A credit card is a thin plastic card that contains identification

What Is Plastic Money?

A plastic money card is a thin card that contains identification information such as a signature or picture, and authorizes the card holder to charge purchases or services to the card holder’s account. Today, the information on the card is read by automated teller machines (ATMs), banks, and the internet.

It all started in the 1920s, when individual companies (such as oil companies and hotels) issued these “plastic money cards” for purchases made at their businesses. However, these cards could not be used outside of the company.

In the 1950s a “universal card” was introduced by Diners Club, INC. This was when credit cards were made. These cards allowed the card holders to use the cards in various locations and businesses. The way the cards worked was that there were annual fees, and depending on the plan, the card holders were billed either monthly or yearly.

Later on the “bank credit card system” was introduced. Under this system, the bank credits the account of the merchant at each sale and bills to the card holder at the end of the billing period to account for the sale. The card holder, in turn, pays the bank either the entire balance or in monthly installments with interest. This is the system that all credit cards are under today. Now there are three different types of cards: credit cards, debit cards, and prepaid cards.

Credit cards are cards that offer customers and businesses short-term lines of credit. This allows for the customer to pay for unexpected/large expenses without actually paying for the product that second. Instead, when using the credit card, the card holder is borrowing money that they must pay back over a short period of time. Credit cards also can be used for every purchases and it builds up the customer’s credit history. This credit history is actually quite important. If the customer has a good credit they can apply for mortgages, vehicle loans, etc. Businesses and insurance companies sometimes even look at the customer’s credit history to see if they are a good candidate for their organization. Without a credit history, one cannot do any of the things stated above.

What actually goes on in a transaction through a credit between and a merchant and card holder is quite interesting. First, there is a limit set on how much the card hold can borrow. This limit is called the credit limit and is decided by the card issuer’s on the basis of the card holder’s credit history. To pay using a credit card the card holder’s or merchant swipes the card through a terminal. This terminal transfers information to the financial institution that issued the card to the card holder. If the amount is not over the credit limit and the security technology doesn’t suspect fraud, the transaction is approved. This approval happens within seconds. After this approval, the credit limit is reduced by the amount that the card holder just ‘paid’.

Just about every month, the financial institution that issued the card mails the card holder a ‘statement’. This statement tells the card holder about all the transactions that took place over the previous month. The card holder can do two things at this moment, he/she can decide to pay the balance in full for the month or pay a little bit of the expenses and pay the rest the over the next couple of months. If the card holder pays in full that month then they do not get charged any extra fees and just partook in a free loan. If they decide to pay over the next few months, they are charged various fees on top of the expense for the good or service. These are the fees that give Card providers its revenue.

Compared to popular thinking, the debit card was not created before the credit card, but actually many years later. A debit card is like a credit card but the things the customer is paying for is coming straight out of their deposit or brokerage account. This means that when the customer is using their card they do not pay off the money that the card just paid for. Instead, the money is directly taken out of the customer’s checking account (in their bank) and directly deposited into the merchant’s account. The Customer can also access their checking account through these cards by using an ATM. This allows for easy access to cash anywhere the customer is.

The first debit card transaction, using an ATM card and personal identification number (PIN), occurred in the 1980s, and the first debit transaction authorized by a signature rather than a PIN was processed in 1988.(MasterCard: All About Payment Cards). No matter how new these debit cards are they are still much more popular today than credit cards. Actually, by 1995, debit cards overtook credit cards in popularity, and the use of checks started to decline in 1998.

A prepaid card is a card where a set amount of money is deposited into the card prior to its first use. During a transaction the money is directly taken out of the card’s value. There are two types of prepaid cards: single-purpose and multipurpose cards. A single-purpose card, also known as a closed-loop card, is only used for a certain place such as a certain department store or a telephone card in which one can only use it to call people. Multipurpose cards, also known as an open-loop card, are cards that are bought through banks and has the bank’s logo branded onto the card. The only difference between these cards and credit/debit cards is that there is a set amount of money in the card. The card holder accesses the money at any ATM and can pay for goods and services anywhere he/she pleases. As soon as the money runs out, the card is worthless.

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credit card, small plastic card containing a means of identification, such as a signature or picture, that authorizes the person named on it to charge goods or services to an account, for which the cardholder is billed periodically.

The use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers for purchases made at company outlets. The first universal credit card, which could be used at a variety of establishments, was introduced by the Diners’ Club, Inc., in 1950. Another major card of this type, known as a travel and entertainment card, was established by the American Express Company in 1958. Under this system, the credit card company charges its cardholders an annual fee and bills them on a periodic basis—usually monthly. Cooperating merchants throughout the world pay a service charge to the credit card issuer in the range of 4–7 percent of total billings.

A later innovation was the bank credit card system, in which the bank credits the account of the merchant as sales slips are received and assembles the charges to be billed at the end of the period to the cardholder, who pays the bank either in toto or in monthly installments with interest or “carrying charges” added. The first national plan was BankAmericard, begun on a statewide basis by the Bank of America in California in 1958, licensed in other states beginning in 1966, and renamed VISA in 1976–77. Many banks that began credit card plans on a citywide or regional basis eventually affiliated with major national bank plans as the range of included services (meals and lodging as well as store purchases) expanded. This development changed the nature of personal credit, which was no longer limited by location. The growing reach of credit networks allowed a person to make credit card purchases on a national and, eventually, international scale. The system has spread to all parts of the world. Other major bank cards include MasterCard (formerly known as Master Charge in the United States), JCB (in Japan), Discover (formerly partnering with Novus and primarily issued in the United States), and Barclaycard (in the United Kingdom, Europe, and the Caribbean).

In bank credit card systems, the cardholder may choose to pay on an installment basis, in which case the bank earns interest on the outstanding balance. The interest income permits banks to refrain from charging cardholders an annual fee and to charge participating merchants a lower service charge. An additional advantage of the system is that merchants receive their payments promptly by depositing their bills of sale with the bank. (See also revolving credit.)

Store cards are a third form of credit card. They lack the wide acceptance of bank cards or travel and entertainment cards because they are accepted only by the retailer that issues them.

What Is A Credit Card?

Published: Dec 23, 2021, 11:00am

A credit card is a thin rectangular piece of plastic or metal issued by financial institutions, which allows you to spend money from a pre-approved limit to pay for your transactions at both online and offline merchants. The card issuing institution determines the limit, based on your profile, income and credit history.

Eureka Moment: In 1949, businessman Frank McNamara was dining with his clients at a New York restaurant when he realized that he had forgotten his wallet. Frank and his associates discussed the idea of a multipurpose charge card as a way to avoid similar embarrassments, which led to the formation of ‘Diners Club’.

The rest, like they say, is history: birth of a fiercely competitive & ever-evolving industry with a ubiquitous worldwide presence, at a grassroots level. The credit card galaxy transmogrifier at regular intervals and whole new constellations of credit cards continuously comes to the fore and acquires luminescence.

How Does A Credit Card Work?

In the credit cards chain, the most important link is the consumer i.e. you. Accordingly, it is so essential to be fully informed about all facets surrounding card selection & usage, and we will subsequently touch on these aspects. It is, however, equally important to be somewhat familiar with ‘what lies beneath’.

Apart from the card holder, there are four principal actors in the value chain.

1. Issuing Banks: Almost all banks (and recently, a few neobanks) issue credit cards. From a banking perspective, this is the start of the customer life-cycle.

2. Payment Processing Networks: Connect the banks/merchants/customers and enable a seamless settlement of transactions, examples include Visa, Mastercard, Diners, RuPay. Their core competence lies in efficiently maintaining & operating an enabling technical capability on a 24×7 basis, at a global scale.

3. Merchants: Hotels, airlines, malls, online purchase, fuel pumps, and all such points where you would use the card. The acquiring bank installs an Electronic Data Capture (EDC) machine at these outlets. When you make a purchase, the merchant swipes your plastic and receives real-time authorization to complete the transaction.

4. Acquiring Banks: Place their EDC machines at points of sale i.e. with merchants. It is possible that you would use a HDFC card (issuer) at an outlet which has an Axis Bank (acquirer) EDC machine. The switching is facilitated by a network, say Visa. This holds true for domestic or international transactions. The acquiring bank is the entity which ensures the merchant receives his dues in accordance with a pre-set timetable.

Elaborating via a purely hypothetical example: you purchase a book at Shoppers Stop for INR 100 through a YES Bank card (Visa), where Shoppers was using an Axis Bank EDC machine. YES Bank will debit you INR 100 and remit INR 98.50 (less interchange) to Axis; and Axis will pay Shoppers INR 98 (value of transaction less merchant discount rate – MDR); in addition, the switching network (Visa) will earn commission 25 paisa from YES Bank.

Illustrative Table

The above is only a base level intersection map. In actual fact, multifarious customised models (details remain highly confidential) are continuously in operation. For instance, it is entirely possible for Visa to recover switching fees from both YES Bank and Axis Bank.

Innovations by Neobanks

Over the past seven decades, operating models and value chains have undergone continuous & fundamental changes. In recent times, Neobanks have added a whole new dimension to the financial services landscape and have created alternate paths for customer service. At a global level, these tech-enabled banks are offering a wide range of avant-garde products and services. India is also witness to the advent of neobanks, who have now begun providing credit cards and digital lending via BNPL (Buy Now Pay Later). These fintech start-ups are frequently partnering with traditional banks to issue credit cards, and variations thereof.

Some banks are aggressively exploring partnerships with fintech players to acquire a newer set of customers for their platforms. Banks provide open application programming interfaces (APIs) to fintechs, and leverage their ecosystem to on-board credit card customers. Apart from traditional credit rating procedures, card issuers are exploring alternate credit risk models, thus enabling issuance of credit cards to customers without an existing credit score. Consequently, there has been an uptick in new credit card customers. However, it is early days and the jury is still out regarding the success of the new initiatives.

As Frank McNamara would have triumphantly opined, a credit card is the proverbial “win-win” for all the constituents: banks, networks, merchants, consumers.

Banks earn from credit card spends and also from cross-selling loans & other services to an ever increasing base of credit card holders. The networks earn a fee for enabling an efficient multi-constituent settlement process. The merchants, both physical and online, are beneficiaries of a much higher level of sales. However, it is society as a whole, along with millions of consumers who have witnessed recurring & persistent large scale benefits.

Societal benefits

Traditionally India has had a conservative mind-set towards borrowing, and a large section of the population would view ‘spending before earning’ with a degree of unease. Over a period of time, credit cards have gradually fostered a dramatic change in consumer behaviour whereby plastic is now viewed as a friend, not a foe.

In 1980, the Central bank launched the first credit card in India. In 2013, there were 18.7 million cards in force (CIF), and currently that figure stands at 66 million. Given India’s demographic dividend, the comparative figure for 2025 is expected to cross 150 million.

Widespread credit cards issuance and usage is evidence of the extent to which cards have become an integral part of our lives and an essential item in individual wallets. Furthermore, the credit card ecosystem is a veritable mainstay in the successful digitization of the economy and is an effective tool for mainstreaming consumer spending and all the related positive fallouts i.e. transactions are on record, thus enabling robust tax collections.

Additionally, humongous credit card spends (crossed 1 lakh crores in October 2021) have delivered the much needed positivity on demand stimulus, especially for a Covid-afflicted economy.

Access to organised financial services is a noteworthy step towards overall “financial inclusion”. A credit card is an entry level product and spreads awareness about other credit facilities, for example, home loans, personal loans.

Additionally, most cards come with an in-built insurance feature and as such, readymade protection is on the table for the consumer. The availability of formal credit is even more widely appreciated in semi-urban and rural India. Farmers take the facility of Kisan credit cards for managing their finances.

Benefits of a Credit Card for the Consumer

A credit card provides a card holder up to 50 days of interest free credit, if the entire balance is paid before the due date. The primary difference between a credit card and a debit card is that the former is a Buy Now Pay Later (BNPL) instrument; whereas in a debit card the money is deducted immediately from the customer’s bank account.

Banks also accept a minimum amount due i.e. 5%-7% of the bill, and roll over the balance to the next month. However, this accommodation comes at a prohibitive interest rate of 1.5%-4.0 % per month. It is therefore always advisable to pay credit card bills on time and maintain a good credit history.

During emergencies, you can use the card to withdraw cash from ATMs, at a stipulated fee.

Frequently, parents leverage low limit credit cards as an education tool, to familiarise their wards with plastic usage and to instill a sense of responsibility.

Features of a Credit Card

Bottom Line

The credit card industry offers employment to millions, lifts consumer demand, accelerates digitization, acts as an innovation catalyst, empowers financial inclusion and will always remain relevant to our lives – in one form or another.

Best Credit Cards In India 2022

When it comes to credit cards, these are best suited based on one’s needs. We’ve put together a list of best credit cards to help our readers compare and select a card that suits them the most.

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Raj Khosla is founder and MD of MyMoneyMantra.com. He has three decades of experience in the banking and financial services space where he has worked on creating awareness on financial investments and offered tailored-financial products to Indian customers and small businesses.

Armaan is the India Lead Editor for Forbes Advisor. He has more than a decade’s experience working with media and publishing companies to help them build expert-led content and establish editorial teams. At Forbes Advisor, he is determined to help readers declutter complex financial jargons and do his bit for India’s financial literacy.

A credit card is a thin plastic card that contains identification

Published on Sep 18, 2019

Abstract

The usage of credit cards for online and regular purchases is exponentially increasing and so is the fraud related with it. A large number of fraud transactions are made every day. Various modern techniques like Data Mining, Genetic Programming, etc. are used in detecting fraudulent transactions. This paper uses genetic algorithm which comprises of techniques for finding optimal solution for the problem and implicitly generating the result of the fraudulent transaction. The main aim is to detect the fraudulent transaction and to develop a method of generating test data.

This algorithm is a heuristic approach used to solve high complexity computational problems. It is an optimization technique and evolutionary search based on the genetic and natural selection. The implementation of an efficient fraud detection system is imperative for all credit card issuing companies and their clients to minimize their losses.

INTRODUCTION

There is a rapid growth in the number of credit card transactions which has led to a substantial rise in fraudulent activities. Credit card fraud is a wide-ranging term for theft and fraud committed using a credit card as a fraudulent source of funds in a given transaction. Generally, the statistical methods and many data mining algorithms are used to solve this fraud detection problem. Most of the credit card fraud detection systems are based on artificial intelligence, Meta learning and pattern matching. The Genetic algorithms are evolutionary algorithms which aim to obtain the better solutions in eliminating the fraud. A high importance is given to develop efficient and secure electronic payment system to detect whether a transaction is fraudulent or not. In this paper, we will focus on credit card fraud and its detection measures.

A credit card fraud occurs when one individual uses other individuals’ card for their personal use without the knowledge of its owner. When such kind of cases takes place by fraudsters, it is used until its entire available limit is depleted. Thus, we need a solution which minimizes the total available limit on the credit card which is more prominent to frauds. And, a Genetic algorithm generates better solutions as time progresses. The complete emphasis is given on developing efficient and secure electronic payment system for detecting the fraudulent.

VARIOUS TECHNIQUES USED IN CREDIT CARD FRAUD

The advent of credit card has not just provided us with the comfort and convenience but has also attracted malicious characters as it is the easiest way to earn a huge amount of money over a very short span of time. Also it takes a while to realize such kind of fraud has occurred to the user. A few common techniques that fraudster uses are:

 Copying a credit card and somehow getting hold of the secret pin of the user.

 Vendors charging more money from the user’s credit card compared to what they have agreed to and without the latter being aware of the charged money.

So, not just the customers but, the bank issuing credit cards suffer from the losses and hence, it is their interest to reduce the illegitimate use of credit cards leading to development of various credit card fraud detection techniques. Fraud detection is then carried out after observing a number of transactions and then identifying and classifying them into the genuine transaction and the fraudulent transaction.

PROBLEMS WITH CREDIT CARD FRAUD DETECTION

There are lots of issues that make this procedure tough to implement and one of the biggest problems associated with fraud detection is the lack of both the literature providing experimental results and of real world data for academic researchers to perform experiments on. The reason behind this is the sensitive financial data associated with the fraud that has to be kept confidential for the purpose of customer’s privacy. Now, here we enumerate different properties a fraud detection system should have in order to generate proper results:

 The system should be able to handle skewed distributions, since only a very small percentage of all credit card transactions is fraudulent.

 There should be a proper means to handle the noise. Noise is the errors that is present in the data, for example, incorrect dates. This noise in actual data limits the accuracy of generalization that can be achieved, irrespective of how extensive the training set is.

 Another problem related to this field is overlapping data. Many transactions may resemble fraudulent transactions when actually they are genuine transactions. The opposite also happens, when a fraudulent transactions appears to be genuine.

 The systems should be able to adapt themselves to new kinds of fraud. Since after a while, successful fraud techniques decreases in efficiency due to the fact that they become well known because an efficient fraudster always find a new and inventive ways of performing his job.

 There is a need for good metrics to evaluate the classifier system. For example, the overall accuracy is not suited for evaluation on a skewed distribution, since even with a very high accuracy; almost all fraudulent transactions can be misclassified.

 The system should take care of the amount of money that is being lost due to fraud and the amount of money that will be required to detect that fraud.

For example, no profit is made by stopping a fraudulent transaction that is way lesser than the amount of money that will be required to detect it. These points direct us to the most important necessity of the fraud detection system, which is, a decision layer. The decision layer decides what action to take when fraudulent behavior is observed taking into account factors like, the frequency and amount of the transaction.

CREDIT CARD FRAUD DETECTION METHODS

A proper and thorough literature survey concludes that there are various methods that can be used to detect credit card fraud detection. Some of these approaches are:  Artificial Neural Network

 Hidden Markov Method

In our research paper, as stated earlier, we will be emphasizing on the Genetic algorithm and how it is used in credit card fraud detection systems.

GENETIC ALGORITHM

Genetic Algorithm is an optimization technique that attempts to replicate natural evolution processes. The genetic pool of a specific population for a given problem potentially contains the solution, or a better solution. This is the basic idea behind the genetic algorithm. On the basis of genetic and evolutionary principles, the genetic algorithm repeatedly modifies a population of artificial structures through the application of initialization, selection, crossover, and mutation operators. This is done in order to obtain an evolved solution.

Artificial genetic algorithm aims at improving the solution to a problem. This improvement is carried out by keeping the best combination of input variables. It optimizes the problem definition and also generates an objective function that is the way of determining which individual produces the best outcome. At first, from the sample space having many populations, the initial population is randomly selected and the fitness value is calculated and sorted. The tournament method is used in selection process and single point probability is calculated in the crossover. In mutation, the new offspring mutates using uniform probability measure. Always the best solution are selected and passed to the further generation, each time a new population is generated. The operators of Genetic Algorithm are:

 Selection – It is the survival of the fittest and the preference is always given to better outcomes.

 Mutation – It is based on trying random combinations and evaluating the result (success or failure) of the outcome.

 Crossover- It is done by combining portions of good outcomes in the hope of creating an even better outcome.

Overall System Design

The above architectural design describes the work structure of the system:

 The data warehouse contains the customer data. This customer data is subjected to the rules engine and again, the rules engine comprises of the rules set.

 The filter and priority module sets the priority for the data and hence, plays a very important role in the system. Then the filtered data is sent to the Genetic Algorithm module which performs its functions and generates the output.

Process Flow of Genetic Algorithm

RESULTS

This detection process constitutes of four steps. These steps are mentioned below:

 Input all the transactions record and standardize the data. Finally get the sample which includes the confidential information about the card holder in the data set with their consent.

 In this step the CCusage frequency count, CC location, CC overdraft, Current bank balance and average daily spending is computed.

 Generating critical values after finding out the limited number of generations for critical fraud detected, monitorable fraud detected, ordinary fraud detected, etc. using Genetic Algorithm.

 Generate fraud transactions detected in the final step. It is done by applying detection mining on critical values obtained in the process of fraud detection.

CONCLUSION

This method proves accurate in finding out the fraudulent transactions and minimizing the number of false alert. Genetic Algorithm is appropriate in such kind of application areas. The use of this algorithm in credit card fraud detection system results in detecting or predicting the fraud probably in a very short span of time after the transactions has been made. This will eventually prevent the banks and customers from great losses and also will reduce risks.

REFERENCES

[2] Satvik Vats, Surya Kant Dubey, Naveen Kumar Pandey, “A Tool for Effective Detection of Fraud in Credit Card System”, published in International Journal of Communication Network Security ISSN: 2231 – 1882, Volume-2, Issue-1, 2013.

[3] Rinky D. Patel and Dheeraj Kumar Singh, “Credit Card Fraud Detection & Prevention of Fraud Using Genetic Algorithm”, published by International Journal of Soft Computing and Engineering (IJSCE) ISSN: 2231-2307, Volume-2, Issue-6, January 2013.

[4] M. Hamdi Ozcelik, Ekrem Duman, Mine Isik, Tugba Cevik, “Improving a credit card fraud detection system using genetic algorithm”, published by International conference on Networking and information technology, 2010.

[5] Wen-Fang YU, Na Wang,“ Research on Credit Card Fraud Detection Model Based on Distance Sum”, published by IEEE International Joint Conference on Artificial Intelligence, 2009.

Credit Cards

The commercial banks extend different functions to customers. The most important in the modern days are credit card facilities to customers. These facilities are not extended to not only customers in the urban areas or cities but also to customers residing in rural areas. Agriculturist are enjoying the facility of credit card and the card extended to them are called as green card.

A credit card is given by the banker to the customer in which the name of the customer is embossed in block letters. The name of the bank and the date of issue and expiry are also mentioned on the face of the card. The reverse side of the card will bear the specimen signature of the customer. A list of vendors or sellers will be gibe by the banker to the customers. A credit card is a thin plastic card, usually 3 1/8 inches x 2 1/8 inches in size that contains identification information such as signature or picture or both and authorizes the person named on it to charge for purchases or services to his account. In addition to this, the card can be used in automated teller machines for withdrawing cash and the machine stores the information and also transactions through electronic date processing system.

2 Origin of Credit Cards In India:

The usage of Credit Cards in India is less when compared to the usage of credit cards in China, Taiwan and Malaysia. It picked up only in the last 10 years until then the Indian looked it as a luxury. The idea of owning a credit card has had its roots in the minds of millions of Indians. They started viewing the card as a convenient substitute to carrying cash. The change in mindset is clear from the growth, both in terms of absolute numbers and growth rates. The industry has grown at the rate of 30% and strongly counts for steady years to come.

Credit Cards in India:

According to Visa International an average Indian cardholder uses his card 9.3 times, spending about Rs.23, 000 per year. A number of card owners do not use their cards and almost 20-23% cards are inactive. In India, two players dominate the credit cards industry. Visa and Master Cards and 15 out of 17 banks provide credit card services through Visa or Master Cards.

The importance of having a pie in the credit cards segment was not lost on any bank, and most banks started their credit card operations. Currently, there are more than 20 banks offering credit cards, but the market share of the top five exceeds 75%. Credit card is a low margin, high volume business. The initial investments required by a bank are very high. The income per card is low, thereby requiring large volumes in terms of cards issued and the transactions finance to make the operations profitable. Another reason for the inability of players to upstage the well-entrenched ones is lower patronage by the merchant and business outfits.

The bigger businesses and merchants are already acquired by the existing players, so far new banks, braking into this business and convincing a merchant is increasing because the banks are shifting towards lower end merchants. Secondly, because of competition in acquiring business, new categories of merchants are coming up. The foreign banks have a dominant share due to various reasons like having been in the field for decades, sound operational and financial strength, strong brand recognition etc. They were catering to the upper segments and charged high annual fees. Later, with aggressive entry of SBI, ICICI Bank and HDFC Bank, the rules of the game changed. The cards were positioned in manners which gave an impression that the cards can be acquired by people from not only the upper class, but also the middle income categories. This was the strategy followed by SBI-GE as a result of which it is the third largest issuer of credit cards today. It positioned itself in a segment as to be of mass appeal and at the same time reinforced a clean and dependable image of the bank.

The new private banks like ICICI and HDFC are also aggressively increasing their share. They adopted a strategy of reaching lower down the income strata by lowering down their eligibility norms. Of course, the credit limits are set at lower levels as compared to the foreign banks. As a result of this strategy, the credit cards base is widening day by day with the increase of base in B-grade cities.

3 Types of Credit Cards or Types of Cards:

1. Charge Card 2. Debit Card 3. Deferred Debit card 4. Affinity card 5. Standard card 6. Classic card 7. Gold card 8. Platinum card 9. Best Platinum credit card 10. Fleet Platinum credit card 11. Next card Platinum credit card 12. Titanium card 13. Secured card 14. Smart card

1. Charge card in this card, the cardholder has to make full payment of the charge by the due date. Unlike other credit cards, here dues are not allowed to carry forward. It is meant for people who spend responsibly.

2. Debit Card: A debit card is different from credit card. Debit card is issued by a bank. The following are the differences between credit and debit cards:

3. Deferred debit card: When a debit card carries the benefit of the credit card, allowing the payment after certain period, it is called deferred debit card.

Credit Card Debit Card

1 It is issued by an agency such as Master or Visa

1. A debit card is issued by a bank in which the customer has an account.

2. A credit card allows certain period for making payment for the purchases made which may vary from 30 to 45 days.

2. The bank account in a debit card is debited immediately the moment the card is used. They have no credit period.

3. The credit worthiness of the customer is based on income eligibility criteria on the basis of which the credit card is issued.

3. There are no such income criteria but the credit balance, maintained in the account is the criterion. 4. A credit card holder has a ceiling limit for his purchases and also for his cash withdrawals through ATM.

5. A debit card holder has his purchases restricted to his credit Balance.

6. Credit card can be used for withdrawing money only from ATMs.

7. A debit card can be used even for withdrawing money from the bank and hence it is account holders mobile

8. When the purchase are made by using The Credit Card, the retail seller swipes the card over an electronic terminal at his outlet, and enters the personal identification number (PIN) and the transactions are recorded by the card issuing authority.

9. Any use of debit card by a similar method will be immediately recorded by the bank and the account of the customer is debited. Thus, it is an online transaction.

10. Loss of credit card should be reported to the issuing agency.

11. Loss of debit card should be reported to The issuing bank.

4. Affinity card A card offered by two organizations of which one is a lending institution and the other a non-financial group. Here, schools, non-profit groups, airlines, petroleum companies issue affinity cards. These cards carry special discounts.

5. Standard Card It is a normal credit card which carries limit on transactions, according to the credit worthiness of the card holder.

6. Classic card A credit card issues by Visa, carrying the logo of Visa.

7. Gold card A higher line of credit is given than a standard card. The income eligibility for getting this card is higher. Gold card is given to very rich customers or persons with high social status.

8. Platinum card In order to distinguish credit cards belonging to certain companies, platinum credit cards are issued. Some companies use these to denote their best premium credit card.

9. Best Platinum credit card Companies which set highest standard in customer service issue these cards. There is lowest interest rate for the outstanding, and the cards will have no annual fee or application fee and can be applied online in seconds.

10. Fleet Platinum credit card

It is a zero liability guarantee for purchases. It protects the credit card holder from any unauthorized use.

11. Next card platinum credit card This is given to those with a good credit and it offers a low introductory rate.

12. Titanium card: A card which has a higher credit limit than a platinum card.

13. Secured card: A credit card is given to a card holder who has Savings deposit which will take care of his outstanding balance, in case of his default on payment.

14. Smart card: The revolution in Information Technology is responsible for the invention of Smart card. The development in semiconductors has advanced so much that computing power that was available in a computer matching a room size in the early days, is now available on a visiting card-sized plastic. Kit is an embedded micro-chip card and it can store 1280 times more data than the magnetic strip card. The can store data for more than 10 years and can be read or written for more than 1 lakh times. For example: Visa is converting 22 million Brazilian debt and credit cards to Smart cards. Sim card in the mobile phone is an example for the use of Smart cards in the telecom sector. There are 3 types of Smart cards. 1. Storage/memory cards 2. Intelligent cards and Storage 3. Hybrid cards. • Storage card has an inherent monetary value associated with it.‗ • Intelligent card acts as a store-house of information. • Hybrid card contains a micro processor chip and a magnetic strip and bar coding.

Benefits of Credit Cards Benefits derived from credit card

The following persons derives benefits from the credit card system: (1) Customer (2) Seller (3) Wholesaler (4) Manufacturer (5) Commercial banks (6) Central bank (7) Government

i. A customer can make purchases at any time

ii. One need not carry cash for making purchases

iii. In case of losing credit card, one can immediately inform the bank and prevent misuse by others iv. One can take benefit of lower prices by purchasing goods before the hike in prices.

v. During inflation period, credit card benefits customers as the payments are made after one month from the date of purchase.

vi. Railway ticket or Air ticket reservation can be done by using credit card even during night when banking facility is not available.

vii. Credit card can be used even through computers and purchases can be made by sitting at home. viii. More customers will come forward to avail banking facility

ix. At any point of time, the customer will be able to know the available credit even after purchases.

x. Credit card can be used even for withdrawing cash through ATM (Automatic Teller Machine) up to a certain limit.

xi. The holders of credit card are given insurance cover by the banks.

The benefits to seller are as follows:

i. Sales are affected throughout the year.

ii. With increasing sales, the turnover of the seller increases.

iii. The seller can go for competitive price as he can get credit from the bank.

iv. Due to credit card facility, he can attract customers from far off places also.

v. Durable goods can be sold easily through credit card.

vi. Bad debts can be avoided as the bank arranges for payment under credit card.

vii. Sellers extending sales through credit card can also extend additional credit to customers as they can receive payment in installment through the credit card.

i. The wholesaler will be getting more orders from the retailer as the sales will go up due to credit card.

ii. The wholesaler will be dealing products of different manufacturers due to credit extended by them iii. The wholesaler will also be given credit by the banks.

iv. The wholesaler will be able to place orders throughout the year and hence can get trade credit

as well as cash credit from the manufacturers.

i. With orders continuously received from the wholesalers, the manufacturer can increase his production.

ii. Due to large scale production, the cost of production will come down and the manufacturer will be able to sell at a lower price.

iii. Since the orders are received throughout the year, there will be continuous production even for goods which are seasonal in nature. Example: Manufacture of umbrellas.

iv. The manufacturer will also diversify his production due to the goodwill he has enjoyed due to increased production.

v. The profit of the manufacturer will also increase and he will extend a higher commission to his wholesalers.

(5) Commercial banks Due to credit card facility

i. More customers will avail the banking facility.

ii. There will not be cash withdrawals from the bank as most of the customers use credit card for their purchase.

iii. The bank, by extending credit to customer, retailer, wholesaler and manufacturer is able to earn interest on the credit.

iv. The credit facility is extended only in the books of accounts and there will be no cash withdrawals. The account of the customer is debited for the purchases while the account of the seller is credited. Both the parties are given credit and the bank enjoys interest on the loan.

v. All the transactions in the country are done through the banking system, as a result of which, the role of money lenders and other financiers is reduced.

vi. The profit of the bank will also increase due to the extension of credit to different parties.

(6) Central bank: It is a national bank that provides financial and banking service for its country government and commercial banking system and issues currency. Central bank for India is Reserve Bank of India.

i. A better control on the banking system is evolved by the Central bank.

ii. During inflation, the Central bank can control the price level by instructing the head office of commercial banks to reduce the quantum of credit extended to customers under credit card. This will reduce the demand and thereby prices will come down.

iii. Central bank is able to take instantaneous action on the economy as credit card provides information regarding purchases and sale in the country.

iv. The activity of Non Banking Financial Companies will also be reduced due to the credit card facility extended by commercial banks. So, the Central bank need not control NBFCS.

v. By extending credit card facility to agriculturists, agricultural finance is improved and this relieves the farmers from the clutches of money lenders.

(7) Government: Whenever any sale is made, it is properly billed. That means sales tax; commercial tax due to the government will not be evaded.

ii. It prevents the growth of unaccounted money as all transactions are recorded.

iii. It improves the revenue of the government due to increase in production by the manufacturers. Excise duty will be paid to the government.

iv. Government employees can also avail credit card facility against their salaries.