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Electronic cards credit and debit
- 1. Banking Technology Electronic Cards: Debit and Credit
- 2. Banking Technology September2005 In Brief Credit Cards History Types of Credit Cards Authorisation Process Settlement Process The Economics Debit Cards
- 3. Banking Technology September2005 Credit Cards Credit cards are a type of consumer loan, revolving in nature while automatically renewing itself, within specific limits. The embody 2 aspects: • The Transmission of Payments • The Granting of Credit Key Features • Have spending limits set by card issuer • interest rate levied on unpaid balances is typically many times the base-lending rate
- 4. Banking Technology September2005 Electronic Payments…Growth
- 5. Banking Technology September2005 Credit Cards - History • Credit was first used in Assyria, Babylon and Egypt 3000 years ago • In the 1920s, a shopper’s plate - a ‘buy now, pay later’ system - was introduced in the USA • Charge cards date back to 1914 when Western Union provided metal cards giving free, deferred-payment privileges to preferred customers. These cards came to be called "metal money." • In 1924, General Petroleum Corporation issued the first metal money for gasoline and automotive services first to employees and select customers and later to the general public. • John C. Biggins, a consumer credit card specialist at the Flatbush National Bank of Brooklyn, New York, who in 1946 launched a credit plan called “Charge-it • In 1950, Diners Club and American Express launched their charge cards in the USA, the first “plastic money”
- 6. Banking Technology September2005 Credit Card Types • Bank cards: Bank cards are issued by banks (for example, Visa, MasterCard and Discover Card) • Travel and Entertainment (T&E) cards: T&E cards such as American Express and Diners Club • House cards: House cards are cards that are issued by a chain of stores • Affinity Cards: This card, typically a MasterCard or Visa – carries the logo of an organization in addition to the lender’s emblem. Usually, these cardholders derive some benefit from using the card such as frequent-flyer miles or points toward merchandise
- 7. Banking Technology September2005 Credit Cards On the back side there is magnetic stripe with 3 tracks, but generally only 2 “read” tracks are used…the “read/write” track is not used typically
- 8. Banking Technology September2005 Credit Card Authentication • Electronic Data Capture is the commonly used method…The EDC SW at POS sends the information to acquirer, which checks for: • Merchant ID • Valid card number • Expiration date • Credit-card limit • Card usage
- 9. Banking Technology September2005 Credit Card Processor Card Association System (Visa’s VisaNet or MasterCard’s BankNet) Merchant Card Issuing Bank Authorization Process - Credit Cards Network
- 10. Banking Technology September2005 3rd Party Internet Processor Card Authorization Network Merchant Website Card Issuing Bank Authorization Process - Credit Cards - Internet Network
- 11. Banking Technology September2005 Administration Risk Management Operations Customer Services Credit Processing Card Issue Recovery Income Interchange Security Marketing Cardholder Billing Payment Processing Authorization Issuing Bank Functions
- 12. Banking Technology September2005 Application approval Create account on master file Customer data transferred to magnetic media Create tape for card production Card Production Card mailed to cardholder Card Production
- 13. Banking Technology September2005 Card Holders Purchase Transaction Merchant Establishme nt Issuer Bank 5. Notice to the cardholder 6. Customer Payment 3. Bill submission 4. Payment to the merchant 1. Buying goods 2. Produce card Credit Card Settlement Cycle
- 14. Banking Technology September2005 Economics • For the Issuer – Interest income – Interchange income – Annual membership fee – Other fees – balance transfer, cash advance fee • For the Acquirer – Merchant discount – Merchant annual fees, rental of POS, etc – Earnings on deposits from merchants • The Costs – Outgoing interchange – Processing costs – Frauds – Defaults
- 15. Banking Technology September2005 Credit Cards Have lion’s share – more than 80% of e-commerce payments globally. Yet, there are certain issues • Security • Consumer perceptions/behaviour – comfort level, interest charges, limits • Privacy • Legal/regulatory Fraud – A major cause of concern. Global bank fraud losses amounted to US$3.8 billion per US$100 billion volume (Nilson Report) • Identify Theft • Card-Not-Present • Triangulation • Counterfeit, lost/stolen cards • Mail Intercept • Skimming
- 16. Banking Technology September2005 Credit Card Processor Debit Card Networks Merchant Cardholder’s Bank Debit Card Networks Debit Card Networks Cardholder’s Bank Cardholder’s Banks Cardholder’s Account Cardholder’s Account Cardholder’s Account Authorization Process - Debit Cards
- 17. Banking Technology September2005 Debit Cards – Plus & Minus • The Pluses – Makes for a quicker and more convenient payment – Eliminates the need to carry a Checkbook and a lot of cash. – Can be used out of town or at locations where personal checks are not accepted. – Reduces the possibility of loss or theft of cash. – You know what you are spending • The Minuses – Cannot be used in all situations – Need to be sure of the account balances
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