How Does a Debit Card Work?

Nowadays, approximately half of the world's population aged 15 and above owns debit cards. In some countries, debit cards have replaced checks and cash, and their usage continues to grow each year. Most likely, you have a debit card too. Debit cards have become an integral part of people's lives, so let's delve into how they work. This article aims to answer essential questions about debit cards, including their definition and functionality.

  1. What is a debit card?
  2. Debit card types
  3. How does a debit card work?
  4. Common debit card fees
  5. How to get a debit card
  6. Alternatives to debit cards
  7. FAQs

What Is a Debit Card?

A debit card is a type of bank card that deducts money directly from the cardholder's bank account when used. Debit cards are used for making payments, transferring money, or withdrawing and depositing cash through ATMs. In contrast to credit cards, debit cards only work with the money already deposited into the account. Most debit cards are made of plastic, although there are also metal and even wooden card options available.

Image Source: The Balance / Caitlin Rogers

The major debit card brands include Visa, Mastercard, UnionPay, Discover, and American Express. Cards from these networks are accepted in many countries, while smaller networks work only in certain locations.

What makes debit cards attractive? Despite not offering as many features as some other payment methods, debit cards are still more convenient to carry than cash or checks.  If a debit card is lost, it can be replaced, unlike paper money, which would likely be permanently lost. Stolen cash can be easily used by thieves, but debit cards are typically protected by PINs, rendering stolen or found cards useless to most people. Another benefit is that some debit cards support cash back and other rewards programs.

An additional advantage of debit cards is that they can be obtained even with a poor credit history. The unique aspect of debit cards is that they restrict spending to the amount available in the account, preventing overspending. Unlike payment apps, using a debit card does not require an internet connection or any specific software installed on the cardholder's side.

However, there are some drawbacks to consider. Firstly, using an ATM that is not affiliated with the cardholder's bank may result in high fees for cash withdrawals. Secondly, daily spending limits can make it difficult or even impossible to purchase expensive goods with a debit card. Additionally, checking the remaining balance usually requires using an ATM or a banking app, leading to situations where a card is inserted for a purchase only to find out that there are insufficient funds.

Debit Card Types

Debit cards can be classified into three types based on the transaction processing method, although some cards combine features from multiple types. The three types are as follows:

  1. Electronic Funds Transfer at Point of Sale, or EFTPOS (also known as online debit and PIN debit)
  2. Offline Debit
  3. Electronic Purse Card System

Now, let's have a more detailed review of these types.

EFTPOS debit cards require electronic authorization of transactions at payment terminals. If necessary, the cardholder is provided with a special device by the point of sale staff to enter a PIN. Some payment terminals accept cards and provide a PIN entry interface. EFTPOS transactions are quick and rely on up-to-date information. These cards can also be used at ATMs and selected vending machines.

Offline debit cards (or "check cards") are similar to checkbooks. They do not require a PIN for transactions. Instead, the cardholder's signature is used. These cards are not connected to the internet, resulting in transaction confirmation taking 1 to 3 days. It's important to note that offline debit cards are not compatible with ATMs. This type of card has significant disadvantages for both users and vendors. Users may face overdrafts and substantial fees, while vendors experience uncertainty about receiving payment until hours or days after the purchase.

The electronic purse card system allows the value of the card to be stored directly on the card chip, rather than linked to a bank account. This eliminates the need for an internet connection at payment terminals. The electronic purse card system is widely, if not mostly, used in Europe.

In addition to standard types, it's worth noting the growing popularity of virtual debit cards worldwide. Essentially, virtual cards are digitized versions of their physical counterparts. Unlike physical cards, virtual cards employ unique identifiers instead of bank numbers. It safeguards critical personal information against cybercriminals. These cards are typically used for online shopping and contactless purchases, especially when integrated with applications like Google Pay, Samsung Pay, and Apple Pay.

XGo is gearing up for the imminent release of the 'Spend' feature. You will be able to connect your XGo ID to virtual cards that are designed to seamlessly connect your crypto assets to the world around you, allowing you to spend crypto at your convenience in the real world.

How Does a Debit Card Work?

Debit cards function as a combination of credit cards and ATM cards. When a debit card is used, it transfers a specific amount of money from the cardholder's checking account to the recipient's account. The recipient can be a merchant, an institution, or an individual (if you send someone the money via an ATM).

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To initiate the transfer, the card is inserted, swiped, or used for contactless payment at a terminal, ATM, or through compatible payment methods. In most cases, the cardholder is required to enter a PIN (personal identification number) to verify their identity and protect against unauthorized access.

Upon providing the PIN (if required), the requested amount is debited from the cardholder's bank account. The transaction is completed once the bank confirms that the cardholder has sufficient funds. Prior to bank approval, the transaction remains pending. If the requested amount exceeds the available balance in the associated account, the payment is declined.

Common Debit Card Fees

Using a debit card may involve occasional fees. Let's explore situations in which fees may be charged:

  • ATM Transactions: Typically, transactions are free if the card issuer is the same as the bank associated with the ATM being used. However, using an ATM from a different bank may result in a commission or fee.
  • Overdraft: Some banks charge fees when a bank account is overdrawn, so it's important to be aware of this and avoid incurring such fees.
  • Account Hold: Certain transactions, such as renting cars or hotel rooms, may result in a temporary hold being placed on the funds in the debit card account. During this period, the held funds cannot be used for purchases or transfers.

Other fees may include charges for using the card abroad, transactions in foreign currencies, or fees for card replacements.

How to Get a Debit Card?

In most countries, individuals can obtain a debit card once they reach the age of 13. Typically, banks offer debit cards when an account is opened with them. The necessary information for card activation is provided by bank staff, and the PIN is usually set at the bank. Some banks even offer card delivery to the cardholder's residence, which can be arranged through the bank's website, app, or other channels.

If an individual doesn't have an account with a specific bank, they can opt for a prepaid debit card. These cards can be purchased from banks or retail shops, but they may involve additional monthly fees.

Alternatives to Debit Cards

Depending on one's specific needs, there are alternative payment methods to consider:

  • Cash.

Cash remains a viable means of payment, particularly for in-person transactions where remote payment methods are not necessary. Cash is widely accepted and offers a certain level of privacy.

  • PayPal

PayPal and other electronic financial operators are suitable for online shopping or international money transfers. Unlike debit cards, PayPal provides fraud and faulty goods protection. Cash back rewards are also in place.

  • Cryptocurrencies.

Despite their initial association with illicit activities, cryptocurrencies have gained acceptance from financial institutions and experts. An increasing number of merchants now accept cryptocurrencies as a form of payment, and user-friendly mobile apps have made the experience convenient. At XGo, we have developed our XGo ID feature to make managing and transaction with crypto as easy as using your chosen social media handle.


Can I order a debit card online?

Yes, many banks offer the option to order a debit card online. You can check the preferred bank's website to see if this service is available.

Do all debit cards have purchase protection?

No, not all debit card issuers provide purchase protection as a feature. It's important to check with your specific card issuer to see if this protection is offered.

How to check the remaining balance on my debit card?

The method for checking the remaining balance on your debit card depends on the type of card you have. If you have a prepaid or electronic purse card, you can usually check the balance through a phone inquiry or on the issuer's website. However, for other types of debit cards that are linked directly to your bank account, you can check the balance through your banking app, by calling your bank's customer service, or through other available methods.