How does a debit card work?

With rapid changes in digital banking, there have been many changes in the way payments are made. From cash payments to completely online payments using different modes, the process of making payments has come a long way. One of the ways of making payments is using plastic money.

Plastic money is a card which acts as a substitute for cash. There are two types of plastic money – credit cards and debit cards. Let us examine what a debit card is and how it works.

What is a debit card and how does it work?

A debit card is a type of plastic money which is equivalent to carrying the bank balance in the form of a card. Whenever the debit card is swiped, the amount directly gets debited from the bank account. This is why it is called a debit card.

A debit card can be used anywhere where the merchant has a point of sale (POS) machine. In India, since January 2019, all old magnetic strip based cards have been replaced by chip based cards. This means a debit card transaction is not complete unless the PIN is entered in the machine.

A debit card can also be used for online transactions. It can be used to checkout at different online merchants and e-commerce stores. It can also be used to pay bills such as telephone bill, electricity bill, gas bill etc. The payment will get authorized either by using the PIN for the debit card or by entering an OTP that is received on the registered mobile number of the customer.

Once a debit card is swiped, the PIN or OTP confirms the identity of the customer and the bank releases the funds. Since the amount directly gets debited from the bank account of the customer, debit cards should be used carefully.

There are three companies that are associated with a debit card. These cards can be:

  • Visa
  • Mastercard
  • RuPay

RuPay is an Indian card scheme started by the National Payments Corporation of India. All three types of debit cards work well in online transactions and offline transactions.

A debit card number is a 16 digit number which denotes the card merchant i.e Visa, Mastercard or RuPay, the name of the bank and the branch and the customer ID.

A debit card alternates as an ATM card. What this means is that a debit card can be used to withdraw cash from any ATM. To withdraw cash from the ATM, the ATM card needs to be inserted into the ATM machine and the PIN needs to be entered. Once the PIN is entered, you need to enter the amount you need to withdraw. Once this amount is confirmed, the required amount of cash will be sent out from the machine. You have an option to print a receipt. The ATM card can also be used to check the balance in the account. The ATM card works in ATMs of the same bank or in other bank ATMs as well. However, in case the total withdrawals from other bank ATMs exceeds 5, then there may be charges on the withdrawal.

A debit card is an excellent tool that helps with cash management and digital payments.

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