A Comparison of Credit Cards with EFTPOS / debit cards

EFTPOS, also known as debit cards, have grown as a method of payment as more and more banks and other financial institutions offer them.  They are seen by many as an obvious alternative to credit cards as they are accepted by most of the same outlets as credit cards.
Debit cards are more recent than credit cards, being first introduced in the late 1980s.  This has meant that they tend to have a lower market penetration both with users and with shops, although that is changing.  Unlike credit cards they tend to be closely linked to current accounts rather than having their own separate account.  Now most banks offer debit cards if they offer current accounts.  American Express, the biggest independent provider of debit cards, does not use this model but has an account which has to be completely paid off every month.

Historically one of the differences between debit cards and credit cards has been that credit cards are more widely accepted.  This has not just been because debit cards are more recent but also because debit cards charge higher merchant fees, the commission on every transaction that card providers charge the shop.  This is higher as debit cards are linked to current accounts and do not charge the same levels of interest that credit cards can.   This has changed quite a lot in recent years, although debit cards are still accepted in fewer places than credit cards.

For internet shopping debit cards are less likely to be accepted in foreign outlets than credit cards.  In some markets debit cards are not as widely used as in Australia.  Another factor that impedes the international acceptance of debit cards is that their networks are less extensive than credit cards.  Credit cards, even those offered directly by banks, are part of one of a number of international networks that is accepted in most places.  Debit card networks, such as Solo, are developing but they have a far lower proportion of credit cards and outlets than credit card networks such as Visa.  Visa now does offer debit cards which can use its payment network.

Debit cards can lead to unauthorised overdrafts as the balance that they read when being accepted is the balance at the end of the working day if they are used outside banking hours.  If a number of transactions are made then this could lead to an unauthorised overdraft, where a credit card is more likely to be turned down.  Credit cards do not have the same long term consequences if they are turned down.