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DEBIT CARD&

CREDIT CARD

PRESENTED BY:-

Ravi Kumar Gupta

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INTRODUCTION

A few years ago it was easy to tell the differencebetween a credit card and a debit card.

You used your debit card at the ATM with a

personal identification number, and you usedyour credit card for purchases.

But today both types of cards carry familiar

credit company logos, both can be swiped at thecheckout counter and both can be used to makeonline purchases.

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DEBIT CARD

Debit card is a plastic card which provides aalternative payment method to cash whenmaking purchases.

Functionally, it can be called an electronic check,as the funds are withdrawn directly from eitherthe bank account, or from the remaining balanceon the card.

It is also known as BANK CARD or CHECKCARD.

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Debit cards can also allow for instant withdrawalof cash, acting as the ATM card for withdrawingcash and as a cheque guarantee card. Merchants

can also offer "cashback"/"cashout" facilities tocustomers, where a customer can withdraw cashalong with their purchase.

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i4 MAESTRO DEBIT CARD

First Debit Gold card

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Debit Card

It is used instead of a check to make purchases,anywhere Visa is accepted

It is used instead of a credit card to pay bills

such as utilities, insurance and car payments Point-of-sale funds are drawn from primary

checking account

PIN-system security Change your PIN at any Merchants Bank branch

No annual fee

Choose from three card designs

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TYPES OF DEBIT CARD

1. ONLINE DEBIT CARD

2. OFFLINE DEBIT CARD

3. PREPAID DEBIT CARD

4. ELECTRONIC PURSE CARD

5. CARDS FOR MAIL, TELEPHONE &INTERNET USE ONLY

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One difficulty in using online debit cards is thenecessity of an electronic authorization device at the

point of sale (POS) and sometimes also a separate PINpad to enter the PIN, although this is becomingcommon place for all card transactions in manycountries.

Banks in some countries, such as Canada and Brazil,only issue online debit cards.

In the United Kingdom, Solo and Visa Electron areexamples of online debit cards, which are typicallyissued by banks to customers whom the bank does not

want to go overdrawn under any circumstances, forexample under-18s.

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3. PREPAID DEBIT CARD

Prepaid debit cards, also called reloadable debit cards orreloadable prepaid cards, are often used for recurringpayments.

The payer loads funds to the cardholder's card account. Particularly for US-based companies with a large

number of payment recipients abroad, prepaid debitcards allow the delivery of international payments

without the delays and fees associated withinternational checks and bank transfers.

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4. ELECTRONIC PURSE CARD

Smart-card-based electronic purse systems (inwhich value is stored on the card chip, not in anexternally recorded account, so that machines

accepting the card need no networkconnectivity) were tried throughout Europefrom the mid-1990s, most notably in Germany.

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5. CARDS FOR MAIL,

TELEPHONE AND

INTERNET USE ONLY Special pre-paid Visa cards for Mail Order/Telephone

Order (MOTO) and Internet use only are madeavailable by a small number of banks. They are

sometimes called "virtual Visa cards", although theyusually do exist in the form of plastic. An example is3V.

Such a card prevents fraud by a card number thief even

if the card is not blocked, because the customernormally does not store any money on the sub-accountand fraudulent transactions do not get authorized bythe bank

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ADVANTAGES

ANDDISADVANTAGES

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ADVANTAGES1. A consumer who is not credit worthy and may

find it difficult or impossible to obtain a creditcard can more easily obtain a debit card.

2. Use of a debit card is limited to the existingfunds in the account to which it is linked.

3. For most transactions, a check card can beused to avoid check writing altogether.

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CONTD.

4. Like credit cards, debit cards are accepted bymerchants with less identification.

5. Unlike a credit card, which charges higher feesand interest rates when a cash advance isobtained, a debit card may be used to obtain

cash from an ATM or a PIN-based transactionat no extra charge, other than a foreign ATMfee.

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DISADVANTAGES

Some banks are now charging over-limit fees ornon-sufficient funds fees based upon pre-authorizations.

Many merchants mistakenly believe thatamounts owed can be "taken" from a customer'saccount after a debit card (or number) has beenpresented.

In some countries debit cards offer lower levelsof security protection than credit cards.

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The Three Party Model

Cardho lder Merchan t

Processor

Issuer / Acquirer

Card Payment Faci l i ty

Purchase goods / services

using card payment

inst rument

Carri age Fee

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The Four Party Model

(Debit Card)Cardho lder Merchant

Issuer Acquirer

Transac

tion

Fees

Conven

ience

&

paymen

t

ins

trumen

t

Card Payment Faci l i ty

Purchase goods / services

using card payment

inst rument

Settlem

en

t&

Paym

en

t

Servic

es

Merch

an

t

Servic

eCh

arg

e

Sett lement & Risk

Bearing

Interchang e Fee

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This highly competitive market has

resulted in impressive card growth

Source: FRB Data

Volume Growth of Payment Streams 2002-2006 (CAGR)

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Debit

CardsCheques

Cash

High take

up of cards

Credit

Cards

Cash is thelargest volume

129%

-11%

+11%

+20%

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CREDIT

CARD

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CREDIT CARD

A credit card is part of a system of paymentsnamed after the small plastic card issued to usersof the system.

It is a card entitling its holder to buy goods andservices based on the holder's promise to pay forthese goods and services.

The issuer of the card grants a line of credit tothe consumer (or the user) from which the usercan borrow money for payment to a merchantor as a cash advance to the user.

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WORKING PROCESS

When a purchase is made, the credit card user agrees topay the card issuer.

The cardholder indicates his/her consent to pay by

signing a receipt with a record of the card details andindicating the amount to be paid or by entering aPersonal identification number (PIN).

Also, many merchants now accept verbal authorizationsvia telephone and electronic authorization using theInternet, known as a 'Card/Cardholder Not Present'(CNP) transaction.

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CONTD..

Electronic verification systems allow merchantsto verify that the card is valid.

The verification is performed using a credit cardpayment terminal or Point of Sale (POS) systemwith a communications link to the merchant'sacquiring bank.

Card is obtained from a magnetic stripe or chip

on the card, but is more technically an EMVcard (Europay, MasterCard and VISA). i.e.VSDC VISA, Mchip mastercard, AEIPS American Express, J Smart - JCB

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INTEREST CHARGES

Credit card issuers usually waive interest chargesif the balance is paid in full each month, buttypically will charge full interest on the entireoutstanding balance from the date of eachpurchase if the total balance is not paid.

EX:- If a user had a $1,000 transaction andrepaid it in full within this grace period, there

would be no interest charged. FORMULAE - APR/100 * ADB/365 * number

of days revolved. (Annual %age rate, avg daily

bal)

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BENEFITS TO CUSTOMER

Due to intense competition in credit cardindustry, credit card providers offer incentivessuch as

FREQUENT FLYER POINTS GIFT CERTIFICATES

CASH BACK(1% based on total purchase)

LOW INTEREST CREDIT CARDS

EVEN 0% INTEREST CREDIT CARDS AREAVAILABLE

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GRACE PERIOD

A credit card's grace period is the time thecustomer has to pay the balance before interestis charged to the balance.

Grace periods vary, but usually range from 20 to40 days depending on the type of credit card andthe issuing bank.

If a customer is late paying the balance, financecharges will be calculated and the grace perioddoes not apply.

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BENEFITS TO MERCHANTS

A credit card transaction is often more securethan other forms of payment, such as checks,because the issuing bank commits to pay themerchant the moment the transaction is

authorized, regardless of whether the consumerdefaults on the credit card payment. More secure than cash, because they discourage

theft by the merchant's employees and reduce

the amount of cash on the premises. Prior to credit cards, each merchant had to

evaluate each customer's credit history beforeextending credit.

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PARTIES INVOLVED

CARDHOLDER: Used to make a purchase.

CARD ISSUING BANK: The financial

institution or other organization that issues thecard to the cardholder.

MERCHANT: The individual or businessaccepting credit card payments for products orservices sold to the cardholder.

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CONTDACQUIRING BANK: The financial institution

accepting payment for the products or serviceson behalf of the merchant.

INDEPENDENT SALES ORGANISATION:Resellers (to merchants) of the services of theacquiring bank.

MERCHANT ACCOUNT: Organization thatthe merchant deals with.

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CONTD

CREDIT CARD ASSOCIATION: An association ofcard-issuing banks such as Visa, MasterCard, Discover,American Express, etc.

TRANSACTION NETWORK: The system thatimplements the mechanics of the electronictransactions.

AFFINITY PARTNER: Some institutions lend their

names to an issuer to attract customers that have astrong relationship with that institution, and get paid afee or a percentage of the balance for each card issuedusing their name.

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TRANSACTION STEPS

AUTHORIZATION Approval code which themerchant stores with the transaction.

BATCHING Transactions stored in batcheswhichare send to the acquirer.

CLEARING AND SETTLEMENT debits theissuers for payment and credits the acquirer.

FUNDING - Merchant receives the amount totaling

the funds in the batch minus the "discount rate. CHARGEBACKS - Chargeback is an event in which

money in a merchant account is held due to a disputerelating to the transaction.

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TYPES OF CREDIT CARDS

CREDIT CARDS FOR BAD CREDITS1. SECURED CREDIT CARDS

A secured credit card is a type of credit card

secured by a deposit account owned by thecardholder.

Typically, the cardholder must deposit between100% and 200% of the total amount of credit

desired.Thus if the cardholder puts down $1000, theywill be given credit in the range of $500$1000.

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2. PREPAID CREDIT CARDS

Aprepaid credit cardis not a credit card, sinceno credit is offered by the card issuer: the card-holder spends money which has been "stored"

via a prior deposit by the card-holder orsomeone else, such as a parent or employer.

Prepaid cards can be issued to minors (above13) since there is no credit line involved.

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STANDARD CREDIT CARDS

1. BALANCE TRANSFER CREDIT CARDS

Balance transfer credit cards allow consumersto transfer a high interest credit card balance

onto a credit card with a low interest rate.Typical in the market today are balancetransfer credit cards with an introductoryannual percentage rate (APR) of 0 percent,with that introductory or "teaser" rate lastingseveral months up to a year.

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2. LOW INTEREST CREDIT

CARDS

Low interest credit cards offer either a lowintroductory APR that jumps to a higher rateafter a certain period, or a single low fixed-rateAPR. Low interest cards can be very usefulwhen consumers need make a large purchasebecause it allows several months to a year to pay

it off with very low or no interest.

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SECURITY Credit card security relies on the physical security

of the plastic card as well as the privacy of thecredit card number.

Whenever a person other than the card owner

has access to the card or its number, security ispotentially compromised. i.e. security PIN isrequired

Some merchants will accept a credit card number

for in-store purchases, where upon access to thenumber allows easy fraud, but many require thecard itself to be present, and require a signature.

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CONTD.

Thus, a stolen card can be cancelled, and if thisis done quickly, will greatly limit the fraud thatcan take place in this way.

The PCI DSS is the security standard issued byThe PCI SSC (Payment Card Industry Security

Standards Council).

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CREDIT CARD COSTS

Annual Fees

Interest Annual Percentage Rate

(APR)

Average Daily BalanceMethod

Cash Advances

Convenience Checks

Penalty Rates

Low Interest TeaserRates

Balance Transfers

Late Fees Over Credit Limit Fees

Bounced Check Fees

Currency ConversionFees

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Credit Card Dos

Use a debit card vs a credit card

Use a card with no annual fee and low interest rates

Know all of your cards hidden fees

Always pay more than the minimum each month

Pay on time, all the time

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Credit Card Donts

Dontget more than one

Dontuse them for cash advances

Dontuse them to pay for basics: rent, groceries, etc.

Dontcharge more than you can pay off in a month

Dontlet banks increase you credit limit

Th F P t M d l

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The Four Party Model

(Credit Card)

Cardho lder Merchant

Issuer Acquirer

Car

dFees

Conven

ience

&

Cre

dit

Card Payment Faci l i ty

Purchase goods / services

using card payment

inst rument

Settlem

en

t&

Paym

en

t

Servic

es

Merch

an

t

Servic

eCh

arg

e

Sett lement & Credit Risk

Bearing

Interchang e Fee

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CONTD..

Debit cards are also gaining favor as a form ofonline payment. Based on data from JupiterResearch in American Banker, debit cards will

account for 46 percent of all online purchases by2010, compared to 41 percent in 2006. The samedata forecasts a slide in credit card use to 35

percent of all online purchases in 2010 from 41percent in 2006

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