-shuffling of costs in favor of retailers.