Young adults take to debit cards

Some debit cards are also FlashPay cards that can be used for contactless payment at food courts and supermarkets and for MRT and bus rides. -- PHOTO: DIOS VINCOY JR FOR THE SUNDAY TIMES
Some debit cards are also FlashPay cards that can be used for contactless payment at food courts and supermarkets and for MRT and bus rides. -- PHOTO: DIOS VINCOY JR FOR THE SUNDAY TIMES

Cards offer credit card perks, minus risk of running up debts

Packed with perks,rebates

Credit cards can be lethal weapons in the hands of anyone, but young people can be especially prone to the lure of easy money.

For them, opting for a debit card might be a safer option.

While a credit card can leave you stretched by living on "future money", a debit card works by immediately deducting cash from your account, so you can spend only what you already have.

But debit cardholders can also sign off on a receipt, make online purchases, use the card overseas and enjoy many of the perks that credit cards offer.

There are things to look out for, however, such as a lack of a credit limit and annual fees.

The Sunday Times Invest explores the pros and cons of having a debit card so that you can decide whether it is the best type of plastic for you.

Debit card figures

The number of DBS and POSB debit cardholders has increased by over 20 per cent in the past year, with almost a million unique cardholders in the young adult segment.

The PAssion POSB Debit Card - a partnership between the People's Association (PA) and POSB - has been driving growth in this sector, says Mr Anthony Seow, DBS head of cards and unsecured loans.

Maybank has recorded double-digit growth among young adults choosing debit cards while the numbers taking up OCBC Bank's Frank debit card, which targets youth and young working adults, have expanded by 74 per cent year on year.

United Overseas Bank notes that in the past year, the number of UOB Direct Visa debit cardholders has increased by more than 30 per cent, with about 33 per cent of these being young adults.

Mr Choong Wai Hong, head of community financial services at Maybank Singapore, says: "Debit cards are often a good introduction to card payments for young adults before they start using credit cards as they become more independent in their finances."

Debit card trends

The growth in debit cards has also been fuelled by the popularity of online shopping, notes Mr Choong. He says that "young adults are buying more online, also resulting in the need for debit cards to make these online transactions".

Besides working like a credit card, debit cards can perform other functions as well.

The UOB Direct Visa debit card, for example, offers various payment features such as the contactless Visa payWave, Nets and FlashPay. OCBC's Frank card is also a FlashPay card that can be used for MRT and bus rides while the Visa contactless payment feature makes transactions for purchases below $100 quicker and easier.

Debit cards can also offer higher interest rates than a regular savings account.

Mr Dwaipayan Sadhu, Standard Chartered Bank's head of consumer transaction banking and mortgages in Singapore and South-east Asia, suggests this is why cards such as the Bonus$aver World MasterCard Debit Card are gaining popularity. Cardholders get a higher interest rate on their savings if they meet certain conditions on the linked current account, and they have access to benefits offered to all StanChart cardholders.

However, he notes: "While the debit card penetration is growing, it is still not as high as credit cards'. For eligible young adults to choose a debit card over a credit card, there has to be a compelling proposition."

Dining, travel, shopping perks... the list goes on

Debit cards now offer a wide range of perks, just as credit cards do, with banks focusing on areas of high spending - dining, online shopping and travel.

UOB Direct Visa debit cardholders enjoy rebates via the UOB SMART$ programme, which has more than 1,000 participating merchant outlets in categories such as food and beverage, entertainment and online outlets.

Mr Philip Lim, head of retail banking at ANZ Singapore, notes that the cash rebate for retail purchases is a strong pull factor for young adults, so the ANZ Visa Debit Card offers a rebate of 0.4 per cent, on a monthly spend of $2,000 or more.

The PAssion POSB Debit Card goes beyond the usual merchant offerings: Cardholders get exclusive privileges at all community centres and other People's Association outlets islandwide, as well as an additional 2 per cent off the PA members' rate when paying with the card.

OCBC offers Frank users the option of customising the card design, with more than 120 designs to choose from.

Debit cards versus credit cards

A Maybank spokesman notes that the main difference is that the amount charged to the debit card is deducted from an account on the spot while a credit card has a spending limit that enables users to pay later.

Mr Mark Leong, head of Frank by OCBC, adds: "The maximum limit for the debit card is the amount of funds in the bank account linked to the card, but customers can indicate daily spending limits according to their needs and preferences."

With no fixed limit on debit cards, young adults should set a spending ceiling so they can monitor their expenditure.

StanChart's Bonus$aver World MasterCard Debit Card has a maximum daily limit of $2,000, and increasing this is subject to the bank's approval.

The Maybank Platinum Debit Card lets users set a daily and monthly spending limit, which is capped at $15,000 a month.

How to prevent fraud

As a debit card is linked directly to your bank account, take extra care when using it.

Tips from Mr Dennis Khoo, Singapore head of personal financial services at UOB, include safeguarding card details at all times.

He says: "Cards, sales slips, billing statements and other documents containing card details should be kept safely.

"When being discarded, these items should be shredded to prevent information theft."

He adds that cardholders should check account balances after making purchases. If there are discrepancies, alert the bank immediately.

Look for stores that are verified by Visa or display the SecureCode logo, he advises, as they use a system that authenticates customer transactions.

Mr Choong points out other practical tips, including treating your card like cash, never leaving it unattended and checking periodically that you have not misplaced it.

Whenever possible, do not let your card out of sight when making payment.

Mr Leong notes that the most common card scams involve lost cards and Internet fraud.

He says: "Avoid downloading attachments from unknown sources, keep your operating system and Web browser current, and never disclose your debit card information and PIN."

Cardholders should install and update their computers with the latest anti-virus software, and avoid using public or Internet cafe computers for financial transactions.

He adds: "In the case of a lost card, consumers are advised to report the loss of the card to their card issuer immediately."