Why do you have to specify debit or credit when you use your card?

When a debit card is used as a credit card (signature instead of PIN, or that selection at a gas pump), the bank makes more money on the merchant fee. That is why some banks encourage you to use your debit as credit or offer premiums if you do, because it makes the bank more money (and less to the merchant).

However, if you really are using a credit card, you do not want to use it as a debit card, because then it would be considered a cash advance, and you would be charged a cash advance fee and usually higher interest immediately, because then the bank does not collect the higher merchant fee from the merchant. I specifically do not even know the PIN for my credit cards so I do not accidentally use them at an ATM as cash advance (one of my credit cards is same color/bank as debit card and I have inserted it accidentally, which I realize when the debit PIN does not work).

It's actually put in place to prevent global nuclear war, let me run you through the scenario.

8:00 AM: A man, who we will call Joe Everyman, walks into a store to purchase some bread. Joe walks to the counter and swipes his card. Normally he would have to specify the charge type, but luckily his bank started encoding it into the card strips. Joe is happy that he saved roughly three seconds of his very busy day.

9:00 AM: Joe goes to work at the top secret millitary facility that monitors potential nuclear threats. Now, Joe is a heavy smoker and normally takes his first break at exactly 9:15, but since he is feeling so great about his convinient purchase earlier he decides to take his smoke break at 9:10.

9:13 AM: Joe's console starts flashing red, signifying that every nuclear missile on the planet has begun to launch and if he wishes to abort the process he must enter his 5 digit passcode. But oh no! Joe is outside and doesn't see it!

9:15 AM: Joe comes back to his desk just as the countdown to launch hits zero, he has time for one last smoke as he silently curses the banks for encoding the purchase type into the card.

9:20 AM: The planet is completely and utterly wracked by the explosions of thousands of nuclear weapons, every living thing dies and his race is no more.

Scary right? But can you guess what planet Joe Everyman lives on?

IT WAS EARTH!

People use debit cards if the want to pay the money right then and not later.

Also some machines pick up it its a credit card or a debit card.