What is Plastic Money ?
Plastic money is a term that is
used predominantly in
reference to the hard plastic
cards we use everyday in
place of actual bank notes.
They can come in many
different forms such as
Pre-paid Cash Cards
Cash Card or ATM Card
A card that will allow you to withdraw money directly from your
bank via an Automated Teller Machine (ATM) but it will not allow
the holder to purchase anything directly with it.
Unlike a debit card, in-store purchases or refunds with an ATM card
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.
In some countries, the two functions of ATM cards and debit 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.
What are Credit Cards ?
Again this card will permit the card holder to withdraw cash from
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
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.
Cardholder: The holder of the card used to make a purchase;
Card-issuing bank: The financial institution or other
organization that issued the credit card to the cardholder.
Acquiring bank: The financial institution accepting payment
for the products or services on behalf of the merchant.
Merchant account: This could refer to the acquiring bank or
the independent sales organization, but in general is the
organization that the merchant deals with.
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
protections offered as credit card perks
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
Transaction steps contd…
3. Clearing and Settlement: The acquirer sends the batch transactions
through the credit card association, which debits the issuers for payment and
credits the acquirer. Essentially, the issuer pays the acquirer for the
4. Funding: Once the acquirer has been paid, the acquirer pays the merchant.
The merchant receives the amount totaling the funds in the batch minus either
the "discount rate," "mid-qualified rate", or "non-qualified rate" which are tiers
of fees the merchant pays the acquirer for processing the transactions.
5. Chargebacks: A chargeback is an event in which money in a merchant
account is held due to a dispute relating to the transaction. Chargebacks are
typically initiated by the cardholder. In the event of a chargeback, the issuer
returns the transaction to the acquirer for resolution. The acquirer then
forwards the chargeback to the merchant, who must either accept the
chargeback or contest it.
Credit card issuers (banks) have several types of costs:
Charge offs or Bad Debts
Offsetting the costs are the following revenues:
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
Exchange rate loading fees.
Merits and Demerits to Customer
Allows a short term credit to customer
Provide more fraud protection than debit cards.
Many credit cards offer rewards and benefits packages
High interest and bankruptcy
Inflated pricing for all consumers
Weakens self regulation
What is Debit Card ?
This type of card will directly debit money from your bank account,
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.
A debit card (also known as a bank card or check card) is a plastic
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
Types of debit card systems
Online Debit System :Online debit cards require electronic
authorization of every transaction and the debits are reflected in
the user’s 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 2–3 days to be reflected on users’
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)
Customer having poor credit worthiness can opt for debit
Instant finalization of accounts
Less identification and scrutiny than personal
checks, thereby making transactions quicker and less
A debit card may be used to obtain cash from an ATM or a
PIN-based transaction at no extra charge
Limited to the existing funds in the account to which it is
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
Credit Card Vs Debit Card
Credit Card Debit Card
Transactions are of Credit Transactions are of Debit
Risk of overspending No or less risk of over
Interest is charged to the
Only Fees are charged on
holder of card in case of yearly basis for card usage
Eliminates need to carry hard
Source of additional funds cash
What are In-store cards ?
These are used by the departmental stores mainly as
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.
Can be used only in retailers outlet or for purchasing the
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.
Types on In-store card
Budget Card: This card requires monthly payment on behalf
of the holders. The cost of goods purchased is spread over a
Option Card: Here, payment can be either be made in full or
at the cardholder’s 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.
Pre-paid Cash Cards
As the name suggests the user will add credit to the card
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
Pre-paid Cash Cards Examples:
DMRC Smart Cards.
Pantaloons Green card.
Cards used in Food courts of Malls.