BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

Session 52: E-Services of Banking: Debit card and Credit Card.

DEBIT CARDS

A debit card is a plastic card that resembles credit card. Debit cards are directly linked to a
cardholder’s bank account. Whenever a card holder withdraws money from an ATM or uses
the debit card for making payments, his/her account balance is automatically reduced.

Advantages of debit cards

Consumers are increasingly using their debit cards for everyday purchases instead of cash
and checks, because they’re convenient, easy to use, can be an effective budgeting tool, and
provide benefits that cash and checks don’t offer:

1. Prepaid card

Debit card acts as a type of prepaid card. It is so, since it already has a sufficient amount of
cash balance in its holder’s bank account. It permits to carry on the value of the transaction
(i.e. purchases) to the extent of available balance in its holder’s bank account.

2. Nominal fee

Bank issuing a debit card charges an annual fee for the issuance and maintenance of card.
This fee charged is very nominal in nature. Generally, bank charges the fee on a per annum
or yearly basis. Such a fee gets automatically debited (deducted) from the debit-cardholder’s
bank account.

3. Alternative to cash

Debit card acts as an alternative mode of payment for executing various cash-related
financial transactions. It can be used for the purchases of goods and receipt of services. In its
presence, there is no need to carry a large amount of cash. Thus, it helps to avoid carrying
huge amount of cash while travelling and minimize risk of loss due to theft, damage, etc.
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

4. Immediate transfer of funds

Debit card ensures immediate transfer of funds in the merchant’s or dealer’s bank account.
Such a transfer of funds takes place almost instantly at the moment of purchases of goods
and receipts of services. With its use, there is no need to visit bank’s office premise and do a
manual transfer of cash in the merchant’s or dealer’s bank account. Thus, it saves precious
time and gives ease, safety, and comfort to its holder in his or her’s finance-related activities.

5. Instant withdrawal of cash

The debit card facilitates instant withdrawal of cash from any nearest ATM. This helps its
holder to avoid a personal visit to bank’s office premise and wait in a long time-consuming
queue. In short, it also acts as an ATM card to meet its holder’s cash-related needs, anytime
and anywhere.

6. Easy to manage

Debit card is very easy to carry, handle and manage while travelling to outstations or
overseas. Being small, thin, and flat and having a negligible weight it easily fits in any
pocket. It can be handled very freely even with just two fingers. Managing it is also not a
big problem.

A cardholder must just take enough care to see to it that

 Debit card is always covered with a thick plastic cover to avoid scratching of its
sensitive surface.
 It doesn’t come in contact with contaminated water and heat.
 It doesn’t get folded accidentally; this helps to prevent its breakage.
 It is placed safely in a convenient location which one remembers. This helps to
avoid it getting misplaced and lost due to negligence.

Disadvantages of debit cards

1. One needs to have enough money in his or her bank account to cover for the amount of
purchase done.

2. One has less protection if the debit card is lost or stolen as compare to credit card.
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

3. Since money is debited instantly at the time of purchase, one has less protection if
something goes wrong with the purchase because bank won’t put money back into account if
purchased items are not delivered, or don’t work.

CREDIT CARDS

Credit cards are considered a boon for the ready convenience they confer on the user- you
don't have to worry about carrying enough cash when you go shopping or to a restaurant. Just
flash your card, sign and walk out. Thus the age of plastic money has finally come to India.
The credit card has become a matter of status.

A credit card in simple words is a plastic card which can be used as substitute for cash. It
is widely used by people for make payment whether it is a small sum involving buying a
movie ticket or big sum like purchasing some furniture or payment at hospitals. Banks
issue it to their customers to enable them to purchase on credit. These cards store the
information relating to customers account.

Types of credit card

1. Credit card: It is a normal card whereby a holder is able to purchase without having to
pay cash immediately. Generally a limit is set with the amount of money a cardholder can
spend. Interest is charged on the outstanding amount.

2. Charge card: Charge card is intended to serve as a convenient means of payment for
goods purchased at member establishments rather than a credit facility. There is no interest
charged. Eg: Andhra bank card.

3. In store cards: Retailers / Companies issue the instore card. These cards have currency
only at the issuers outlet for purchasing products of the issuers companies. Eg: 5 Star Hotels,
Resorts.

4. Corporate Credit card: These are issued to private and public limited companies.
The transactions made by add-on card holders are build to the main card and debits are made
to the company's account.
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

5. Smart card: A smart card technology is also widely used by bankers to market their
products. Smartcard is a chip based card. It is a microchip which will store a monetary value.
The transaction is made using a card the value is debited the balance comes down
automatically. Once the monetary value comes down to nil, the balance is to be restored all
over again. It provides communication security as it verifies whether the signature is genuine
or not. The card also recognizes different voices and compares with the recorded original
voice.

Parties to credit card holders:

1. Issuer: The banks are other card issuing institutions.

2. Card Holder: Individuals, corporate bodies etc.

3. Member establishments: Shops and service Organizations. Eg, Departmental stores,

Petrol bunks.

4. Member affiliates: In case of tie-up arrangements with master card international, visa
international, these organizations allow card holders of one bank to use their cards in member
establishments of another bank.

Characteristics or features of credit card

1. Alternative to cash

Credit card is a better alternative to cash. It removes the worry of carrying various currency
denominations to pay at the trade counters. It is quite easy and way fast to use a credit card
rather than waiting for completion of cash transactions. As an alternative, credit card helps a
cardholder to travel anywhere in the world without a need to carry an ample amount of cash.
It also reduces the possible risk of money theft and gives its user a complete peace of mind.

2. Credit limit

The credit cardholder enjoys the facility of a credit limit set on his card. This limit of credit is
determined by the credit card issuing entity (bank or NBFC) only after analyzing the credit
worthiness of the cardholder.
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

 The credit limit is of two types, viz.,

 Normal credit limit, and
 Revolving credit limit.

Normal credit limit is usual credit given by the bank or NBFC at the time of issuing a credit
card. Revolving credit limit varies with the financial exposure of the credit cardholder.

3. Aids payment in domestic and foreign currency

Credit card aids its cardholder to make payments in any currency of choice. In other words,
it gives its holder a unique facility to make payments either in domestic (native) currency or
if necessary, also in foreign (non-native) currency, that too as and when required. Credit card
reduces the cumbersome process of currency conversion. That is, it removes the financial
complexities often encountered in converting a domestic currency into a foreign currency. It
is because of this feature, a credit cardholder can possibly make payments to merchants
present in any corner of the world.

4. Record keeping of all transactions

Credit card issuing entities like banks or NBFCs keeps a complete record of all transactions
made by their credit cardholders. Such a record helps these entities to raise appropriate billing
amounts payable by their cardholders, either on a monthly or some periodic basis.

5. Regular charges

Regular charges are basic routine charges charged by the credit card issuing entity on the
usage of credit card by its cardholder. These charges are nominal in nature. The regular
charges are primarily classified into two types, viz.,

a. Annual charges, and

b. Additional charges.

Annual charges are collected on per annum or yearly basis. Additional charges are collected
for other supplementary services provided by the credit card issuing entity. Such services
include, add-on-card (an additional credit card), issue of a new credit card, etc.
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

6. Grace period

The grace period is referred to those minimum numbers of additional days within which a
credit cardholder has to pay his credit card bill without any incurring interest or financial
charges.

7. Higher fees on cash withdrawals

Credit-card issuer makes charges on cash withdrawals made through credit card at the ATM
outlets and other desks. Generally, cash withdrawal fees are quite higher than fees charged by
the bank or NBFC for the other regular credit transactions. On cash withdrawn done through
a credit card, interest is charged from the same day. That is, interest is charged since the day
on which cash is withdrawn. Usually, no grace period is provided for cash transactions.

8. Additional charges for delay in payment

The credit card payment is supposed to be made within a due date as mentioned on the bill of
a credit card. If payment is not paid on time, then a credit-card issuer charges some additional
costs, which are resulted due to delay in payment. These charges are charged to compensate
(recover) the interest cost, administration cost and any other related costs bared by the credit
card issuing entity.

9. Service tax

Service tax is included in the total amount charged to the credit cardholder. This mandatory
service tax imposed by the government also increases the final end cost bared by a credit
cardholder. Many credit card providers (issuing entities) have policies of reversing the
service tax charged on the purchase of gas, fuel and other similar goods.

10. Bonus points

The competition among the credit card providers is unbending (adamant). Offering various
incentives is usually a trendy (fashionable) way to improve the sale of the products in the
ordinary course of business. Following this trend, credit card providers also give bonus points
on the financial value of the transactions compiled by their customers.
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

11. Gifts and other offers

At a later stage (i.e. after crossing pre-determined number of bonus points) accumulated
bonus points are redeemed either by converting them into gifts, cash back offers, or any other
similar compelling offers. To collect many bonus points, the credit cardholder has to carry
out a considerable number of transactions through his credit card.

Advantages of Credit Cards

A credit card allows you to borrow money to pay for things. There will be a limit to how
much you can borrow called your credit limit. At the end of each month you can either pay
off the full amount you owe or pay defined minimum proportion of the bill by a due date. The
future credit card user should carefully study every credit card deal and revise his or her
payment possibilities to suit. There are a lot of advantages.

1. Credit card reduces need to carry cash or checks. A credit card means you don't need to
carry huge amounts of cash around and risk losing it.

2. If you make an unforeseen, large purchase, credit allows you to buy it at once and settle up
later. Besides it gives you the opportunity to spread the cost of a large payment over several
months.

3. As well as convenient, accessible credit, credit companies offer consumers flexible

rewards schemes in which points earned by purchasing goods with the card can be redeemed
for further goods and services.

4. A credit card means you can make purchases abroad without having to worry about local
currency. They have now spread worldwide.

5. Using credit cards can help you build a positive credit history. Having a good credit history
is also very important, when the credit card owner is applying for loans, rental or even jobs.

6. Many credit cards offer some type of insurance if your purchase is stolen. Some credit
companies provide extended warrantees on certain types of purchases.

7. In general, credit cards enhance our personal responsibility and independence.

BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

8. Many of these advantages are found in the fine print of your statement that came with the
credit card. Make sure you understand how everything works because the benefits differ from
card to card.

9. Of course this only works because many people do not pay their balance at the end of the
month. If nobody carried a balance, the banks would be out of money and they
unquestionably would not offer any of those reward schemes that give you free miles or hotel
rewards.

Disadvantages of credit cards:

1. The biggest disadvantage is that they are inviting cardholders to spend more money that
they don’t yet have. It is far too easy to spend more than you can afford using a credit card.
Most credit cards do not ask you to pay off your balance each month. While this may feel
like “free money” at the time, you will absolutely must to pay it off. The longer you wait, the
more money you will lose with interest which accrues every day until you pay the balance.

2. Credit cards can be stolen, as can cash. They may be physically stolen or someone may
steal your credit card number from a website, over the phone etc. The good news is that,
unlike cash, if you find your card has been stolen and you inform your credit company
instantly, you will not pay for purchases that somebody else has made.

3. Credit cards issue a monthly spending limit. While they are mostly high, if you exceed it,
you may face even bigger charges.

4. So if a credit card is not used wisely Free Articles, people can get into debt or even
bankruptcy
BANKING LAW AND OPERATIONS- E-SERVICES OF BANKING: DEBIT CARD & CREDIT CARD

Difference between Debit Card and Credit cards

We all in our daily lives make use of both debit and credit cards, though both Debit and
Credit Cards are electronic plastic cards that are used as a substitute for cash. But there are
many differences between the two of them.

Sl Debit card Credit card

No.

1 It represents the drawing power of It represents the borrowing power of the

the card holder. card holder.

2 Amount withdraw able is based on Amount withdraw able is based on

credit balance available in the bank Sanctioned limit by the bank to its card
account of a holder. holder.

3 No interest or costs are charged to Interest or costs are charged to the card
the card holder holder

4 There is no risk of overspending to There is a risk of overspending to the card

the card holder. holder.

5 There is no chances of overdraw to There is a chances of overdraw to the card

the card holder. holder.

6 Opening of an account is very Opening of an account is very not

necessary for debit card necessary for credit card

7 No grace periods are given and Grace period of 30 to 40 days of making

instantly debited to account payment is give.

8 No conditions are to be satisfied to Conditions are to be satisfied to obtain a

obtain a debit card credit card