Stock Online shopping
It’s widely been recommended that you never use a debit card to make purchases on the web, but do you know why that is? And no, it isn’t because online shopping isn’t safe. Image Credit: Shutterstock

Dubai: When you shop online, how do you make the payment? Do you pay ‘cash on delivery’ or card? If it is card, is it debit or credit? If your answer is debit card, experts are warning against it. Here’s why:

It’s widely been recommended that you never use a debit card to make purchases on the web, but do you know why that is? And no, it isn’t because online shopping isn’t safe.

Contrary to public opinion, when it comes to safety, shopping online is actually safer than the regular offline debit card payments that you make – which also you shouldn’t be making with your debit card.

The reasons behind never using your debit card online boils down to planning for contingency. There are primarily two reasons why you should not use debit card for online or offline purchases. This is true even when online transactions require either an additional password or a personal identification number or PIN.

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Picture used for illustrative purposes.

We know what the key difference is between a debit and a credit card. The credit card has a limit on how much you can spend, while a debit card’s limit is essentially how much money you have in the bank. Essentially you use money what you don’t own when you use a credit card, while you use your hard-earned money when you use a debit card.

So while the high-interest debt aspect of using a credit card is one downside that often discourages the general public, here’s a reason why a credit card has an edge over a debit card.

If your debit card gets compromised on account of online frauds because they do happen – you can potentially lose all the money you have in your bank account.

In contrast, if your credit card gets compromised you will – at the worst case scenario – lose all the credit that is available to you.

Who pays when you are a victim of credit card fraud?
It's rarely the consumer. Instead, liability usually comes down to the merchant or the bank that issued the card. You, the consumer, typically aren’t liable for credit card fraud, but someone pays the tab.

So who foots the bill when a thief uses your credit card or its number illegally? The answer is it’s typically the merchant where you shopped at or the bank that issued the card. It depends on the circumstances.

Rarely do the cardholders pay in such a situation. If a credit card has been compromised, the card issuer typically cancels the old number and issues a new card with little fuss.

Why? It's because banks and credit card networks, such as Visa and Mastercard, have policies that promise consumers won’t be responsible for unauthorised charges, often termed ‘zero-liability’ policies.

In most cases, in the event of the theft or unauthorised use of your credit card, most laws globally state that you're liable for what is usually termed ‘fraudulent charges’.

However, if you report the loss of your card before any fraudulent charges appear, you'll bear no financial responsibility whatsoever.
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Picture used for illustrative purposes.

It's not your money that is available to you with a credit card

When you spend money using a credit card, you are spending your bank's money, although after you have made the purchase it becomes your liability.

So after you have made the purchase you have to pay, along with any fee or interest that the bank may charge you. This offers a sort of protection to you in case of any fraudulent activity.

Even if your credit card is compromised and used without your permission, it's the responsibility of the bank to handle and avoid the fraud and not yours.

If you card is misused, you can always explain to the bank how that it is a case of fraud and that you are not liable for it.

In most cases, the banks will investigate the transactions and when they find that your allegations are true, they will not charge you significantly for the fraudulent transactions.

In case of debit card fraud too, you can tell the bank about the misuse of your card and it is possible that you will get the money back.

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How does fraud differ – when your credit card is misused as opposed to a debit card?
In the case of debit card misuse, you will first lose the money and then – if your bank finds your claim true – you will get it back.

If your credit card is misused, you won't lose any money, unless at a later stage your bank refuses to accept your claim of fraud and asks you to pay (which again is something you will be able to contest).

In other words, when you spend money using a debit card, you lose cash immediately. Your money is deducted immediately from your bank account. In case of credit card, it is different.

This is primarily because there is a gap between the transactions and as when you actually have to pay the money is usually at the end of your credit card billing cycle.

Why is it safer to use a credit card for online shopping?

It would be better to use a credit card when purchasing items online, primarily because this gives you the ability to dispute charges through the credit card issuer in case of fraud.

Card issuers are also better equipped to spot and deal with fraudulent transactions on the card. With a debit card, funds are debited (removed) directly from your bank account when the charge goes through.

If the online store is hacked, you could be at risk for losing funds from your bank account. With a credit card, the issuer will temporarily credit your card when you advise them of fraudulent charges.

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Some card issuers allow you to create and use a one-time virtual card number when making an on-line purchase.

This prevents fraud since the merchant (or anyone in-between who intercepts the number) from being able to use it again or tie it back to your actual card number.

But what if you don't have a credit card?

Although credit cards are a safer bet for spending online, it's possible that you do not have access to one. In this case, there are still ways to protect yourself from fraud.

Maintaining a low balance in the account linked to the debit card you use for online purchases can help limit the size of fraudulent withdrawals – should they occur. This won't necessarily prevent someone from accessing your account, but it may limit the damage done.

You may also want to disable any form of overdraft protection (should you have it) on the account used for purchases.

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Picture used for illustrative purposes.

Many banks offer this service (usually on a secondary account), which automatically withdraws from a savings account should the secondary account be overdrawn.

In the case of fraud, this essentially means the crook has access to two accounts instead of one. If you do have overdraft protection in place, be sure to consult your bank on how and when it applies.

Another way to limit your liability is to use a prepaid debit card. If someone does gain access to the account, they'll have access only to what you have loaded onto the card.

The bottom line?

From a legal perspective, credit cards generally provide more protection against fraudulent activity. But, there are ways to mimic some of these protections with a debit or prepaid card.

Deciding which is best for you will help protect your money whether you're spending online or swiping in store.