If You Use a Debit Card: PIN-based vs. Signature-based Transaction

[Stroganoff]

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A financial institution I belong to sent me an e-message, and it inspired me to make a Public Service Announcement thread. I still see so many people in the check-out lane enter their PIN number. But by doing so, you waive some protections.

Here's the message I received (rather than re-inventing the wheel):

There are two ways to use your Check Card to buy things. In the first way, the merchant asks you to enter your four-digit PIN. The money immediately leaves your checking account.

In the second way, you either press "credit" or sign a credit card receipt. Saying credit does not mean you've made a loan. It means your transaction passes through the Visa® USA payment system. When it does that, two things happen.

First, your transaction leaves your checking account in one or two days allowing you to hold onto your money a little longer.

Second and more important, your transaction qualifies for Visa Charge-back Rights. That means if you have issues with the merchant that you tried to but could not resolve, such as merchandise you ordered that never arrived, you can dispute the charge to us in writing. We will then put that money back into your account until the dispute is resolved one way or the other. PIN purchases are not subject to the same protections.​

In other words:

• PIN-based (aka "Debit"): Your transaction is routed over an ATM network such as STAR, Cirrus, Plus, Co-Op, etc. (Check the back of your debit card for logos). The money is immediately taken out of your checking account, and you have no chargeback rights if you run into a dispute with the merchant over the transaction.
• Signature-based (aka "Credit"): Your transaction is routed over a credit card network such as Visa or MasterCard. A temporary authorization is placed against your checking account, and the money is taken out in 1-3 days or so. You do have Visa/MasterCard chargeback rights since you used your debit card as if it were a credit card.

Just something to consider if you use a debit card to buy stuff. Plus, there's less risk someone can watch you enter your PIN.

 

[mgdsh]

I've never understood why people use debit cards when credit transactions are available.

For that reason, I don't understand why people use cash unless you're at a farmers market or getting a cash discount.

 

[sazerac]

I use cash. I use it for two reasons.

First, I live in an area where many merchants only take cash. No checks, no cards. Such neighborhoods still exist in the USA.

Second, it is a good method for budgeting. Nothing like opening up an empty wallet to remind yourself that you are not eating out tonight.

There are some obvious risks to going all-cash, and I accept them. I just wanted to explain the cash user's mentality.

 

[PL198]

I've never understood why people use debit cards when credit transactions are available.

For that reason, I don't understand why people use cash unless you're at a farmers market or getting a cash discount.

psychological effects for both points.

 

[Plastikos]

A debit transaction is not immediately removed from your account no matter what the bank says. For almost any transaction there is a 72 hour transaction settlement period where things are made sure to be lined up and appropriate. This isnt a good reason to use a debit card however as its an extremely unsecure method with no benefits.

People are afraid to use credit cards due to social stigma and expectations foremost, as many think of them as crisis or last option and bad overall. There is also a giant under appreciation of the benefits that you get with a credit card, it is far more secure and gives you much more rights and even flat out benefits (extended warranties, rental car insurance, etc...). Not too mention that if you choose to use a reward card you will accumulate cash or travel monies depending on your selection. Even if its a measly 0.5% if its items you're already buying why not get a small discount. Also, you have an excellent record of everything.

Obviously you have to have your financial house in order before using cc for everything. I use my cc for anything and everything that I am allowed to, hell if there wasnt a massive charge to do so for paying taxes I would do that as well and get a couple of free trips from it. Most people who have learned the finance game do similarly. Set up all your accounts to be automated and working for you, you never miss a payment and free up time. Use cc for everything (that you already buy, dont spend for spendings sake) and accrue benefits. Have your checking account pay the balance in full each month. Take a trip or two per year paid for by rewards on everyday items that you were buying already. Find several opportunities like this and youre on your way.

 

[PL198]

A debit transaction is not immediately removed from your account no matter what the bank says. For almost any transaction there is a 72 hour transaction settlement period where things are made sure to be lined up and appropriate. This isnt a good reason to use a debit card however as its an extremely unsecure method with no benefits.

People are afraid to use credit cards due to social stigma and expectations foremost, as many think of them as crisis or last option and bad overall. There is also a giant under appreciation of the benefits that you get with a credit card, it is far more secure and gives you much more rights and even flat out benefits (extended warranties, rental car insurance, etc...). Not too mention that if you choose to use a reward card you will accumulate cash or travel monies depending on your selection. Even if its a measly 0.5% if its items you're already buying why not get a small discount. Also, you have an excellent record of everything.

Obviously you have to have your financial house in order before using cc for everything. I use my cc for anything and everything that I am allowed to, hell if there wasnt a massive charge to do so for paying taxes I would do that as well and get a couple of free trips from it. Most people who have learned the finance game do similarly. Set up all your accounts to be automated and working for you, you never miss a payment and free up time. Use cc for everything (that you already buy, dont spend for spendings sake) and accrue benefits. Have your checking account pay the balance in full each month. Take a trip or two per year paid for by rewards on everyday items that you were buying already. Find several opportunities like this and youre on your way.

I completely agree with you, but most people don't have that level of financial management. The companies are in business for a reason after all.

However its great that people like you get to reap the benefits!

 

[Stroganoff]

I agree with those who brought up the credit card conversation -- I exclusively put everything possible on credit card for the rewards and pay in full monthly.

I suppose the audience of the OP was directed towards the large amount of people who still use debit cards exclusively. I see them all the time in the check-out line. And they're the ones who enter their PIN and run the transaction as debit instead of credit.

 

[Chip N Sawbones]

I use cash. I use it for two reasons.

First, I live in an area where many merchants only take cash. No checks, no cards. Such neighborhoods still exist in the USA.

Second, it is a good method for budgeting. Nothing like opening up an empty wallet to remind yourself that you are not eating out tonight.

There are some obvious risks to going all-cash, and I accept them. I just wanted to explain the cash user's mentality.

Paying with cash is also a good way to support small businesses. Credit cards take a 3% cut of every transaction from the business owner. I don't mind that when I'm at Walmart, but when I'm shopping somewhere local I'd much rather have the business owner keep all the money than further enrich Visa Corporation. Cash also gives business owners a better chance to not report all their earnings to my least favorite uncle, should they so choose.

For larger stores, gift cards are even better than cash or credit cards. You can buy them online at discount prices from card exchanges. Walmart gift cards are usually sold at a 3% discount, Home Depot and Lowes average 8% off, Autozone cards are a real bargain at 15% off, and so on. I've got a Discover credit card that periodically gives 5% cash back on any online purchases. That includes those gift cards, so I use the credit card to stock up on gift cards for the rest of the year.

 

[Plastikos]

Agree about small business owners, but I dont mind visa getting rich as theyve been a good growth company.

The gift cards are great ways to take advantage of deals, and you could even compound it by buying with your rewards cards. Costco had a great deal on itunes cards this year, free money aint bad.

 

[Mass Effect]

Which credit cards are the best for cash back rewards?

 

[Stroganoff]

Which credit cards are the best for cash back rewards?

Goodness, there's entire forums and blogs dedicated to this question. It's very open-ended. And a little out of the scope of this thread.

There's generally the "cash back" variety where you get either straight %age back or points which get converted to cash. There's also many points programs with fake "points" currency (Citi ThankYou Points, Amex Membership Rewards, Chase Ultimate Rewards, and hundreds of individual ones). And then there's also airline/hotel credit card rewards programs.

The entire thing is a game that you have to learn how to play well. Or start simple. Pretty much all credit cards worth their salt have at least 1% cash back with no strings attached. But you can get 1.5% cash back on everything, 2% cash back on everything, 5% quarterly rotating categories a la Discover It, Chase Freedom, and Citi Dividend, and various tiered programs (1% on this, 2% on this, 3% on this).

But I digress. It's entirely deserving of its own thread here and not in this thread, but even then, the question is open-ended. It entirely depends on your needs and spending habits and credit profile.

 

[Elizabeth1]

A financial institution I belong to sent me an e-message, and it inspired me to make a Public Service Announcement thread. I still see so many people in the check-out lane enter their PIN number. But by doing so, you waive some protections.

Here's the message I received (rather than re-inventing the wheel):

There are two ways to use your Check Card to buy things. In the first way, the merchant asks you to enter your four-digit PIN. The money immediately leaves your checking account.

In the second way, you either press "credit" or sign a credit card receipt. Saying credit does not mean you've made a loan. It means your transaction passes through the Visa® USA payment system. When it does that, two things happen.

First, your transaction leaves your checking account in one or two days allowing you to hold onto your money a little longer.

Second and more important, your transaction qualifies for Visa Charge-back Rights. That means if you have issues with the merchant that you tried to but could not resolve, such as merchandise you ordered that never arrived, you can dispute the charge to us in writing. We will then put that money back into your account until the dispute is resolved one way or the other. PIN purchases are not subject to the same protections.​

In other words:

• PIN-based (aka "Debit"): Your transaction is routed over an ATM network such as STAR, Cirrus, Plus, Co-Op, etc. (Check the back of your debit card for logos). The money is immediately taken out of your checking account, and you have no chargeback rights if you run into a dispute with the merchant over the transaction.
• Signature-based (aka "Credit"): Your transaction is routed over a credit card network such as Visa or MasterCard. A temporary authorization is placed against your checking account, and the money is taken out in 1-3 days or so. You do have Visa/MasterCard chargeback rights since you used your debit card as if it were a credit card.

Just something to consider if you use a debit card to buy stuff. Plus, there's less risk someone can watch you enter your PIN.

A friend of mine told me a good safety trick with using card to pay. Instead of signing your card, put "see ID" there. Thus, when your card is used, people will always ask you for ID (they should at least and your drivers license will totally do). The god thing here is that if someone steels your card and the casheer asks them for ID, they obviously won't be able to produce it or show it with a picture that doesn't look like them (if they stole your whole wallet, for example)

I've never understood why people use debit cards when credit transactions are available.

For that reason, I don't understand why people use cash unless you're at a farmers market or getting a cash discount.

People use cash in order to control their finances better. You don't feel how much you're sending when using a card. That's all part of the virtual new world and there are many advice out there to use cash instead of card to keep better track of your finances.

 

[Plastikos]

Using cash over credit as a way to discourage spending is a mental trick that once you understand the idea, it shouldnt matter. Its silly for professionals to have to do that. Your bank, card, and phone are all connected now and if you cant tell the difference between paper money and numbers in your account you're in trouble regardless. This is a tactic for people with zero self control and ability to police their behavior. Doctors have spending habits due to being uneducated about their true financial situation and lack of a budget/goals. Once you figure that out there should be no difference in credit vs. cash, because importantly in reality there isnt.

 

[mgdsh]

^ All that and you can accept a lower limit than what they give you. You could have a card for most monthly purchases and a separate means for larger purchases. I check my accounts every other day at a minimum.

 

[ThoracicGuy]

A friend of mine told me a good safety trick with using card to pay. Instead of signing your card, put "see ID" there. Thus, when your card is used, people will always ask you for ID (they should at least and your drivers license will totally do). The god thing here is that if someone steels your card and the casheer asks them for ID, they obviously won't be able to produce it or show it with a picture that doesn't look like them (if they stole your whole wallet, for example)

Most of the time when you give someone your card, they never look at the back. Half the time you swipe it yourself. If you buy online, they never look at it. While it may make you feel better to write "See ID", it doesn't really protect you at all.

 

[Stroganoff]

A friend of mine told me a good safety trick with using card to pay. Instead of signing your card, put "see ID" there. Thus, when your card is used, people will always ask you for ID (they should at least and your drivers license will totally do). The god thing here is that if someone steels your card and the casheer asks them for ID, they obviously won't be able to produce it or show it with a picture that doesn't look like them (if they stole your whole wallet, for example)

NO

I'm too exhausted to write the same novel-length post on SDN again, but putting "See ID" or "Check ID" or something of that nature HURTS you instead of helps you. It's a MAJOR pet peeve of mind when a merchant asks for ID as that is explicitly against the merchant agreements that the merchant signs with the credit card company in order to accept credit cards as cash equivalents.

In other words, Visa/MC/Disc/Amex want their card networks to be treated the same as cash.

You see the fine print on the back of your cards: "Authorized signature. Invalid if not signed" (paraphrased). That means something..

For example, with Visa/MC, you have $0 liability, which is better than the $50 max liability with the FCBA (Fair Credit Billing Act) protection. BUT it requires that your card is signed. Your credit card is INVALID if it is not signed with your signature. A merchant can REFUSE to accept an unsigned card and/or one that says "See ID" or any of that.

Believe me, I did that same trick in 2004-2005 ish before I actually read the fine print and learned the legalese behind the scenes.

2 contracts at play here:
1) Cardmember agreement - agreement between you and the card company.
2) Merchant agreement - agreement between the merchant and Visa/MC/Disc/Amex.

It's all about liability and fraud. By signing the back of your cards, if your card is used fraudulently, Visa/MC/Disc/Amex will cover the cost of the illegal transaction and take on the burden of prosecution of the bad guy. If you DON'T sign the card and the merchant accepts it and the card is stolen/fraudulent, the burden of that transaction is then on the merchant, and Visa/MC can wash their hands of the liability.

1) ALWAYS sign every card with your real signature, to protect yourself.
2) REFUSE to show ID to any merchant who asks for it. It's a direct violation of merchant agreement and they can be subject to thousand dollar fines and loss of the ability to accept credit cards, losing valuable revenue. Fact is, most merchants are completely ignorant of this fine print and will argue and make a scene and "it's company policy" and all sorts of ****. Pull out your cell phone and video record them as evidence and put it on YouTube, and follow through CMRRR (Certified Mail Return Receipt Requested) to the company as well as file a complaint with Visa/MC/Disc/Amex to initiate the fine process.

If the merchant suspects fraud, they can do a "Code 10" call to Visa and follow protocol. They CANNOT ask for ID and "make it a condition of acceptance" for the transaction. (i.e. they require your ID or you can't buy what you're buying). Fact is, identity theft is rampant, and there are documented cases that the cashier is taking a cell phone picture of your credit card and driver's license and then stealing your identity (or selling it as part of an identity theft ring), so you have MORE TO LOSE by showing your ID for credit card transactions.

DON'T DO IT.

KNOWLEDGE IS POWER.

I can't tell you how little people know about this, both consumers and merchants.

 

[James Martin]

For signature transaction, You might be required to make a certain number of signature transactions to take advantage of special deals and promotions (like $50 for opening a checking account), or you may want to take advantage of the likelihood that your transaction will not clear your account for a couple of days.

On the other hand, you may want to make a PIN transaction because it is sometimes considered a little more secure at the terminal. Additionally, if you are interested in reducing costs for your local businesses, a PIN transaction might be your preference.

 

[sazerac]

Thank you @Stroganoff . I used to work cash registers and was familiar with all that too, but was too tired to type it all out.

Just don't do "See ID". It invalidates your card. A merchant can refuse a "See ID" card, because it isn't signed.