Credit Cards, Debit Cards, Pay-by-Bank … What’s the difference?
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Credit Cards, Debit Cards, Pay-by-Bank … What’s the difference?

Katie Foos
Katie Foos
October 5, 2022
Credit and debit cards are popular ways for consumers to pay for purchases, and both payment types have been around for decades. Pay-by-bank is a new way for consumers to pay via ACH on a mobile device, without the need for a physical credit card. Below we explain the similarities and differences between credit cards, debit cards, and pay-by-bank. We also outline the processing fees, rewards offerings, and underlying mechanics associated with each.

Credit cards

Credit cards were first introduced in the 1950s, and today, more than 79% of American consumers own at least one credit card. Credit cards enable consumers to make a purchase immediately, and pay for it over time for up to 30 days interest-free. Additionally, most credit card companies offer customer loyalty programs - with rewards generally offered in the form of points, cash back, or miles - to incentivize the use of one credit card versus another (or an alternative payment type).

To fund these credit card loyalty programs, the card companies charge merchant service fees to merchants and charge late fees and interest to customers who don’t pay off within the 30-day interest-free period. It can cost merchants up to 5% of the transaction amount to accept credit cards. The fees consist of interchange fees, assessments or services fees, and markups from payment processors.

Debit cards

Debit cards were first introduced in the 1970s, and more than 87% of Americans own a debit card today. Debit cards enable consumers to pay via funds directly from their bank accounts; much like using cash, but without having to carry physical dollar bills around. Debit cards can help consumers to stick to a budget since they can only spend the amount readily available in their account.

Most debit card loyalty programs are not as rich as the credit card program offerings (if they offer any rewards at all), in large part due to the Durbin amendment. The Durbin amendment limits the amount that banks can charge for debit card swipe fees - currently a max of $0.21+ 0.05% per transaction. This results in less profit that banks can use to fund rewards and incentivize consumer spending.


Pay-by-bank is a new way for consumers to pay for goods and services via funds from their bank accounts. Instead of transferring funds from a consumer’s account via a debit card, consumers can pay seamlessly and securely through a mobile device - no debit card details are required. As mobile payments continue to rise and Gen Z consumers come of age, the number of pay-by-bank transactions is expected to increase accordingly.

A pay-by-bank transaction is a direct payment from a consumer’s bank to the end merchant, bypassing most intermediaries within the payments ecosystem. Due to this, pay-by-bank providers can charge much lower merchant processing fees of ~0.5% to 1% per transaction.

Zage is a unique pay-by-bank provider that provides low-rate processing to merchants while offering gamified rewards to consumers. Zage offers a compelling incentive for merchants to accept and promote Zage, and for consumers to use Zage as their top-of-wallet choice.

Conclusion & Implications

Credit cards, debit cards, and pay-by-bank all possess unique differences in merchant processing fees, consumer rewards, and program mechanics. Given consumers’ varying needs and financial positions, offering payment choices is essential.

Want to learn more? Contact Zage today!

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