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CREDIT CARDS &
BY:
RAYHANA. K
DEBIT
CARDS
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Introduction
The development of credit card is one of the recent phenomenon inthe banking sector.
A credit card is a charge card.
It is a direct charge against the limit sanctioned.It is step forward towards cashless and chequeless society
The operation is through electronic funds transfer (EFT)
installations and interbank network
Credit cards are the key to the opening of bank accounts for daily
payments by the card holders
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Many Indian and foreign banks have issued credit cards to their
customers
The issuing bank ties up with a number of establishments including
hotels, hospitals, shops, petrol-pumps and departmental stores which
honor the credit cards.
The issuing bank provides the facility of credit cards to selected
number of customers depending upon their monthly income,
creditworthiness or to company executives, businessmen and high and
middle income individuals etc.
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What is credit card?
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.
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Eligibility for getting the card
He should have an account with the bank
His assets and liabilities on a particular date are reported to
bank
A statement of annual or monthly income
He is considered creditworthy up to certain limit depending upon
his income, assets and expenditure.
The eligible customer is asked to fill in an application form giving
the details of account number, name, address, income, wealth
status and a proof of his income/wealth etc.
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Types of credit cards
Based on the mode of credit recovery
1. Revolving credit card
This type of credit card follows the revolving credit principle. A limit
is set on the limit of money one can spend on the card for a
particular period. The cardholder has to pay a minimum percentage of
the outstanding credit.
2. Charge card
A charge card is not a credit instrument. It is a convenient mode of
making payment. This facility gives a consolidated bill for a specific
period and bills are payable in full on presentation. There is no
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Based on Status of Credit Card
1. Standard card
Credit cards that are regularly issued by all card-issuing banks are calledstandard cards. With these cards, it is possible for a cardholder to make
purchases without having to pay cash immediately. It however offers only
limited privileges to cardholders.
2. Business cardBusiness card, also called “Executive” cards, are issued to small partnership
firms, solicitors, firms of chartered accountants, tax consultants and
others, for use by executives on their business trips. The card enjoys
higher credit limits and more privileges than the standard cards. Thesecards are issued in the name of the executives of the firm.
3. Gold card
It offers many additional benefits and facilities such as higher credit
limits, more cash advance limits etc. that are not available with standard or
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Based on Geographical Validity
Domestic card
Cards that are valid only in India and Nepal are called ‘domestic cards’. All
transactions will be in Rupees. These cards are issued by most of the banks
in India.
International card.
Credit cards that have international validity are international cards. They
are issued to people who travel abroad frequently. These cards are
accepted in every part of the world except in India and Nepal.
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Based on Franchise/Tie-up
Proprietary card
Cards that are issued by banks themselves, without any tie-up, are called
proprietary cards. A bank issues such cards under its own brand. Examples are SBI
Card, CanCard of Canara Bank etc.
Master Card
This is a type of credit card issued under the umbrella of ‘MasterCard
International’. The issuing bank has to obtain a franchise from the MasterCard
Corporation of USA.
VISA Card
This is a type of credit card, which can be issued by any bank having tie-up with
VISA International Corporation, USA.
Domestic tie-up card
These are cards issued by a bank having a tie-up with domestic credit card brands
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Based on the issuer category
Individual cards
These are non-corporate credit cards that are issued to individuals.
Corporate cards
These are credit cards issued to corporate and business firms.
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Innovative Cards
ATM cards
It allows customers to access their accounts at any time-24 hours a day of
the year, through automated teller machines. Customers can withdraw cash,
transfer funds, find out their account balance and perform other banking
and financial transactions with the help of ATMs.
Prepaid cards
Also known as Stored Value Cards are cards with stored value paid in
advance, by the holder. Its use is often restricted to a number of
identified points of sale within a specified location.
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Private label cards
These cards are uniquely tied to the retailer issuing the card and can be
used only in that retailer’s store.
Smart cards
A smart card is a credit card sized plastic card with an embedded
computer chip. The chip allows the card to carry a much greater amount
of information than a magnetic strip card. There are two types of smart
cards, namely memory cards and microprocessor cards.
Memory cards are static. They store information and value and are not
programmable. Phone cards and other prepaid cards are examples.
Microprocessor cards have internal memory, have high storage capabilities
and the data stored in the chip is dynamic.
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Mechanics of Credit Card Operation
Credit Issuing Bank
Merchant’s Bank Merchant Establishme
Card user/ Customer
Contract for credit card(1)
Issue of Credit card(2)
Payment on Credit Card
Clearing
and
Settlem
ents(7)
Submission of bills for
collection (5)
Payment of bills (6)
C
hargingofCre
dit
Card
andrais
ingBill
(4)
Purchas
eofGood
sand
Services
(3)
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1. Issuing Bank Logo
2. EMV chip on “smart cards”
3. Hologram
4. Credit card number
5. Card brand logo
6. Expiration date
7. Card holder name
8. Contactless chip
An example of the front of a typical credit card
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An example of the reverse side of a
typical credit card
1. Magnetic stripe
2. Signature strip
3. Card security code
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Benefits of Credit Cards
Benefits to Card holdersShopping convenience
Credit facility
Safety
Meticulous record
Acceptability
Benefits to Merchants
Enhanced sales
Easy validationNo risk
Benefits to issuer banks
Source of income
Market expansion
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Drawbacks of Credit Cards
Waste of money
Thoughtless buying
Financial problemMental agony
Costly
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What is Debit Card?It is a plastic card similar to the credit
card where the expenditure amount is
automatically debited to the
corresponding bank account. This amount
will appear , in due course, on the monthly
statement of the account. It is a variant
of an ATM card, which helps the
customers to make paymentsinstantaneously for goods and services
purchased.
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ebit Card issuing Bank Customer
Merchant Establishment
Electronic Data Interchange (EDI)
Contract for Debit Card (1)
Issue of Debit Card (2)
I n s t a n t S e t t l e m
e n t
I n s t a
n t p a y m
e n t
o n D e
b i t
C a r d
( 4 )
P u r c h
a s e
o f G
o o d s
a n d
S e r
v i c e s ( 3 )
Mechanics of Debit Card Operation-Purchase Transaction
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Dangers of Debit Cards
Most debit card holders prefer using the debit cards only for standard ATMwithdrawals. There is always a lurking fear in the minds of customers that
their bank balance may be knocked off by card thieves. This is the reason for
the limited use of such cards at restaurants, department stores and other
retail outlets which accept debit cards.
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Difference between Debit Cards and Credit
Cards
Debit Card Credit CardDrawings are against own assets or
money lying in the savings bank
account
It allows a borrowing power on the
bank for which the customer or
holder has to pay some charges or
fees
No risk of over spending as the
customer can spend what he has
The customer tends to over spend
because he can spend money which
he does not have at that moment
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Debit Card Credit CardDoes not involve any interest
payment or cost to the holder
Holder of credit card has to pay
interest on the overdrawn amount
The holder need not carry any costor even traveller’s cheque. It is as
good as money in the accounts with
his bank
It provides additional finance tothe holder by allowing him to
overdraw if necessary. Payments are
made by the bank to the extent of
purchases and if they exceed this
limit, he pays interest on the excess
amount
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