Why Do Lenders Want You To Use Your Debit Card Like A Credit Card?

A reader wants to know why Chase is pushing him so hard to use his debit card like a credit card when paying for things—they’re promoting a contest for people who do this, and on every insert or blank space in the paperwork that accompanied his newest card, they encourage him to always select “credit” over “debit” at checkout. Why?

To make more money, of course. Only this time, it’s from merchants, not you.

First we need to clarify something: just because you select “credit” and sign with your debit card, you’re not really making a credit card purchase. The money is still drafted from your account directly, it just takes a little longer. This method of using your debit card is called a signature debit, and it’s cleared via a different network than when you pay by punching in your PIN (which, logically, is called a pin debit).

Merchants have to pay more money for signature debit transactions than for pin debit ones. It’s in the card issuer’s interest to get you to use the debit card in the way that will generate the highest fees. If you’re going to pay with debit anyway, it’s cheaper on the merchant if you go the pin route.

Remember, though, that paying with a real credit card conveys certain benefits. It may give you more protection in terms of disputes or extended warranties, and in cases where the merchant places a hold—hotels and car rentals, for example—a real credit card will prevent your checking funds from being frozen indefinitely. Your bank may in fact extend those benefits to any signature debit transactions on your debit card, but you’ll have to contact your bank to find out.

(Thanks to Travis!)
(Photo: Travis Hornung)