Debit cards are rapidly growing in popularity according to a new study by Javelin Strategy & Research. While 70% of consumers used a credit card to make purchases in 2009, 51% used a payment service like PayPal and a surprising 55% used debit cards – which potentially carry significantly higher risks as debit cards do not provide the inherent protection that credit cards carry.
Online users largely unaware of the increased risks of using debit cards for purchases.
When using a credit card, you are using an extension of credit from the bank. The most you can be liable for is $50 if it is fraudulently used. If the card is stolen or abused, it is the bank’s money was stolen – it did not come out of your checking account.
Stolen or abused debit cards on the other hand, charge or debit your account at the moment of the transaction – and getting it back is far from guaranteed.
According to the Electronic Funds Transfer Act, notification of the theft of your debit card (or your debit card number and PIN) is given within two business days of discovery of the loss or theft, you may only be liable for $50. If you do not notify them within the two-day limit, you could lose up to $500. The kicker is that you may not know within two days that abuse has occurred – do you check and reconcile your account balance daily?
Finally, If you don’t report any unauthorized transaction that appears on your statement within 60 days of receiving it, you risk unlimited loss on transfers made after the 60-day period. The result can be that you lose all the money in your account plus your maximum overdraft if you have one.
In spite of the increased risks, the study reports that debit card purchase volume rose 21.3% between 2008 and 2009, equaling a jump from $47 billion to $57 billion USD, and debit card purchase volume is expected to increase 42.5% to $67 billion by the end of 2010.
Looking at projections for 2014, debit card purchase volume is expected to grow 123.4% from its 2008 level to $105 billion USD.
How debit card numbers are stolen online
There are a variety of ways in which debit card numbers and PINs can be stolen online. If your computer is infected with malware, you may be the one providing this information to thieves directly. If the site you purchase from is unethical, or one of the workers in that company is a thief, it may be stolen as part of your transaction. Or, if the ecommerce site is hacked, your debit card information can be stolen by the hackers.
In some attacks, millions of credit and debit card numbers have been stolen in single hacking incidents. For the credit card users, this can represent a real hassle – and a $50 loss. For the debit card users, the financial impact can be devastating.
The safest course is to use a credit card, or a Payment Service for online transactions.
Should you choose to use your debit card, check with your bank to understand exactly what protections they afford – some banks do provide better protections for their debit card holders than the law requires. Then, vigilantly monitor your account for unauthorized activity so that you can report any problems within the required reporting windows.