Credit Card, Debit Card & UPI – What Is The Difference

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With the ever-evolving landscape of digital payments in India, today, consumers have multiple options to choose from: credit cards, debit cards, and UPI (Unified Payments Interface). Each payment method has its features, benefits and access across the country.

However, there remains some confusion regarding how they work, how they differ, and which one is best suited for various types of payment. And this is what we discuss in this guide on Credit Card vs Debit Card vs UPI; and we also answer some frequently asked questions regarding them.

What is a debit card?

A debit card is a payment card linked directly to your bank account. When you purchase using a debit card, the money is deducted directly from your account. Debit cards are widely accepted at ATMs, retail stores, and online platforms.

What is a credit card?

A credit card is a payment card that allows you to borrow funds from the card issuer up to a certain limit to make purchases or withdraw cash. You must pay back the borrowed amount either in full by the due date or overtime, with interest.

What is the difference between a credit card and a debit card?

While both credit and debit cards allow you to make payments online with similar security features, there are still some key differences worth noting:

Source of Funds: Debit cards deduct directly from your account, while credit cards provide borrowed funds.
Spending Control: Debit cards encourage responsible spending, as you can't exceed your account balance. Credit cards offer more flexibility but require discipline to avoid debt.
Rewards and Benefits: Credit cards often offer reward programs and additional benefits like purchase protection, while debit cards typically offer fewer perks.

What is UPI Payment?

UPI, short for Unified Payments Interface, is a real-time payment system developed by the National Payments Corporation of India (NPCI) that allows instant funds transfer between two bank accounts via a mobile platform.

It leverages a Virtual Payment Address (VPA) linked to your bank account for secure and convenient transactions.

How does UPI differ from a credit or debit card?

As you would have guessed, unlike credit and debit cards, UPI doesn't require physical cards or card details to be shared. And, to add to it, some key ways in which UPI payment differs from the two payment cards are:

Transaction Type: UPI facilitates direct bank-to-bank transfers, while credit and debit cards involve account deductions or borrowing.
Offline Functionality: Credit and debit cards can be used for offline transactions at POS terminals, while UPI primarily functions online.
Acceptance: UPI is gaining traction in India but might not be universally accepted compared to credit and debit cards.

Credit card vs Debit card vs UPI: Which one to choose for what payment

In most cases of everyday payments, either payment method can work. But some unique use cases pertinent to credit cards, debit cards, and UPI are:

For Immediate Purchases: Opt for debit cards or UPI for instant payments from your existing funds.
For Building Credit: Use a credit card responsibly to build a credit history and earn rewards.
For Online Transactions: UPI and debit cards are suitable for online purchases. UPI might offer additional security by not requiring card details to be shared.
For Unexpected Expenses: Credit cards offer flexibility for unforeseen situations but require repayment with interest.

Endnote

Credit cards, debit cards, and UPI – all serve your payment needs, but when used wisely, they can extend to unique financial tools. Consider your spending habits, budget, and the specific situation when selecting the most suitable payment method for your needs. If you prefer to use a debit card for its key benefit of budget control, you should check out the 811 Debit Card by Kotak811, which comes with a dedicated mobile app for full control over your funds, and payments.

FAQs

1. Can credit cards be used as UPI?

No, a credit card cannot be directly used for UPI transactions. UPI requires linking a bank account, not a credit card.

2. Are UPI and debit card the same?

No, UPI is a digital payment system for direct bank transfers, while a debit card is a physical card linked to your bank account.

3. Can I run my debit card as credit if I have no money?

No, if you have no funds in your account, your debit card transaction will be declined as it directly deducts from your bank balance.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.