Why I Don’t Like Debit Cards and Digital Wallets
Fraud is rampant and on the rise and consumers are concerned according to a Capital One Rewards Card outlook. Compromised credit cards and associated data breaches continue to be a problem. In fact, over the past two years (2014-2016), data breaches worldwide rose 46 percent from the year prior (2013), according to creditcard.com.
In reading the results of the Capital One Survey I came to one conclusion. Consumers don’t have a good grasp on how fraud works. Here are some of the results:
“43% said that fraud protection is the most important thing to them when picking a rewards credit card.”
I get two interpretations from this survey. First, credit card companies don’t have the sophisticated fraud systems that immediately detect when fraud is occurring. Credit card companies can detect unusual patterns. That is about it. However, it sounds great in the marketing and shouldn’t really factor into the decision to apply for a card. If there is unauthorized use of your card, you call the credit card company and that takes care of it. It isn’t rocket science.
Second, if fraud protection was one of the most important aspects of picking a credit card, then why do so many people use debit cards?
It is pretty easy to correct a problem with a credit card. In most cases there is zero liability and no time constraints.
Debit cards on the other hand are a different story. There is a limit on the amount of time that you must report the fraud. If you miss that window you could be out the money. In addition, if someone breaks into your bank account, you could have major financial problems such as a period of time where you don’t have access to money, checks and payments that bounce, and time invested in getting it cleared up. There is a sense of urgency when it comes to debit card fraud.
Think of it this way – would you rather have someone use your credit limit temporarily or use your money? Yet, consumers act as if this is not a threat.
A recent survey showed that at supermarkets, gas stations, discount stores, and dine-in restaurants, consumers either use their debit cards as much as their credit cards or they use their debit cards dramatically more than credit cards. For example 50% of those who were surveyed use debit cards in grocery stores versus 31% use credit cards.
The Preference of the Digital Wallet
Nearly 40 percent (39.8%) of rewards card holders would rather keep their cards in a mobile wallet. Digital wallets are of particular importance since 39 percent of survey respondents thought they lost or misplaced their credit card this past year.
Does a digital wallet solve some of these problems? There are two major problems with digital wallets. First consumers lose their credit cards and are probably more likely to lose their cell phones. Second, someone hacking into your phone and stealing personal information is much worse than an unauthorized use of a credit card.
I did a Google search on this topic. Articles from consumers not securing their phones to consumers lose $30 billion worth of cell phones a year to Smart Phone thefts rose to 3.1 million. I think you are creating more risk by using the digital wallet.
If you want to reduce the impact of fraud, consider two simple steps:
- Stop Using Debit cards – If you have the luxury of having a credit card as a payment card only, consider this advice. Besides the fact that the unauthorized use of a debit card carries higher consequences than credit card fraud, debit cards do nothing for your credit score like the positive activity of a credit card.
- Check your credit card statements monthly for unauthorized charges. That is just a good habit.