Debit cards are one of the most widely used payment methods in the world. They power everyday transactions online, in stores, and at automated teller machines (ATMs). In the US, debit cards were used in 30% of payments in 2024. Because they draw funds directly from bank accounts, debit cards move money differently than credit cards. Those differences affect authorization, settlement, fees, and customer behavior in important ways.

Below, we’ll go over what a debit card is, how funds move during a payment, and how debit cards compare to credit cards.

What’s in this article?

• What is a debit card?
  
• How does a debit card work?
  
• How do debit cards differ from credit cards?
  
• How are debit cards linked to bank accounts?
  
• What fees apply to debit card payments?
  
• When do customers use debit cards instead of other payment methods?
  
• How Stripe Payments can help
  

What is a debit card?

A debit card is a payment card that lets someone spend money directly from a bank account. Instead of borrowing funds, the card draws from the money a customer already has on deposit, most often in a checking account.

There’s no credit involved, so debit card purchases don’t create debt, carry balances forward, or accrue interest. If the money isn’t in the account—or covered by overdraft—the transaction generally won’t be completed.

How does a debit card work?

What makes debit distinct is that it’s anchored to available funds in a bank account, not a promise to pay later. Because approvals are authorized against real balances, they’re fast and typically final, with a lower risk of later nonpayment than credit-based transactions.

A debit card transaction usually follows this process:

• Transaction initiation: The customer presents their debit card by tapping or inserting it, or by entering card details online. They then authorize the payment with a personal identification number (PIN), signature, or another authentication step.

• Routing through card networks: The business’s payment system sends the transaction to the appropriate card network, which routes it to the card issuer’s bank.

• Issuer verification: The issuing bank confirms that the card is valid, the account is in good standing, and sufficient funds are available.

• Authorization decision: If the factors above are in order, the bank approves the transaction and sends a response back through the network, usually within a few seconds.

• Authorization hold: The bank typically places a temporary hold on the customer’s account for the purchase amount, which reduces the available balance so the same funds can’t be spent twice.

• Purchase completion: The business receives approval and completes the sale, while the payment moves toward settlement in the background.

If funds are insufficient, the issuing bank might decline the transaction outright or approve it through an overdraft arrangement, depending on the customer’s account settings and bank policies.

How do debit cards differ from credit cards?

Debit and credit cards represent different financial agreements. The differences show up in how money moves, who takes on risk, and how both customers and businesses experience the transaction. In practice, customers often use debit cards for everyday spending and budgeting, while they use credit cards for larger purchases or situations when added protections matter, such as online transactions.

Here’s how they differ:

• Source of funds: Debit cards pull money directly from a bank account. Credit cards draw from a line of credit that must be repaid later.

• Timing of payment: Debit transactions reduce available funds almost immediately. Credit card transactions create a balance that’s paid later.

• Debt and interest: Debit cards don’t involve borrowing or interest. Credit cards can accrue interest if balances aren’t paid in full.

• Spending limits: Debit spending is limited by the account balance plus any overdraft. Credit cards have preset limits set by the issuer.

• Approval requirements: Debit cards are issued with bank accounts and usually don’t require credit checks. Credit cards require underwriting based on creditworthiness.

• Risk and protections: With debit cards, money leaves the customer’s account during the transaction. With credit, the issuer pays the business and takes on the repayment risk. Credit cards also tend to offer stronger dispute rights, purchase protections, and rewards programs.

How are debit cards linked to bank accounts?

Banks issue debit cards when customers open eligible deposit accounts, typically checking accounts. The debit card then allows direct access to that specific account: customers can use it to make purchases and to withdraw cash from ATMs. Every transaction draws from the available balance of the linked account, which effectively sets the card’s spending limit. Because the card is tied to the account, the issuing bank checks the account balance in real time during authorization.

A single account can support multiple debit cards, such as for joint account holders or business users, all of whom draw from the same funds. Changes to the linked account, such as deposits, freezes, or closures, immediately affect how and whether the debit card can be used. Importantly, the debit card number doesn’t expose the actual bank account number. Instead, it serves as a secure reference that allows networks and banks to correctly route payments.

What fees apply to debit card payments?

Both cardholders and businesses that accept debit card payments are subject to certain fees. It’s important to know both sides of the equation.

Debit card fees for customers include:

• Overdraft fees: If an overdraft is enabled and a transaction exceeds the available balance, banks might approve it and charge a fee.

• ATM fees: Out-of-network ATM withdrawals often carry fees from both the ATM operator and the bank.

• Foreign transaction fees: International purchases might include currency conversion fees.

• Account-level fees: Monthly maintenance, minimum balance, or fees to replace a card can indirectly affect debit card usage.

Businesses, meanwhile, are subject to interchange fees—set by card networks and paid to issuing banks—plus processor markups. Under flat-rate pricing, accepting debit and credit cards might cost the same, but under interchange-plus, debit is often cheaper.

When do customers use debit cards instead of other payment methods?

Debit cards align with how many people want to manage their money. They’re commonly used for routine purchases such as groceries, transportation, and household expenses.

Here’s why a customer might use a debit card over another payment method:

• Budget control: Spending is limited by available funds, which helps prevent overspending.

• Debt avoidance: Customers who prefer not to borrow often rely on debit.

• Cash access: Debit cards are necessary for ATM withdrawals.

• Limited access to credit: Debit cards are often easier to obtain for those without established credit histories.

• Speed and visibility: Customers under 40 often favor debit cards, with 52% of younger consumers using them as the primary funding source because transactions are fast and balances are easy to track.

• Regional norms: In countries such as Australia and Germany, debit cards are used more often than credit cards.

• Preference for immediacy: Some people want transactions settled right away, with no bill to reconcile later.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business accept digital wallet payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 100+ payment methods, including more than a dozen digital wallet payment methods, and Link, a wallet built by Stripe.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Easily track and reconcile digital wallet payments across online and in-person channels.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.