Credit and Debit Cards

8/6/2019 Credit and Debit Cards

http://slidepdf.com/reader/full/credit-and-debit-cards 1/23

CREDIT CARDS &

BY:

RAYHANA. K

DEBIT

CARDS



Introduction

The development of credit card is one of the recent phenomenon inthe banking sector.

A credit card is a charge card.

It is a direct charge against the limit sanctioned.It is step forward towards cashless and chequeless society

The operation is through electronic funds transfer (EFT)

installations and interbank network

Credit cards are the key to the opening of bank accounts for daily

payments by the card holders



Many Indian and foreign banks have issued credit cards to their

customers

The issuing bank ties up with a number of establishments including

hotels, hospitals, shops, petrol-pumps and departmental stores which

honor the credit cards.

The issuing bank provides the facility of credit cards to selected

number of customers depending upon their monthly income,

creditworthiness or to company executives, businessmen and high and

middle income individuals etc.



What is credit card?

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.



Eligibility for getting the card

He should have an account with the bank

His assets and liabilities on a particular date are reported to

bank

A statement of annual or monthly income

He is considered creditworthy up to certain limit depending upon

his income, assets and expenditure.

The eligible customer is asked to fill in an application form giving

the details of account number, name, address, income, wealth

status and a proof of his income/wealth etc.



Types of credit cards

Based on the mode of credit recovery

1. Revolving credit card

This type of credit card follows the revolving credit principle. A limit

is set on the limit of money one can spend on the card for a

particular period. The cardholder has to pay a minimum percentage of

the outstanding credit.

2. Charge card

A charge card is not a credit instrument. It is a convenient mode of

making payment. This facility gives a consolidated bill for a specific

period and bills are payable in full on presentation. There is no



Based on Status of Credit Card

1. Standard card

Credit cards that are regularly issued by all card-issuing banks are calledstandard cards. With these cards, it is possible for a cardholder to make

purchases without having to pay cash immediately. It however offers only

limited privileges to cardholders.

2. Business cardBusiness card, also called “Executive” cards, are issued to small partnership

firms, solicitors, firms of chartered accountants, tax consultants and

others, for use by executives on their business trips. The card enjoys

higher credit limits and more privileges than the standard cards. Thesecards are issued in the name of the executives of the firm.

3. Gold card

It offers many additional benefits and facilities such as higher credit

limits, more cash advance limits etc. that are not available with standard or



Based on Geographical Validity

Domestic card

Cards that are valid only in India and Nepal are called ‘domestic cards’. All

transactions will be in Rupees. These cards are issued by most of the banks

in India.

International card.

Credit cards that have international validity are international cards. They

are issued to people who travel abroad frequently. These cards are

accepted in every part of the world except in India and Nepal.



Based on Franchise/Tie-up

Proprietary card

Cards that are issued by banks themselves, without any tie-up, are called

proprietary cards. A bank issues such cards under its own brand. Examples are SBI

Card, CanCard of Canara Bank etc.

Master Card

This is a type of credit card issued under the umbrella of ‘MasterCard

International’. The issuing bank has to obtain a franchise from the MasterCard

Corporation of USA.

VISA Card

This is a type of credit card, which can be issued by any bank having tie-up with

VISA International Corporation, USA.

Domestic tie-up card

These are cards issued by a bank having a tie-up with domestic credit card brands



Based on the issuer category

Individual cards

These are non-corporate credit cards that are issued to individuals.

Corporate cards

These are credit cards issued to corporate and business firms.



Innovative Cards

ATM cards

It allows customers to access their accounts at any time-24 hours a day of

the year, through automated teller machines. Customers can withdraw cash,

transfer funds, find out their account balance and perform other banking

and financial transactions with the help of ATMs.

Prepaid cards

Also known as Stored Value Cards are cards with stored value paid in

advance, by the holder. Its use is often restricted to a number of

identified points of sale within a specified location.



Private label cards

These cards are uniquely tied to the retailer issuing the card and can be

used only in that retailer’s store.

Smart cards

A smart card is a credit card sized plastic card with an embedded

computer chip. The chip allows the card to carry a much greater amount

of information than a magnetic strip card. There are two types of smart

cards, namely memory cards and microprocessor cards.

Memory cards are static. They store information and value and are not

programmable. Phone cards and other prepaid cards are examples.

Microprocessor cards have internal memory, have high storage capabilities

and the data stored in the chip is dynamic.



Mechanics of Credit Card Operation

Credit Issuing Bank

Merchant’s Bank Merchant Establishme

Card user/ Customer

Contract for credit card(1)

Issue of Credit card(2)

Payment on Credit Card

Clearing

and

Settlem

ents(7)

Submission of bills for

collection (5)

Payment of bills (6)

C

hargingofCre

dit

Card

andrais

ingBill

(4)

Purchas

eofGood

sand

Services

(3)



1. Issuing Bank Logo

2. EMV chip on “smart cards”

3. Hologram

4. Credit card number

5. Card brand logo

6. Expiration date

7. Card holder name

8. Contactless chip

An example of the front of a typical credit card



An example of the reverse side of a

typical credit card

1. Magnetic stripe

2. Signature strip

3. Card security code



Benefits of Credit Cards

Benefits to Card holdersShopping convenience

Credit facility

Safety

Meticulous record

Acceptability

Benefits to Merchants

Enhanced sales

Easy validationNo risk

Benefits to issuer banks

Source of income

Market expansion



Drawbacks of Credit Cards

Waste of money

Thoughtless buying

Financial problemMental agony

Costly



What is Debit Card?It is a plastic card similar to the credit

card where the expenditure amount is

automatically debited to the

corresponding bank account. This amount

will appear , in due course, on the monthly

statement of the account. It is a variant

of an ATM card, which helps the

customers to make paymentsinstantaneously for goods and services

purchased.



ebit Card issuing Bank Customer

Merchant Establishment

Electronic Data Interchange (EDI)

Contract for Debit Card (1)

Issue of Debit Card (2)

I n s t a n t S e t t l e m

e n t

I n s t a

n t p a y m

e n t

o n D e

b i t

C a r d

( 4 )

P u r c h

a s e

o f G

o o d s

a n d

S e r

v i c e s ( 3 )

Mechanics of Debit Card Operation-Purchase Transaction



Dangers of Debit Cards

Most debit card holders prefer using the debit cards only for standard ATMwithdrawals. There is always a lurking fear in the minds of customers that

their bank balance may be knocked off by card thieves. This is the reason for

the limited use of such cards at restaurants, department stores and other

retail outlets which accept debit cards.



Difference between Debit Cards and Credit

Cards

Debit Card Credit CardDrawings are against own assets or

money lying in the savings bank

account

It allows a borrowing power on the

bank for which the customer or

holder has to pay some charges or

fees

No risk of over spending as the

customer can spend what he has

The customer tends to over spend

because he can spend money which

he does not have at that moment



Debit Card Credit CardDoes not involve any interest

payment or cost to the holder

Holder of credit card has to pay

interest on the overdrawn amount

The holder need not carry any costor even traveller’s cheque. It is as

good as money in the accounts with

his bank

It provides additional finance tothe holder by allowing him to

overdraw if necessary. Payments are

made by the bank to the extent of

purchases and if they exceed this

limit, he pays interest on the excess

amount



Date post:	08-Apr-2018
Category:	Documents
Upload:	raihana-karolly
View:	225 times
Download:	0 times

Credit and Debit Cards

Documents