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used predominantly in reference to the hard plastic cards we use everyday in place of actual bank notes.
Cash Cards Credit Cards Debit Cards Pre-paid Cash Cards In-store cards
bank via an Automated Teller Machine (ATM) but it will not allow the holder to purchase anything directly with it. can generally be made in person only, as they require authentication through a personal identification number or PIN. In other words, ATM cards cannot be used at merchants that only accept credit cards. are combined into a single card called a debit card or also commonly called a bank card. These are able to perform banking tasks at ATMs and also make point-of-sale transactions, both functions using a PIN.
In some countries, the two functions of ATM cards and debit cards
Credit Card
an ATM, and a credit card will allow the user to purchase goods and services directly, but unlike a Cash Card the money is basically a high interest loan to the card holder, although the card holder can avoid any interest charges by paying the balance off in full each month.
A credit card is a small plastic card issued to users as a system of
payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.
Parties involved
Cardholder: The holder of the card used to make a purchase;
the consumer.
Card-issuing bank: The financial institution or other
the independent sales organization, but in general is the organization that the merchant deals with.
Parties involved
Credit Card association: An association of card-issuing banks such as
Discover, Visa, MasterCard, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.
Transaction network: The system that implements the mechanics of
the electronic transactions. May be operated by an independent company, and one company may operate multiple networks.
Affinity partner: Some institutions lend their names to an issuer to
attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name
Insurance providers: Insurers underwriting various insurance
Transaction steps
1. Authorization: The cardholder presents the card as payment to the merchant and the merchant submits the transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the issuer (Card-issuing bank) and reserves that amount of the cardholder's credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction.
2. Batching: Authorized transactions are stored in "batches", which are sent to the acquirer. Batches are typically submitted once per day at the end of the business day. If a transaction is not submitted in the batch, the authorization will stay valid for a period determined by the issuer, after which the held amount will be returned to the cardholder's available credit
Costs
Credit card issuers (banks) have several types of costs:
Interest expenses Operating costs Charge offs or Bad Debts
Rewards
Fraud Promotion
Revenues
Offsetting the costs are the following revenues: Interchange fee Interest on outstanding balances Over limit charges Fees charged to customers
Late payments or overdue payments
Charges that result in exceeding the credit limit on the card (whether done
deliberately or by mistake), called over limit fees Returned cheque fees or payment processing fees (e.g. phone payment fee) Cash advances and convenience cheques Transactions in a foreign currency. A few financial institutions do not charge a fee for this. Membership fees (annual or monthly), sometimes a percentage of the credit limit. Exchange rate loading fees.
Demerits
High interest and bankruptcy
Debit Card
and can directly be used to purchase goods and services. While there is no official credit facility with debit cards, as it is linked to the bank account the limit is the limit of what is in the account, for instance if an overdraft facility is available then the limit will be the extent of the overdraft.
card that provides the cardholder electronic access to his or her bank account(s) at a financial institution. Some cards have a stored value with which a payment is made, while most relay a message to the cardholder's bank to withdraw funds from a designated account in favor of the payee's designated bank account. The card can be used as an alternative payment method to cash when making purchases.
authorization of every transaction and the debits are reflected in the users account immediately.
Offline Debit System : This type of debit card may be subject to a
daily limit, and/or a maximum limit equal to the current/checking account balance from which it draws funds. Transactions conducted with offline debit cards require 23 days to be reflected on users account balances.
Electronic Purse Card System : Smart-card-based electronic purse
systems (in which value is stored on the card chip, not in an externally recorded account, so that machines accepting the card need no network connectivity)
Advantages
Customer having poor credit worthiness can opt for debit
card.
Instant finalization of accounts Less identification and scrutiny than personal checks,
Disadvantages
Limited to the existing funds in the account to which it is
linked
Banks charging over-limit fees or non-sufficient funds fees
based upon pre-authorizations, and even attempted but refused transactions by the merchant
Lower levels of security protection than credit cards More prone to frauds
Debit Card
Transactions are of Debit
Nature
Risk of overspending Interest is charged to the
Nature
No or less risk of over
spending
Only Fees are charged on
cash
In-Store Cards
marketing tools to retain customers and increases turnover. The main features of in-store cards are as below:
Issued by big department stores or retailers.
companys products. Little or no cost to retailers Usually developed by the traders in partnership with banks or financing companies who undertake the administration and sometimes the financing involved.
of the holders. The cost of goods purchased is spread over a certain period.
Option Card: Here, payment can be either be made in full or
at the cardholders discretion. However, option available is subject to a minimum repayment and interest charged on the balance outstanding amount.
Monthly Card: The card holder is required to make the
payment every month. No extension of credit is given beyond a month. This card differs for budget card, where outstanding credit can be settled in 30 monthly statements.
themselves, and will not exceed that amount. These are usually re-useable in that they can be 'topped up' however some cards, usually marketed as Gift Cards are not re-useable and once the credit has been spent they are disposed of. They provide some specials benefits or discounts to the holder of the card.
Pre-paid Cash Cards Examples: DMRC Smart Cards. Pantaloons Green card. Cards used in Food courts of Malls.