In today’s world, the internet has made electronic billing and online ordering a fact of life. Most merchants will offer a host of payment options, and usually included in them is the ability to use a credit/debit card and the ability to pay via check or direct debit from your checking account.
Credit/Debit works by entering your 16 digit card number, expiration date and CVV2 (last 3 digits on back of card signature panel for Visa/Mastercard/Discover or 4 digits printed on front of card for American Express.) The merchant then uses that network (Visa/MasterCard/Discover/American Express) to authorize a charge, (and if it’s out of a credit card account) lowers your available credit and puts an authorization “hold” in until the charge is completed and posted to your account. If the charge is using a debit card, the same merchant network is used but your available checking balance is reduced by the hold, and when the final charge is placed, the hold is released and replaced by the charge.
Online checks can be called a few things by a merchant, including electronic funds transfer (EFT), direct debit (DB) eCheck or automated clearing house (ACH). When you pay via EFT you enter your checking account routing number (this number identifies your bank) and your account number (this number identifies your account at the bank) and you authorize the money to be withdrawn. A few days after the authorization, the money is debited from your account at the bank and electronically transferred to the merchant.
So which is safer and why?
Using a check online (or even in a store) hands out all of your personal information someone would need to debit money out of your account without you ever saying anything. Banks have 10 days to investigate after you report an unauthorized ACH, and you must fill in written paperwork and affidavits that they were not authorized. Banks technically have to reverse charges if you submit a written request before 60 days expires and they must issue the credit by the 60th day (Regulation E. Section 205.6(b)(3) ).
Credit/Debit cards are significantly easier, with all the major merchant services (Visa/Mastercard/Discover/American Express) offering a zero liability guarantee and usually reversing charges before you even know they were unauthorized, due to computers constantly checking for things like geographic distance for swipes (you can’t possibly use the same card 500 miles away within 20 minutes), known fraud patterns and other red flags. Having a charge reversed generally happens within 48 hours for most major credit cards, and the money is almost always recoverable for the bank. Credit/debit cards also have the ability to be reissued if there is any question over possible fraud, without paying for new checks.
So if credit cards are really more secure, why do online bill payments and merchants offer checks?
Well here is a really dirty secret… it’s cheaper for the merchant! Credit cards charge a percent of the transaction to be processed while debits from your checking account usually carry a small flat fee.
So how do you protect yourself using either a credit/debit card or direct debit?
Here are some really simple rules:
- Install a virus scanner/firewall and keep it up to date.
- Make sure the page you actually enter your credit card number on is https:// or shows secure on your web browser.
- Use trusted online merchants. Companies who are legitimate pay a LOT of money to keep their systems secure.
- Use credit before direct debit if offered for the same price. (Some bill payments/online merchants charge a fee for credit/debit card.)
- Report ANY fraud you see on your account to the bank/credit card company as soon as possible.
- Check your individual bank/card policy on these situations. Some banks and card companies follow the minimum legal requirements, while others offer increased protection. Don’t find out what your bank’s policy on an unauthorized charge or check is after you’re the victim of fraud.
Doing these simple things can keep your money secure and let you enjoy the convenience of online shopping and bill payment.
P.S. Most of these tips hold true for paying in the store! When you hand a check to a sales clerk, you’re handing everything about your bank account over to them. Using a credit card at a swipe machine doesn’t let them see any of the information, and if they ask to see the card to verify it’s you, they would have to be pretty good to remember 16 digits, expiration date and a cvv2 code!