CREDIT CARDS &
DEBIT
CARDS
BY:
RAYHANA
. K
Introduction
The development of credit card is one of the recent phenomenon in
the 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 called
standard 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 card
Business 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. These
cards 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
Contract for credit card(1)
Issue of Credit card(2)
Credit Issuing Bank Card user/ Customer
Payment on Credit Card
Charging of Credit Card
Purchase of Goods and
and raising Bill (4)
Settlements (7)
Services (3)
Clearing and
Submission of bills for
collection (5)
Merchant’s Bank Payment of bills (6)
Merchant Establishmen
An example of the front of a typical credit card
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 reverse side of a
typical credit card
1. Magnetic stripe
2. Signature strip
3. Card security code
Benefits of Credit Cards
Benefits to Card holders
Shopping convenience
Credit facility
Safety
Meticulous record
Acceptability
Benefits to Merchants
Enhanced sales
Easy validation
No risk
Benefits to issuer banks
Source of income
Market expansion
Drawbacks of Credit Cards
Waste of money
Thoughtless buying
Financial problem
Mental 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 payments
instantaneously for goods and services
purchased.
Mechanics of Debit Card Operation-Purchase Transaction
Contract for Debit Card (1)
Debit Card issuing Bank Issue of Debit Card (2) Customer
)
(4
)
rd
(3
Ca
es
nt
vic
it
Electronic Data Interchange (EDI)
e
eb
le m
er
nD
dS
t t
to
Se
an
en
t
ds
n
m
ta
oo
ay
s
G
In
tp
of
an
se
st
ha
In
rc
Pu
Merchant Establishment
Dangers of Debit Cards
Most debit card holders prefer using the debit cards only for standard ATM
withdrawals. 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 Card
Drawings are against own assets or It allows a borrowing power on the
money lying in the savings bank bank for which the customer or
No risk of over spending as the The customer tends to over spend
account
customer can spend what he has holder
becausehas
heto pay
can somemoney
spend charges or
which
fees
he does not have at that moment
Debit Card Credit Card
Does not involve any interest
Holder of credit card has to pay
payment or cost to the holder interest on the overdrawn amount
The holder need not carry any cost It provides additional finance to
or even traveller’s cheque. It is as the holder by allowing him to
good as money in the accounts with overdraw if necessary. Payments are
his bank made by the bank to the extent of
purchases and if they exceed this
limit, he pays interest on the excess
amount
