EB/U3 Topic 2 Credit & Debit Cards, Charge Cards, Smart Cards, RuPay Cards, E-Wallets
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay them for the amounts so paid plus the other agreed charges. The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance. In other words, credit cards combine payment services with extensions of credit. Complex fee structures in the credit card industry may limit customers’ ability to comparison shop, help ensure that the industry is not price-competitive and help maximize industry profits. Because of this, legislatures have regulated credit card fees.
A credit card is different from a charge card, where it requires the balance to be repaid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.
How credit cards work?
When you apply for a credit card, you apply to borrow money from the card issuer, usually a bank or building society. The issuer then looks at your credit history to consider your application – and if you have a low credit score you could be refused credit, or perhaps given a less attractive deal on interest rate.
If you have a good credit rating, then you will be accepted and the bank will set a credit limit, which is the maximum amount you can spend on the card. The card company will send you a statement every month, detailing any transactions on your card, plus the amount owing. It also provides details on the minimum payment you need to make (this depends on how much you have your balance) and the payment due date.
What is a ‘Debit Card’?
A debit card is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In addition, debit cards, also called check cards, offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard.
Unlike credit cards, they do not allow the user to go into debt, except perhaps for small negative balances that might be incurred if the account holder has signed up for overdraft coverage. However, debit cards usually have daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit card.
How a Debit Card Works?
When you use your debit card, the merchant will place a hold on your account for the amount of money of your transaction. Your bank may show you the pending transactions on your account. These are the holds put in by the merchants. The merchants then complete the transaction by submitting their transactions and then the money is taken from your account and shows up in your cleared transactions. Some merchants may take longer to file the transactions, and you may have a transaction listed as pending for a few days.
If you use your debit card at a hotel or for a car rental, the company may put a larger hold on the account to cover extra costs that you may accrue.
It is important to be aware of this so that you do not run into a situation in which your card may be declined because of the hold. Be sure to have additional money in your account if you use it for a hotel or a car rental.
A charge card is a card that provides a payment method enabling the cardholder to make purchases which are paid for by the card issuer, to whom the cardholder becomes indebted. The cardholder is obligated to repay the debt to the card issuer in full by the due date, usually on a monthly basis, or be subject to late fees and restrictions on further card use. It can also be a smart card.
Though the terms charge card and credit card are sometimes used interchangeably, they are distinct protocols of financial transactions. Credit cards are revolving credit instruments that do not need to be paid in full every month. There is no late fee payable so long as the minimum payment is made at specified intervals (usually every thirty days). The balance of the account accrues interest, which may be backdated to the date of initial purchase. Charge cards are typically issued without spending limits, but credit cards usually have a specified credit limit that the cardholder may not exceed.
The user of the charge card has to pay the balance of their account at the end of each month and the charge card company, unlike a credit card, does not charge interest. A charge card company’s main source of revenue is the merchant fee, which is a percentage of the transaction value which typically ranges between 1 and 4%, plus an interchange or minimum fee.
A smart card is a device with the dimensions of a credit card that uses a small microchip to store and process data. In many cases, smart cards have replaced old magnetic cards because they can handle more information and provide more functionality. Smart cards are now in use in many industries, including retail, transit systems and security services.
Smart cards can be contact, contactless, or both. They can provide personal identification, authentication, data storage, and application processing.
Smart cards may provide strong security authentication for single sign-on (SSO) within organizations.
The most common smart card applications are:
- Credit cards
- Electronic cash
- Computer security systems
- Wireless communication
- Loyalty systems (like frequent flyer points)
- Satellite TV
- Government identification
What is it?
RuPay is a combination of two words – Rupee and Payment. RuPay Card is an Indian version of credit/debit card. It is very similar to international cards such as Visa/Master.
Who initiated it?
National Payments Corporation of India (NPCI) initiated the launch of RuPay card in India. It was done with the intention of integration of payment systems in the country. It has also tied up with Discover Financial Services firm for promoting this.
How will it work?
RuPay debit cards are similar any other debit cards that you might hold now. You can access them in the 1.45 lakh ATMs and 8.75 lakh POS terminals across the country. It will also be accepted on 10,000 e-commerce websites. All major public sector banks, including SBI, have started issuing these cards to all their customers. The card also comes with a high end technology chip named EMV (Europay, Master Card and Visa) especially for high end transactions. It also has an embedded micro processor circuit with information about the card holder.
What are the Benefits of RuPay card?
Lower transaction cost – International transactions lead to higher transaction costs. Such costs can be reduced by using RuPay card since processing will be done within the country. Also, transactions will be faster.
Sms alerts – Users will get alerts for every transaction made through this card.
Reduced processing fees – Processing fees for RuPay card compared with regular debit/credit cards will be considerably lower.
Definition: E-wallet is a type of electronic card which is used for transactions made online through a computer or a smartphone. Its utility is same as a credit or debit card. An E-wallet needs to be linked with the individual’s bank account to make payments.
Descriptions: E-wallet is a type of pre-paid account in which a user can store his/her money for any future online transaction. An E-wallet is protected with a password. With the help of an E-wallet, one can make payments for groceries, online purchases, and flight tickets, among others.
E-wallet has mainly two components, software and information. The software component stores personal information and provides security and encryption of the data. The information component is a database of details provided by the user which includes their name, shipping address, payment method, amount to be paid, credit or debit card details, etc.
For setting up an E-wallet account, the user needs to install the software on his/her device, and enter the relevant information required. After shopping online, the E-wallet automatically fills in the user’s information on the payment form. To activate the E-wallet, the user needs to enter his password.
Once the online payment is made, the consumer is not required to fill the order form on any other website as the information gets stored in the database and is updated automatically.
How does it work?
E-wallet has mainly two components, software and information.
Software component stores personal information and provides security and encryption of the data whereas information component is a database of details provided by the user which includes their name, shipping address, payment method, amount to be paid, credit or debit card details, etc.