Do you want to know how to transfer money overseas online? Download and install a digital money remittance mobile app. Link a payment method to it, name your recipient, indicate how much money you’re sending, and designate how you want your recipient to receive it. That’s it.
How do you pay for your transfers; where should the funds come from? You’ll need to decide this one. Typical funding options include digital wallet accounts, bank accounts, debit cards, and credit cards.
In particular, debit and credit cards are popular ways of funding online money remittances. In this article, you will learn more about these two modes of payment, particularly their similarities and differences.
Debit Cards and Credit Cards: How They’re Similar
Debit and credit cards are plastic cards (although some have virtual or digital equivalents) equipped with a small computer chip (EMV chip) that transmits the card information to the payment terminal or card reader during a transaction. They also have a magnetic strip that contains the card information; it’s a failsafe or backup if an EMV transmission fails, and the card must be swiped to proceed with a purchase.
What information is on the card (and stored in the EMV chip or magnetic strip)? It’s the card’s 16-digit card number, expiration date, the cardholder’s name, the issuing institution, and other essential information. The magnetic stripe can even contain the security code or the card verification value (CVV).
Debit and credit cards also have the logo of the card payment processing network. These include Visa, Mastercard, Discover, and American Express.
Debit and credit cards are both payment instruments. You present them at the point of sale (POS) terminal to pay for your purchases. You can input their details into computer terminals to pay for electronic purchases. As mentioned, you can link them to your online services – like a digital payment application – and use them to pay for services and fund money transfers.
Payment transactions for debit and credit cards happen in real-time. Of course, they may be reflected in your account a little later.
Debit Cards and Credit Cards: How They’re Different
Although debit cards and credit cards look the same and function similarly for POS and electronic purchases, they are different from one another. These are the ways they differ:
Source of Funds
Debit card payments come from a linked bank account. If you use it to pay at a POS terminal, the payment processor deducts the cost of your purchase from the linked bank account.
Buying a £188 hat with a debit card? That £188 is instantaneously debited or docked from your bank account balance. Sending £500 internationally through your digital payment service app? Your bank account balance will be diminished by that amount (plus any transaction fees) when you submit your remittance transaction.
In contrast, your credit card is linked to your credit line. The payment processor deducts the money from the linked credit line if you use it to pay at a POS terminal.
Therefore, if you buy the £188 hat in the earlier example but use a credit card instead, your hat purchase diminishes your credit line by £188. Likewise, if you send £500 overseas and fund it with your credit card, that transaction will diminish your credit limit by the same amount (plus any transaction fees).
Nature of the Card
The above discussion highlights an essential difference between debit and credit cards. Debit cards facilitate electronic, cashless payments but use money in your account to pay. They’re convenient because you don’t need to go to an automatic teller machine (ATM) to withdraw cash for shopping. When sending money overseas, you don’t need to perform the extra step of withdrawing money from your bank account and going to a remittance centre to remit it.
Credit cards are credit instruments. Using them is akin to paying with borrowed money. Using it to fund an international remittance is like borrowing money from the bank to send overseas. You get a bill for the borrowed money at the end of your billing cycle.
Funds Availability
Since credit cards are linked to a credit line, you can use them to make purchases and remit money online even though you don’t have any cash on hand (or in the bank). In contrast, you cannot use your debit card if the linked bank account has insufficient balances.
Caveat: Credit cards do not represent unlimited funds. They are linked to lines of credit. Therefore, if you reach your credit limit, you cannot use your credit card until you clear some debt off with a payment.
Interest Charges
Since debit cards use the money in your bank account, debit cards do not incur interest charges. Meanwhile, banks charge interest on credit card usage. Of course, they provide a grace period when balances may be paid in full and not incur interest.
Fees Incurred
When you use a debit card, your bank can charge you a fee for using it outside its designated network. It will charge you for overdrafts (using your debit card for more money than your bank account has) and may even charge you for PIN-based transactions.
Meanwhile, your bank may charge you an annual membership fee for the convenience of credit card use. You will also be charged a late fee if you don’t pay your credit card bill on or before your due date. Other credit card fees include:
- Foreign transaction fees
- Cash advance fees
- Balance transfer fees
- Returned payment fees
Fraud Protection
Credit cards have superior fraud protection over debit cards. You can dispute unauthorised transactions with the credit card company. After an investigation, the credit card company may reverse the disputed charge. Additionally, banks may have zero or limited liability policies to protect credit card holders against unauthorised transactions.
Debit cards may also offer some degree of fraud protection. While some banks may have zero or limited liability policies against fraud, fraudulent activities on your debit card can drain your savings. Thus, even if your bank does not hold you liable for overdrafts due to fraud, there’s no guarantee you will get back any money lost. Additionally, it remains more difficult to dispute transactions on debit cards than on credit cards.
Sending Money Abroad: Debit Card or Credit Card?
When you need to send money to India, Nepal, Philippines, South Africa, or other countries from the UK using a digital payment app, you must choose your funding source. Two of the most popular options are debit cards and credit cards.
A credit card will let you borrow money to send, and you can pay your bank for it later. In the process, you may incur cash advance fees and higher interest charges if the bank considers the remittance a cash advance.
A debit card will take the money from your linked bank account and not trigger cash advance fees. However, debit cards offer less fraud protection, and you cannot process a transfer if your bank account has insufficient balances.
You can fund online money remittances with a debit or credit card. Just choose the better option based on your requirements.
