Eli5:Where exactly does my money go and how is it secured whenever I use a debit card?
In: Technology
the non-econ-nerd and technical response:
The data that corresponds to ‘your money’ is exchanged between your employer, their bank, their payroll provider, and your bank.
Don’t google search for ‘COBAL and banking’ if you don’t want to have a sense for how tenuous the IT stack that underpins our entire financial system really is
When you deposit physical cash into a bank, the bank credits amount of that cash to your bank account. At this point, there is no longer connection between the cash note that you deposited and you – when you withdraw cash from your account, bank does not have to give same bank notes.
So, now you have money credited to your account. When you make a purchase via debit card, your bank will correspondingly reduce number on your account and transfer money to merchant’s account, which may or may not be the same bank. If it is not the same bank, your bank will also owe that money to merchant’s bank. At no point in that transaction does physical cash need to be involved.
To put it simply, when you deposit a sum of cash in the bank you can take it that the bank owes you that sum of money. The bank then takes this sum of cash and uses it to give out loans or to make investments.
When you use your debit card to make a payment, the money is directly wired from your account to the merchant’s. Meaning that your bank will pay out money to the merchant’s bank account from your account.
I was surprised when someone in my apartment office questioned if my USPS Money Order paid for with my Bank Debit card would be good. I told her it’s better than a cashiers check, which can easily be faked, I never process a check I’ve received from a new payer or a large amount, until I go to my bank and have them verify it’s real before depositing it, or putting it in an ATM. If you deposit a check into your bank ATM, and it’s no good, it’s on you, it only takes two minutes to go up to the bank teller and ask them to verify a check. I’ve received several fake cashiers checks in my life when selling things. A USPS money order, takes the money out of my debit card, right there in the Post Office, making the Money order good in seconds, the clerks don’t even give me the money order until the money is taken from my bank and sent to the USPS system, there’s no other way they could do it. One clerk in my local P.O was watching the monitor printing out my last money order, there! she said, now your money is our account, here’s your Money order, fill it out now, and don’t lose it.
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