What’s the difference between credit cards and debit cards?

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They may look similar, but credit cards and debit cards serve different functions.

Understanding these differences is crucial to your business success.

With card payments becoming the norm for most consumers, if you want your business to remain competitive, you’ll need to be able to readily accept credit card and debit card payments, whether that’s online or in person.

Not only do card payments offer convenience and efficiency, they can also help streamline your operations, boost staff productivity and enable you to provide a flawless purchasing experience to your customers.

Here, we take a closer look at the difference between credit card and debit card payments and the benefits they can bring to your business.

What are credit cards, and how do they work?

Credit cards are one of the world’s most popular payment methods. Around 42% of consumers across the globe use credit cards to make purchases online.

A credit card allows the holder to buy things on credit, up to a monthly limit which the card provider sets based on the user’s ability to repay it.

At the end of the month, the holder must either pay off the amount they have spent in full or be liable to pay interest on the balance.

From a business perspective, accepting credit card payments, whether in-person or online, is essential. Giving your customers the ability to pay for your products and services with the most convenient methods will encourage them to do business with you.

It can help customers who are short on cash, or don’t like carrying cash, buy from you and can also help you offer a better ecommerce experience if you sell online.

There are, however, a few drawbacks to consider too.

Most credit card providers charge the seller a fee for each transaction they process, usually a small percentage of the sale price.

While this may seem insignificant on an individual sale, it can soon add up across several transactions, so you may need to consider this in your pricing.

Credit card payments are also subject to chargebacks, which allow cardholders to claim back money for transactions they are not happy with. These differ from refunds because the buyer will take the issue up with their card provider, rather than your business, to try and reverse the payment and get their money back.

Chargebacks can be costly and difficult to override, even if you are in the right.

What are the different types of debit cards?

Debit cards are issued alongside a bank or building society current account.

They allow the cardholder to pay for goods on their card from the funds available in their account, plus any overdraft if they have one.

Users can also withdraw cash from an ATM, provided they have funds in the bank, and can pay for goods and services online and over the telephone.

There are several different types of debit card available, and all are affected by different rules.

The most common ones to look out for are:

Mastercard

Mastercard debit cards are linked to a current account and allow payment for goods and services and cash withdrawals from ATMs. Contactless Mastercards allow payments of up to £45 without a PIN, although this limit is set to rise to £100 later this year.

Maestro

Maestro debit cards are offered by some UK banks and building societies and allow users to make payments even if they don’t have enough money in their account. Maestro card payments are usually cleared instantly, so you should quickly get the cash in your account if you accept a payment.

Visa

Visa debit cards are the most widely-issued debit cards in the UK. Like Maestro cards, they allow people to pay for goods and services even if they don’t have quite enough money in their account.

Visa Electron

Visa Electron debit cards do not allow users to spend more than what is in their account. Payment will be declined if they don’t have the funds to cover it.

From a business perspective, just like accepting credit card payments, offering debit card payments is essential.

They offer a quick, easy and convenient way of paying for good and services which, again, will encourage your customers to do business with you, whether that’s online or in person.

Debit cards are a popular payment method with businesses that offer subscription services.

You can also set up a Direct Debit with a customer to collect payments straight from their bank.

Business benefits of accepting credit and debit card payments

As a small business, understanding the difference between credit card and debit cards is crucial.

However, despite their difference, there are many ways your business can benefit from accepting both.

With card transactions currently accounting for around 75% of all high street spending, being able to offer your customers this payment option is crucial.

And with card payment technology evolving continuously, card use will grow in the next few years.

Here are some of the benefits accepting card payments can bring to your business:

Faster payments

With a card payment, your customer will pay in full at the point of sale. This means the money will be in your bank account almost instantly, rather than waiting for a cheque to clear, which can take days.

Greater convenience

Card transactions are quick, convenient and straightforward and go straight into your bank account and through your bookkeeping system, so your accounts are updated in real-time. You’ll also be holding less cash, so won’t need to make as many trips to the bank to make a deposit.

Improved cash flow

Because card payments are instant, you’ll have access to the money straight away, which can help ease your cash flow and make you less reliant on loans or overdrafts.

More time

Accepting card payments is quicker and easier than taking cash or cheques. The sale amount is paid instantly in full, so you won’t need to count out change or wait for a cheque to clear. The whole transaction can be completed in seconds.

Greater security

Card payments are more secure than cash. When a customer uses a chip and PIN card, you’re guaranteed to receive payment without any disputes.

More sales

Accepting card payments can help you attract more customers and generate more income. It can even encourage higher-value purchases because paying by card is quicker and more secure than paying by cash, and most people don’t carry large amounts of money in their wallet or purse.

How Payaro can help

We provide fast and secure card payment and EPOS solutions which use the latest technology to help your business grow – whatever sector you’re in – while making a positive impact.

We’ve made it our mission to work with like-minded customers to help them achieve their Corporate Social Responsibility goals and give something back with every payment they take.

Our ground-breaking technology allows our customers to make a donation of their choice to one of our designated community partners with every transaction.

It means your business can give back while you grow.

For a free consultation, so we can understand your business requirements and develop a secure payments solution that helps you reach your sales goals and your CSR objectives, get in touch today.