If you’re Canadian, you’re probably experiencing a network outage right now.
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Because it’s a different network. No money actually moves when you do a credit transaction. You tell the credit company to give money on your behalf. It’s done just over the internet and can be queaed up and released. Card transactions get verified and money “moves” immediately.
So they’re different networks and if the core goes down the whole thing breaks.
Credit card can work offline, they just record your credit card number, the amount, and your signature to approve the transaction. In old days, they did that by pressing carbon-copy paper over your credit card.
Later, they will take this transaction info to the bank, and I think credit company might pay the seller even if your credit card is over balance (they will charge you the overdraft fees). So no risk for the seller.
With debit cards, they need confirmation from the bank that there is enough money in your account. I am pretty sure that without explicit overdraft protection service, a bank will reject debit transaction.
Credit transactions can be queued and processed at a later time in batches. Real-time authorization methods like the chip require communicating with the credit processor right then, but something like a card swipe does not. Of course the vendor doesn’t actually get to know if you have available credit right then and the credit company won’t know about the transaction until the batch is processed, but the sale is generally worth the risk.
Best practice is to process credit batches every day but some establishments have been known to take a week or more to settle pending transactions, which customers might get peeved about since the transaction will suddenly pop up well after the event.
Debt transfers though are direct withdrawals from a bank account. Immediate communication is required to know there is money in the account and to move it, queuing them up isn’t possible.
As an aside, debit cards are way riskier than credit and you are a madman if you use them regularly.
The simple answer is different transaction approvals flow through different paths.
When you use a debit card the processor has to ask your bank if it’s okay. When you use a credit card the processor can either ask the credit card company if it’s okay, or if they aren’t available go through a series of protocols to determine if it’s okay.
As a side note you should almost always use a credit card for transactions, the federal protections for credit card users are far superior to debit card users. For instance if you have fraudulent charges in a credit card the companies have to remove it immediately and run a chargeback to the store. Your bank can take days to weeks to determine if they are going to give you your money back.
Back when credit cards were invented there was no network. The shop owner would have to write down your number and get a signature, then send it to the bank and the bank would pay the shop owner and update your account. They still do something like this, if they can’t get in touch with the bank in real-time.
With a debit card, getting in touch with the bank in real-time is mandatory since the money comes out of your account immediately. That’s, like, the entire difference between a credit card and a debit card.
Credit cards predate debit cards by many decades. They were invented well before the internet was a thing, so there was really no expectation of connectivity wherever people used them. Some points of sale would have phone lines and modems, but many others (taxis, airplanes, small stores) wouldn’t. In those cases the merchant would copy over your card number on a piece of paper (remember those mechanical sliding machines that used carbon copy paper?) and mail them to the card issuer later to get the money.
In short – credit cards have always worked fully offline, and can still do that.
Debit cards on the other hand do need authorization from the bank before the transaction can be processed, because the money is exchanged at that very moment and so has to be in your account.
canada is having a money network problem?
just last weak germany had the same thing happen
wat up
Credit card transactions are generally authorized in real-time. The authorization is what results in the pending charge. At a later time, the settlement process is initiated. This is a batch process whereby the approved authorizations are finalized, pending becomes posted, and funds are exchanged.
Some terminals support an offline, or store & forward mode. This allows payments to be accepted and the encrypted transaction data is stored on the terminal device until network connectivity is restored. At that point, it is forwarded for authorization similar to an online transaction. There is obviously a risk in doing this and some merchant services providers will require additional verifications or transaction limits.
Obviously there’s always the old sliding terminal/carbon copy method too, but I think that’s a given.
There are also offline debit cards but the cards are less common.
A lot of answers here are pointing out how credit cards can work offline. While true, not relevant to what we experienced in Canada today. The short version is that debit systems are national (a Canadian debit card doesn’t work in foreign countries, except at specific ATMs on international networks) but credit cards are international. Canadian debit (Interac) system is exclusively on Rogers network, which is what went down. If Bell went down instead, debit would still have worked. Credit is on international networks, with tons of redundancies built in, so if networks go down, it’s simpler to swap. If all networks in a country went down, we wouldn’t be able to use real-time credit card transactions either (could still use some of the old-style manual credit card transactions).
Visa and Mastercard, et al are services that move money from one place to another. They largely do it on a credit system, you swipe your card, the company that owns the machine contacts Visa who approves the transaction, credits the machine which then credits the merchant’s bank, then debits the bank backing the card, be it a credit card (a weird invisible bank) or your actual bank.
In debit, Visa is excluded, the transaction is direct from the machine to your bank and works in a similar fashion.
In the case of Visa, a transaction fee is paid by the merchant, the POS terminal owner (swipey thingy), and your bank, which is ultimately paid by you in the form of higher prices, bank fees, credit card interest, and 1% of your soul.
In debit the Visa fee is avoided which is why debit used to be slightly cheaper in some cases, but the other charges remain. In the US Visa and such are protected from fraud by law, debit is not. If someone steals your bank card and runs it as Visa, it’s protected from fraud if you play your cards right (missing a card? report it now).
In the case of debit, it’s you vs. the bank and they can hold you accountable for fraud committed by others.
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When I was a pup ATM cards were just that, they could only be used, with a pin, at an ATM. Eventually they could also be used in major merchants, like grocery stores. Later still, they got a Visa/MC logo and could function exactly like a credit card.
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