Charge cards are often seen to be equivalent to debit cards. Neither type of card allows a card user to build up a credit balance on the card. However they are very different.
Charge cards are the oldest members of the payment card family. The first payment card was a charge card, the Diners club card, which was aimed at paying for restaurant meals without the need to carry a wallet full of cash.
American Express, which had originally been a New England mail carrying service but by the 1940s had become a financial services company aimed at business travellers, soon offered their own card. The American Express card was aimed at the general travel market and managed to quickly gain an international market focussed on hotels and travel providers as well as a worldwide group of cardholders who bought into the long lived advertising slogan “don’t leave home without it.”
The charge cards were very different from the early credit cards in that cardholders were unable to build up debt on a charge card. They also were far more likely to give money to card holders either in their offices or through ATMs than credit cards. Charge cards soon focussed on the upper end of the payment card market of regular travellers and diners, leaving the rest of the market to the credit card companies.
When debit cards became popular they were quickly compared to charge cards. However debit cards are quite different from charge cards in that in most cases debit cards are closely connected to bank current accounts whereas charge cards have their own account, although this account needs to be paid off every month.
Charge cards, particularly American Express, have developed a system of generous rewards. These are funded by both high annual fees and some of the highest merchant charges in the payment card business. Merchant charges are the fees that are charged to shop owners and services providers in order to process the payments. Debit cards do not offer these perks as they charge far lower merchant charges and annual charges.
It is also easier to borrow with a debit card than it is with a charge card. This is because the current accounts that debit cards are run through can run with an overdraft.
It is easier to think of cheques as the closest equivalent to debit cards. They are also linked to current accounts and don’t have their own accounts.
