Credit Cards vs Debit Cards: What Merchants Need To Know When Accepting Payments

Credit cards and debit cards may look the same to a customer at checkout, but for merchants, they can mean different costs, settlement times, risks, and cart abandonment rates. For instance, over 80% of cardholders prefer credit cards for rewards and cash back, and 77% choose them over debit cards for their superior security features.

As digital payments continue to dominate commerce, understanding the differences between debit cards and credit cards, and choosing the right payment mix can mean faster access to funds, lower processing costs, and stronger fraud protection.

Debit cards vs credit cards: what are they?

Debit and credit cards are payment instruments. A debit card is also known as a bank card. It allows customers to make purchases using their available account balance. By comparison, a credit card will enable them to borrow funds from a financial institution to pay for purchases (a line of credit).

When a customer uses a debit card, the funds are withdrawn from their account either immediately or within the settlement period. So, it’s essential to ensure there are sufficient funds in the account to avoid transaction failure.

When a customer uses a credit card, the issuing bank pays the merchant on the customer’s behalf, and the customer later repays the bank.

There are two main types of credit cards:

• Charge cards: Cardholders have to pay the full outstanding balance by the due date for each billing cycle and can’t carry a balance
• Revolving credit cards: Cardholders can pay the minimum amount due, the full balance, or any amount in between, and carry a balance to the next billing cycle.

Card networks such as Visa, Mastercard, American Express, Discover, and JCB issue both credit and debit cards and provide the communication infrastructure to process transactions.

How do debit cards work?

Purchases made using debit cards use the funds available in the cardholder’s bank account. Since there’s no borrowing involved, there’s no interest to pay, and the cardholder can only spend up to the available balance in their account.

Step 1: Initiation – The customer swipes/taps their card or enters the debit card details online.

Step 2: Authentication – The transaction request is sent through the card network to the issuing bank, which verifies the account has sufficient funds before approving the transaction.

Step 3: Settlement – The issuer transfers the funds from the customer’s account to the merchant’s account after deducting processing fees.

How do credit cards work?

Cardholders borrow funds from the issuing bank each time they use a credit card.

Step 1: Initiation – The customer swipes/taps their card or enters the credit card details online.

Step 2: Authentication – The transaction request is sent through the card network to the issuing bank, which verifies whether sufficient credit is available before approving the transaction.

Step 3: Settlement – The issuer transfers funds to the merchant’s account via the card network after deducting processing fees.

Step 4: Repayment – The cardholder receives a billing statement and, depending on the card type, either repays the full balance or carries a balance forward.

When should businesses accept credit cards vs. debit cards?

The key differences between credit and debit cards that businesses should be aware of are:

Processing costs

The processing fee for credit and debit cards consists of three separate charges.

• Interchange fees: Charged by the issuing bank and account for the largest portion of the total processing fee
• Assessment fees: Charged by the card networks
• Processor markup: Charged by the third-party payment processors.

On average, the interchange fee for debit card transactions is 0.34 USD or 0.73% of the transaction value. This is significantly lower than credit cards, which typically charge 0.05% to 3.15% plus 0.10 USD per transaction.

Debit cards cost less primarily because funds are drawn directly from the cardholder’s bank account, and the bank doesn’t incur debt.

Fraud liability

Both credit and debit cards are susceptible to fraud. With credit cards, the issuers absorb most of the fraud liability, whereas with debit cards, merchants and cardholders share a large portion of the risk.

Settlement time

Debit card transactions usually settle within one to three business days, giving merchants faster access to funds. Credit card transactions often take longer and can take up to five business days to settle.

That said, customers choose different card types based on convenience and spending habits. For example, a cardholder might prefer using credit cards for rewards, while others might rely on debit cards to control spending.

Merchants don’t have to choose one over the other and can offer both options to reduce checkout friction and accommodate customer preferences.

How are digital payments shaping modern business finance?

Recently, businesses have been rapidly moving away from manual, fragmented payment processes toward digital, instant, and integrated payment methods. In e-commerce alone, digital payments are expected to grow from 66% in 2024 to 79% in 2030, while cash and cards are projected to decline from 34% to 21%.

A major driver of this transformation is the growth of digital wallets, buy now, pay later (BNPL) services, real-time payments, and contactless transactions, which enable faster checkout, reduce cart abandonments, and increase conversion rates. Surveys show that digital wallets account for half of all online purchases, while consumers prefer contactless payments for 45% of in-store shopping.

Despite the rise of alternative payment methods, cards remain a dominant force in the global payments landscape. In the US and UK, cards are the most used payment method, accounting for 65% and 64% of all transactions, respectively.

Consumer preferences vary significantly by region. Merchants must factor these differences into their payment strategy. With businesses competing over features and pricing, offering customers the ability to pay with their preferred payment method is the best way to stand out.

How does Unlimit help businesses keep pace with evolving payment trends?

Unlimit offers businesses a secure infrastructure designed for cross-border and multi-currency transactions. This allows merchants to:

• Improve conversion rates by accepting over 1,000 payment methods, including highly region-specific options like Pix in Brazil and UPI in India
• Maintain compliance in regulated markets by leveraging our local licenses in more than 200 locations across the EU, LATAM, APAC, India, and Africa
• Save time on reconciliation by monitoring transaction data across markets and methods in a unified dashboard
• Control costs with a pricing model that can be tailored to individual payment processing needs and volume
• Secure business and customer information with superior security, such as PCI DSS compliance, encryption, tokenisation, and advanced fraud protection
• Solve challenges promptly by working with our regional support team
• Expand easily into new markets by adding payment methods and currencies, without multiple integrations.

Unlimit is also a principal member of major global card schemes, including Visa, Mastercard, JCB, UnionPay, Discover, American Express, Elo, and Diners. This means that Unlimit connects directly to card networks rather than routing transactions through a third-party acquiring bank or intermediary. For merchants, this translates to:

• Lower layered processing and markup fees
• Faster onboarding and scaling across markets
• Improved approval and authorisation rates
• Quicker implementation of new card-scheme features and rule updates
• Stronger chargeback and dispute management.

FAQs