The credit card is a payment card issued to the user (cardholder) to allow cardholders to pay merchants for goods and services based on the cardholder's promise to the card issuer to pay them for the amount paid plus any other approved fees. Card issuers (usually banks) create scrolling accounts and give credit lines to cardholders, where cardholders can borrow money for payments to merchants or as a down payment. In other words, credit cards incorporate payment services with credit extensions. The complicated cost structure in the credit card industry can limit the ability of customers to compare stores, helping ensure that the industry is not competitive in price and helps maximize industry profits. Due to concerns about this, many legislatures have arranged credit card fees.
Credit cards are different from credit cards, where a balance is required to be paid in full each month. In contrast, credit cards allow consumers to continue their outstanding debt, which is subject to interest. Credit cards are also different from cash cards, which can be used like currency by card owner. Credit cards are different from credit cards also because credit cards typically involve third-party entities that pay sellers and are repaid by the buyer, whereas credit cards only cancel payments by the buyer until the later date.
Video Credit card
Technical specifications
The size of most credit cards is 85.60 mm ÃÆ'â € "53.98 mm ( 3 3 / 8 ÃÆ'â € " 2 / 8 Ã, inch) and rounded corners with radius of 2.88- 3.48 mm, in accordance with ISO/IEC 7810 ID-1 standard, same size as ATM card and other payment cards, such as debit card.
The credit card has a bank or embossed bank card number corresponding to the ISO/IEC 7812 numbering standard. The card
These two standards are maintained and further developed by ISO/IEC JTC 1/SC 17/WG 1. Credit cards have magnetic strips that conform to ISO/IEC 7813. Many modern credit cards have computer chips embedded in them as feature security.
In addition to the major credit card numbers, credit cards also carry issues and expiration dates (given to the nearest month), as well as additional code such as issue numbers and security codes. Not all credit cards have the same set of additional codes and also do not use the same number of digits.
Credit card numbers originally embossed for easy transfer of numbers to fill slips. As paper slips decrease, some credit cards are no longer embossed and in fact card numbers are no longer up front.
Maps Credit card
History
Edward Bellamy Looking Backward
The concept of using cards for purchases was described in 1887 by Edward Bellamy in his utopian novel Looking Backward . Bellamy uses the term credit card eleven times in this novel, though it refers to a card to spend citizens' dividends from the government, rather than borrowing.
Charge of coins, medals, etc.
Filling of coins and other similar items was used from the late 19th century to the 1930s. They come in different shapes and sizes; with materials made of celluloid (early type of plastic), copper, aluminum, steel, and other types of whitish metals. Each cost coin usually has a small hole, allowing it to be inserted into keychains, such as keys. These fee coins are usually given to customers who have billing accounts at department stores, hotels, and so forth. The cost coins usually have a bill account number along with the merchant name and logo.
Coin cost offers a simple and quick way to copy a bill account number to a sales slip, by inserting a coin into a sales slip. This speeds up the copying process, which was previously done in handwriting. It also reduces the number of errors, by having a standard number form on the sales slip, not the different types of handwriting styles.
Since customer names are not in coins, almost anyone can use them. This sometimes leads to a case of mistaken identity, either accidentally or intentionally, by acting on behalf of the billing account owner or out of malice to deceive both the owner of the billing account and the merchant. Beginning in the 1930s, traders began to move from cost coins to the newer Charga-Plate.
Initial charging card
Chans Plate
The Charga-Plate, developed in 1928, was an early predecessor of credit cards and was used in the US from the 1930s through the late 1950s. It is a rectangular 2 ½ "ÃÆ'â €" 1Ã,¼ "metal sheet associated with the Addressograph and dog dog tag system. It's embossed with the customer's name, city, and country. It holds a small paper card on its back for the signature. In recording a purchase, the plate is placed in a recess at the stamp, with a "cost slip" paper placed on it. Transaction recordings include the impression of the knitted information, which is made by the stamp that presses the inked ribbon against the cost slip. Charga-Plate is a trademark of Farrington Manufacturing Co. Charga-Plates are issued by large-scale traders to their regular customers, such as department store credit cards today. In some cases, the plates are stored in the publishing store rather than held by the customer. When an authorized user makes a purchase, the clerk takes the license plate from the store file and then processes the purchase. Charga-Plates accelerates back-office bookkeeping and reduces manual duplication errors in paper ledgers in every store.
Air Travel Card
In 1934, American Airlines and the Air Transport Association simplified the process even with the advent of Air Travel Cards. They create a numbering scheme that identifies the card issuer as well as the customer's account. This is the reason modern UATP cards still start with number 1. With Air Travel Cards, passengers can "buy now, and pay later" for tickets against their credit and receive a fifteen percent discount on one of the receiving airlines. In the 1940s, all major US airlines offered Air Travel Card that could be used on 17 different airlines. In 1941 about half of the airline revenue came through Air Travel Card agreements. The airlines also began offering installment plans to lure new travelers to the air. In October 1948, Air Travel Card became the first international bill card applicable to all members of the International Air Transport Association.
Initial public destination card: Diners Club, Carte Blanche and American Express
The concept of customers paying different merchants using the same card was expanded in 1950 by Ralph Schneider and Frank McNamara, founder of the Diners Club, to combine several cards. The Diners Club, made partly through a merger with Dine and Sign, generates the first "general purpose" charge card and requires that all bills be paid with each statement. Which was followed by Carte Blanche and in 1958 by American Express who created a worldwide credit card network (although this was originally a charge card which later gained credit card features).
BankAmericard and Master Charge
Until 1958, no one succeeded in setting up a revolving credit system in which cards issued by third party banks were generally accepted by a large number of merchants, as opposed to merchant-issued merchant cards received by only a few traders. There are a dozen attempts by small American banks, but nothing can last long. In September 1958, Bank of America launched the BankAmericard in Fresno, California, which will be the first ever recognizable modern credit card. This card succeeds where others fail by breaking the chicken-and-egg cycle where consumers do not want to use cards that will be accepted by some traders and merchants are unwilling to accept cards used by some consumers. Bank of America chose Fresno because 45% of its residents used banks, and by sending cards to 60,000 Fresno residents at once, the bank was able to convince traders to accept the card. It was eventually licensed to other banks throughout the United States and then around the world, and in 1976, all BankAmericard licensees united themselves under the general Visa brand. In 1966, MasterCard's ancestors were born when a group of banks founded Master Charge to compete with BankAmericard; it got a significant boost when Citibank merged its own Card All, launched in 1967, into Master Charge in 1969.
Initial credit cards in the US, where BankAmericard is the most outstanding example, are mass-produced and unsolicited mass mailing to bank customers who are considered a good credit risk. They have been sent to unemployables, drunks, narcotics addicts and to compulsive debtors, the process of Special Assistant President Johnson Betty Furness finds it very much like "giving sugar to diabetics". These mass mailings are known as "drops" in banking terminology, and were banned in 1970 because of the financial turmoil they caused. However, by the time the law comes into force, about 100 million credit cards have fallen to the US population. After 1970, only credit card applications can be sent unsolicited in mass mailings.
Before computerization of credit card systems in America, using credit cards to pay in merchants is significantly more complicated than it is now. Whenever a consumer wants to use a credit card, the merchant should call their bank, who in turn should call the credit card company, who then must have an employee manually searching for the customer's name and credit balance. The system was computerized in 1973 under the leadership of Dee Hock, the first Visa CEO, enabling reduced transaction time to substantially less than a minute. However, until the ever-connected payment terminals become ubiquitous at the beginning of the 21st century, it is common for merchants to accept bills, especially below threshold values ​​or from known and trusted customers, without verifying them by phone. Books with a list of stolen card numbers are distributed to the merchant who should be in any case to check the cards against the list before accepting them, as well as verify the signature on the fee slip against the card. Merchants who fail to take the time to follow proper verification procedures are responsible for fraud allegations, but due to the complex nature of the procedure, traders often miss some or all of them and run the risk for smaller transactions.
Development outside North America
The fragmented nature of the US banking system under the Glass-Steagall Act means that credit cards become an effective way for those traveling across the country to transfer their credits to places where they can not directly use their banking facilities. There are now many variations of the basic concept of revolving credit for individuals (such as those issued by banks and respected by financial institution networks), including branded credit card organizations, corporate-user credit cards, store cards and so on.
In 1966, Barclaycard in England launched its first credit card outside the United States.
Although credit cards achieved very high adoption rates in the US, Canada and the UK during the past 20th century, many cultures were more cash-oriented or developed alternative forms of cashless payments, such as carte bleue or Eurocard (Germany, France , Switzerland, and others). In these places, the adoption of credit cards was initially much slower. Due to the strict rules on bank overdrafts, some countries, particularly France, are much quicker to develop and adopt chip-based credit cards that are considered a large anti-fraud credit device. Online debit and banking cards (using ATMs or PCs) are used more widely than credit cards in some countries. It took until 1990 to achieve anything like the percentage of market penetration reached in the US, Canada, and the UK. In some countries, revenues are still low as the use of credit card systems depends on the respective country's banking system; while in other countries, countries sometimes have to develop their own credit card network, e.g. Barclaycard UK and Bankcard Australia. Japan remains a cash-oriented society, with the adoption of limited credit cards primarily for the largest merchants; although stored value cards (such as phone cards) are used as alternative currencies, the trend is towards RFID-based systems in cards, mobile phones, and other objects.
Vintage, old credit cards, and unique collectibles
Credit card design itself has become a major selling point in recent years. Card values ​​for publishers are often associated with the use of the card by the customer, or on the customer's financial value. This has led to the emergence of Co-Brand and Affinity cards, where card designs are associated with "affinity" (universities or professional societies, for example) leading to higher card usage. In many cases, the percentage of the value of the card is returned to the affinity group.
The growing numismatic field (the study of money), or more specifically the exonumia (the study of money-like objects), the credit card collector sought to collect the various embodiments of credit from the now known plastic card to an older paper merchant card, and even a metal token that accepted as merchant credit card. The initial credit cards are made of celluloid plastic, then metal and fiber, then paper, and now most of polyvinyl chloride plastic (PVC). But the credit card chip part is not made of plastic but of metal.
Usage
Credit card issuing companies, such as banks or credit unions, enter into agreements with merchants to accept their credit cards. Merchants often advertise which cards they receive by displaying receipts - generally from logos - or these can be communicated in a sign at the establishment or in company material (for example, restaurant menus can show which credit cards are accepted). Merchants may also communicate orally, as in "We take (brand X, Y, and Z)" or "We do not take credit cards".
The credit card issuer issues a credit card to the customer at that time or after the account is approved by the credit provider, which does not need the same entity as the card issuer. Cardholders can then use it to make purchases at merchants who accept the card. When the purchase is made, the cardholder agrees to pay the card issuer. The cardholder indicates his consent to pay by signing a receipt with a note of the card details and indicating the amount to be paid or by entering a personal identification number (PIN). Also, many traders are now receiving oral authorization via telephone and electronic authorization using the Internet, known as the card does not present transactions (CNP).
The electronic verification system allows merchants to verify within seconds that the card is valid and that the cardholder has sufficient credit to close the purchase, allowing verification to occur at the time of purchase. Verification is done using a credit card payment terminal or point-of-sale (POS) system with a communication link to the merchant's acquired bank. Data from card is obtained from magnetic strip or chip on card; the latter system is called Chip and PIN in the UK and Ireland, and is implemented as an EMV card.
For cards where there is no transaction where the card is not displayed (e-commerce, mail order and phone sales, for example), additional merchants verify that the customer physically owns the card and is a legitimate user by requesting additional information such as a security code printed in the back of card, expiry date, and billing address.
Every month, the cardholder sends a statement indicating a purchase made with the card, all charges due, and the total amount due. In the US, upon receipt of a statement, the cardholder may refute any allegations that he thinks are untrue (see 15 U.S.C.Ã, Ã,§ 1643, which limits the cardholder's responsibility for unauthorized use of credit cards up to $ 50). The Fair Credit Billing Act provides details on U.S. regulations. Cardholders must pay a prescribed minimum amount of the outstanding amount on the due date, or may choose to pay a higher amount. The credit issuer imposes interest on the unpaid balance if the amount collected is not paid in full (usually at a much higher rate than most other forms of debt). In addition, if the cardholder fails to make at least the minimum payment on the due date, the issuer may impose late fees or other penalties. To help reduce this, some financial institutions can arrange automatic payments to be deducted from cardholder bank accounts, thereby avoiding penalties altogether, as long as the cardholder has sufficient funds.
Many banks now also offer electronic statement options, either in lieu of or in addition to physical statements, which can be viewed at any time by the cardholder through the issuer's online banking website. Notification of availability of new statements is generally sent to the cardholder's email address. If the card issuer has chosen to allow it, the cardholder may have other options for payment other than a physical check, such as electronic funds transfer from a checking account. Depending on the issuer, the cardholder may also make multiple payments during a single statement period, possibly allowing him to use the credit limit on the card multiple times.
Ads, requests, apps and approvals
US credit card advertising regulations include Schumer box disclosure requirements. Most junk mails consist of credit card offerings made from lists provided by major credit reporting agencies. In the United States, three US credit bureaus (Equifax, TransUnion, and Experian) allow consumers to opt out of credit card offers through the Opt Out Pre Screen program.
Interest charges
Credit card issuers usually charge interest if the balance is paid in full each month, but will usually charge full interest on all outstanding balance from the date of each purchase if the total balance is not paid.
For example, if a user has a $ 1,000 transaction and paying off in full in this grace period, there will be no interest charges. However, if $ 1.00 of the total amount remains unpaid, the interest will be charged on $ 1,000 from the date of purchase until payment is received. The exact way in which interest is charged is usually detailed in the cardholder agreement which can be summarized in the back of the monthly statement. The general calculation formula used by most financial institutions to determine the amount of interest to be imposed is (APR/100 x ADB)/365 x number of days rolling. Take the annual percentage rate (APR) and divide by 100 then multiply by the average daily balance amount (ADB). Divide the result by 365 and then take this amount and multiply by the number of days the amount rotates before the payment is made to the account. The financial institution refers to interest charged back to the beginning of the transaction and until the time of payment, if not completely, as the residual retail financial cost (RRFC). Thus once the number of spins and payments has been made, card users will still receive interest charges on their statement after paying the next full statement (in fact the statement may only have a charge for the collected interest until the full balance date is paid, ie when the balance stops spinning).
Credit cards can serve as a form of revolving credit, or can be complex financial instruments with multiple segments of their respective balances with different interest rates, perhaps with a single credit limit, or with separate credit lines applicable to various segment balances. Usually this compartmentalization is the result of offering special incentives from issuing banks, to encourage balance transfers from other issuing cards. In the case that some interest rates apply to different segments of the balance, the allocation of payments is generally based on the discretion of the issuing bank, and payments will usually be allocated to the lowest level balance until paid in full before the money is paid to the higher interest rate balance.. Interest rates may vary from card to card, and interest rates on certain cards can jump dramatically if card users are late with payments on the card or other credit instruments , or even if the issuing bank decides to raise its earnings.
Grace period
The grace period of a credit card is when the cardholder has to pay the balance before the interest is assessed on the outstanding balance. Grace periods may vary but typically range from 20 to 55 days depending on the type of credit card and the issuing bank. Some policies allow recovery after certain conditions are met.
Usually, if the cardholder is late in paying the balance, the financial costs will be calculated and the grace period will not apply. The financial burden that arises depends on the grace period and the balance; with most credit cards missing a grace period if there is an outstanding balance from the previous billing cycle or statement (i.e. interest applied to previous balances and new transactions). However, there are some credit cards that will only apply the financial costs on the previous or old balance, excluding new transactions.
Parties involved
- Cardholder: Card holder used to make a purchase; consumer.
- Bank card issuer: Financial institution or other organization issuing credit card to cardholder. This bank charges consumers for payment and assumes the risk that the card is being used fraudulently. American Express and Discover were the only banks that issued cards for their respective brands, but in 2007, this was no longer the case. Cards issued by banks to cardholders in different countries are known as credit cards abroad.
- Merchants: Individuals or businesses that accept credit card payments for products or services sold to cardholders.
- Bank acquisition: A financial institution that accepts payments for products or services on behalf of a merchant.
- Independent sales organizations: Retailers (for merchants) from acquired bank services.
- Merchant accounts: This can refer to an acquired bank or an independent sales organization, but in general is the organization that the merchant contacts.
- Credit Card Association: Card-issuing bank associations such as Discover, Visa, MasterCard, American Express, etc. which specifies the terms of the transaction for the merchant, card issuing bank, and acquiring bank.
- Transaction network: The system that implements the electronic transaction mechanism. Can be operated by an independent company, and one company can operate multiple networks.
- Affinity partners: Some institutions lend their name to publishers to attract customers who have strong relationships with the institution, and get paid or a percentage of the balance for each card issued under their name. Examples of typical affinity partners are sports teams, universities, charities, professional organizations, and large retailers.
- Insurers: Insurers guarantee various insurance coverage offered as credit card benefits, for example, Car Rental Insurance, Purchase Security, Hotel Theft Insurance, Travel Protection Medical etc.
The flow of information and money between these parties - always through a card association - is known as an exchange, and it consists of several steps.
Transaction step
- Authorization : The cardholder presents the card as payment to the merchant and the merchant sends the transaction to the acquirer (acquires the bank). The acquirer verifies the credit card number, transaction type and amount with the issuer (the card issuing bank) and reserves that the credit cardholder amount limit to the merchant. The authorization will generate an approval code, which the merchant keeps with the transaction.
- Batching : A legitimate transaction is stored in a "batch", sent to the acquirer. Batches are usually delivered once per day at the end of the business day. If the transaction is not submitted in groups, the authorization will remain in force for the period specified by the issuer, after which the amount retained will be returned to the credit of the available cardholder (see authorization freeze). Some transactions may be submitted in batches without prior authorization; this is a transaction that falls below the merchant's floor limits or which is where the authorization is unsuccessful but the merchant still tries to force the transaction through. (As it may happen when the cardholder is absent but owes some extra money to the merchant, such as extending the hotel stay or car rental.)
- Clearing and Settlement : The acquirer sends a batch transaction through a credit card association, which debits the issuer for the payment and the credit of the acquirer. In essence, the issuer pays the acquirer for the transaction.
- Funding : After the acquirer is paid, the acquirer pays the merchant. Merchants receive the total amount of funds in the group minus either the "discount rate", "qualified middle level", or "unqualified tariff" which is the level of fees that the merchant acquires to process the transaction.
- Chargebacks : A chargeback is an event when money in a merchant account is on hold due to a transaction related dispute. Chargebacks are usually started by the cardholder. In the event of a chargeback, the publisher returns the transaction to the acquirer for resolution. The acquirer then passes the chargeback to the merchant, who must either accept the chargeback or follow it.
Credit card registration
A credit card list is a register of transactions used to ensure an outstanding balance of outstanding credit card use under the credit line to handle authorization holds and payments not yet received by the bank and to easily search past transactions for reconciliation and budgeting.
The register is a personal record of banking transactions used for credit card purchases because they affect funds in bank accounts or available credit. In addition to checking the number and so on the code columns show the credit card. The balance column shows available funds after purchase. When credit card payments are made, the balance reflects the funds spent. In a credit card entry, the deposit column shows the available credit and the payment column shows the amount due, the amount equal to the credit line.
Any written checks, debit card transactions, cash withdrawals, and credit card charges are entered manually into the paper list every day or several times per week. The credit card list also refers to a single transaction record for each credit card. In this case the booklet is ready to activate the location of the currently available credit card when ten or more cards are in use.
Features
As well as convenient credit, credit cards offer consumers an easy way to keep track of expenses, which are necessary both for monitoring personal spending and tracking work-related expenses for tax purposes and reimbursement. Credit cards are accepted in larger companies in almost all countries, and available with various credit limits, refund arrangements. Some have added facilities (such as insurance protection, gift schemes where points earned by purchasing items with cards may be redeemed for further goods or services or cashback).
Consumer limited liability
Some countries, such as the United States, Great Britain, and France, limit the number of consumers who can be held accountable in the event of fraudulent transactions with lost or stolen credit cards.
Type
Business credit cards
Business credit cards are custom credit cards issued on behalf of registered businesses, and usually they can only be used for business purposes. Its use has grown in the last few decades. In 1998, for example, 37% of small businesses reported using business credit cards; in 2009, this number has increased to 64%.
Business credit cards offer a number of business-specific features. They often offer special rewards in areas such as shipping, office supplies, travel, and business technology. Most publishers use the applicant's personal credit score when evaluating this app. In addition, revenues from multiple sources can be used to qualify, which means these cards may be available for newly established businesses. In addition, most of these card issuers do not report account activity to the owner's personal credit unless there is a default. This may have the effect of protecting the owner's personal credit from business activities.
Business credit cards are offered by almost all major card issuers - such as American Express, Visa, and MasterCard in addition to local banks and credit unions. The charge cards for business, however, are currently only offered by American Express.
Secure credit card
A secured credit card is a type of credit card secured by a deposit account owned by a cardholder. Typically, the cardholder must deposit between 100% and 200% of the total desired credit amount. So if the card holder hands over $ 1,000, they will be given a credit in the $ 500-1,000 range. In some cases, credit card issuers will offer incentives even on their secure card portfolio. In this case, the required deposit may be significantly smaller than the required credit line, and may be as low as 10% of the desired credit limit. These deposits are kept in a special savings account. Credit card issuers offer this because they have noticed that delinquency is greatly reduced when the customer feels something is missing if the balance is not paid off.
Secured credit cardholders are still expected to make regular payments, such as with a regular credit card, but if they fail to make a payment, the card issuer has the option to recover the purchased costs paid to the merchant out of the deposit. The advantage of secure cards for individuals with a negative or non-existent credit history is that most companies report regularly to major credit bureaus. This allows building a positive credit history.
Although deposits are in the hands of credit card issuers as collateral in the event of a default by the consumer, the deposit will not be debited simply because one or two payments are lost. Usually a deposit is only used as an offset when the account is closed, either at customer's request or due to severe delinquency (150 to 180 days). This means that accounts that are less than 150 days in arrears will continue to accrue interest and costs, and may result in a much higher balance than the actual credit limit on the card. In these cases, the total debt may well exceed the initial deposit and the cardholder not only loses their deposits but is left with additional debt.
Most of these conditions are usually described in the cardholder agreement signed by the cardholder when their account is opened.
Secured credit cards are an option to allow someone with a poor credit history or no credit history to have a credit card that may not be available. They are often offered as a means of rebuilding a person's credit. Fees and service charges for secured credit cards often exceed the fees charged for ordinary unsecured credit cards. For people in certain situations, (for example, after wearing another credit card, or people with long history of delinquency on various forms of debt), secure cards are almost always more expensive than unsecured credit cards.
Sometimes a credit card will be secured by the equity in the borrower's home.
Prepaid card
"Prepaid credit card" is not a true credit card, as no credit is offered by the card issuer: cardholders spend money "saved" through previous deposits by cardholders or others, such as a parent or employer. However, it carries credit card brands (such as Discover, Visa, MasterCard, American Express, or JCB) and can be used in the same way as if it were a credit card. Unlike a debit card, prepaid credit cards generally do not require a PIN. An exception is a prepaid credit card with an EMV chip. These cards do require a PIN if payment is processed through Chip and PIN technology.
After purchasing the card, the cardholder loads the account with a certain amount of money, up to the pre-determined card limit and then uses the card to make the purchase in the same way as an ordinary credit card. Prepaid cards may be issued to minors (above 13) because there are no credit lines involved. The main advantage of secure credit cards (see section above) is that cardholders are not required to make $ 500 or more to open an account. With prepaid credit card buyers not charged interest, but often subject to purchase costs plus monthly fees after an arbitrary time period. Many other fees also usually apply to prepaid cards.
Prepaid credit cards are sometimes marketed to teens to shop online without their parents completing a transaction. Teens can only use the funds available on the cards that help promote financial management to reduce the risk of future debt problems.
Prepaid cards can be used globally. Prepaid cards are convenient for payees in developing countries like Brazil, Russia, India and China, where international wire transfers and bank checks are time-consuming, complicated and expensive.
Because of the large fees applicable for getting and using a credit card-branded prepaid card, the Financial Consumer Agency of Canada described it as "an expensive way to spend your own money". The Agency publishes a booklet titled Prepaid Card that explains the advantages and disadvantages of this type of prepaid card. view #more learning
Digital card
A digital card is a virtual representation that is hosted by the cloud from any type of identity card or payment card, such as a credit card.
Benefits and disadvantages
Benefits for cardholders
The main benefit for cardholders is convenience. Compared to debit and check cards, credit cards allow small, short-term loans to be made quickly to cardholders who do not have to calculate the remaining balance before each transaction, provided the total bill does not exceed the maximum credit card limit.
Different countries offer different levels of protection. In the UK, for example, banks are jointly responsible with merchants for the purchase of defective products over  £ 100.
Many credit cards offer gift and benefit packages, such as an enhanced product guarantee without charge, free loss/damage coverage on new purchases, insurance coverage, for example, rental car insurance, general carrier accident protection, and travel health insurance.
Credit cards can also offer loyalty programs, where each purchase is rewarded with points, which can be redeemed for cash or products. Research has tested whether competition among card networks has the potential to make payments too generous, leading to higher prices among traders, thereby actually impacting social welfare and its distribution, a situation that has the potential to justify public policy interventions.
Comparison of credit card benefits in the US
The table below lists the benefits offered in the United States for consumer credit cards. Benefits may vary in other countries or business credit cards.
Damage to card holder
High interest and bankruptcy
Low introductory credit card rates are limited to a fixed period, usually between 6 and 12 months, after which a higher rate is charged. Since all credit cards charge fees and interest, some customers become so indebted to their credit card providers that they are forced to go bankrupt. Some credit cards often charge a rate of 20 to 30 percent after the payment is passed. In other cases, fixed costs are charged without changing the interest rate. In some cases universal standards apply: high default levels are applied to cards with good reputation by passing payments on unrelated accounts from the same provider. This can cause a snowball effect where consumers are drowned by unexpected high interest rates. Further, most cardholder agreements allow publishers to arbitrarily raise interest rates for whatever reason they want. First Premier Bank at one point offered a credit card with an interest rate of 79.9%; However, they stopped this card in February 2011 due to a persistent default.
The complicated cost structure in the credit card industry limits customers' ability to compare stores, helping to ensure that the industry is not price competitive and helps maximize industry profits.
Research shows that most consumers (about 40 percent) opt for a sub-optimal credit card agreement, with some creating hundreds of dollars in avoided interest costs.
Weaken your own settings
Some research shows that consumers tend to spend more money when they pay by credit card. Researchers suggest that when people pay by credit card, they do not experience abstract payment pains. Furthermore, researchers have found that using credit cards can increase the consumption of unhealthy foods.
Community damage
Price increases for all consumers
Merchants who accept credit cards must pay for interchange fees and discounted fees for all credit card transactions. In some cases, merchants are prohibited by their credit agreements from handing these fees directly to credit card customers, or from setting minimum transaction amounts (no longer banned in the United States, United Kingdom or Australia). The result is that traders are encouraged to charge all customers (including those who do not use credit cards) higher prices to cover fees on credit card transactions. Persuasion can be strong because merchant fees are a percentage of the sale price, which has a disproportionate effect on the profitability of businesses that have credit card transactions, unless compensated by raising prices in general. In the United States in 2008, credit card companies raised a total of $ 48 billion in exchange fees, or an average of $ 427 per family, with an average cost rate of about 2% per transaction.
Benefits for merchants
For merchants, credit card transactions are often safer than other forms of payment, such as checks, because the bank issues a commitment to pay the merchant when the transaction is authorized, regardless of whether the consumer fails to make credit card payments (except for legal disputes discussed below this, and may result in a return fee to the merchant). In many cases, cards are even safer than cash, because these cards prevent theft by merchant employees and reduce the amount of cash in place. Finally, the credit card reduces the cost of back office processing checks/cash and transporting it to the bank.
Before credit card, every merchant should evaluate each customer's credit history before extending the credit. The task is now carried out by banks that bear the credit risk. Credit cards can also help secure sales especially if the customer does not have enough cash on hand or in a checking account. Extra turnover is generated by the fact that customers can purchase goods and services immediately and less inhibited by the amount of cash in the pocket and the state of direct customer bank balances. Most merchant marketing is based on this closeness.
For each purchase, the bank imposes a commission trader (discounted fee) for this service and there may be a certain delay before the agreed payment is received by the merchant. Commissions are often a percentage of the number of transactions, plus fixed costs (exchange rate interchange).
Cost for merchant
Merchants are charged a fee for accepting credit cards. Traders are usually charged a commission of about 1 to 4 percent of the value of each transaction paid with a credit card. Merchants may also pay a variable fee, called a merchant discount rate, for each transaction. In some examples of very low value transactions, the use of credit cards will significantly reduce profit margins or cause traders to lose money on transactions. Merchants with an average transaction price are very low or the average transaction price is very high are more reluctant to accept credit cards. In some cases, merchants may charge users "additional credit cards" (or additional fees), either a fixed amount or a percentage, for credit card payments. This practice is prohibited by most credit card contracts in the United States until 2013, when large settlements between merchants and credit card companies allow merchants to charge additional fees. Most retailers have not started using credit card surcharge, for fear of losing customers.
Merchants in the United States have resisted what they consider to be the high unfair costs charged by credit card companies in a series of lawsuits that began in 2005. Traders allege that two major credit card processing companies, MasterCard and Visa, use their monopoly power to levy excessive fees in class action lawsuits involving the National Retail Federation and major retailers such as Wal-Mart. In December 2013, a federal judge approved a $ 5.7 billion settlement in the case of offering payments to merchants who had paid credit card fees, the largest antitrust settlement in US history. Some major retailers, such as Wal-Mart and Amazon, chose not to participate in the settlement, however, and have continued their legal struggle against credit card companies.
Traders are also required to rent or purchase processing equipment, in some cases this equipment is provided free of charge by the processor. Merchants must also meet highly technical and complicated data security compliance standards. In many cases, there is a delay a few days before the funds are deposited into the merchant bank account. Because the credit card fee structure is very complicated, small traders can not analyze and predict costs.
Finally, traders assume the risk of chargeback by consumers.
Security
Credit card security depends on the physical security of the plastic card as well as the privacy of credit card numbers. Therefore, whenever someone other than the card owner has access to his card or number, security is potentially compromised. Once, traders often receive credit card numbers with no additional verification for mail order purchases. It is now common practice to only send to addresses that are confirmed as security measures to minimize fraudulent purchases. Some merchants will accept credit card numbers for in-store purchases, where access to numbers allows easy fraud, but many require the card itself to be present, and require a signature (for magnetic stripe cards). Cards that are lost or stolen can be canceled, and if this is done quickly, it will severely limit the fraud that may occur in this way. European banks may require a cardholder's security PIN inserted for direct purchase by card.
The Payment Card Industry Data Standard (PCI DSS) is a security standard issued by the Payment Card Industry Security Standards Board (PCI SSC). These data security standards are used by acquiring banks to enforce cardholders data security measures on their merchants.
The purpose of a credit card company is not to eliminate fraud, but to "reduce it to a manageable level". This implies that fraud prevention measures will only be used if their costs are lower than the potential benefits of fraudulent deductions, whereas low cost low return actions will not be used - as expected from organizations whose goal is profit maximization.
Internet cheating may be by claiming unwarranted chargebacks ("friendly deception"), or by using credit card information that can be stolen in many ways, the simplest is copying information from retailers, whether online or offline. While attempts to improve security for long-distance purchases using credit cards, security breaches are usually the result of bad practices by merchants. For example, websites that securely use TLS to encrypt card data from clients can then send mail to data, unencrypted, from web server to merchant; or merchant may store unencrypted details in a manner that enables them to be accessed via the Internet or by mischievous employees; unencrypted card details are always a security risk. Even encrypted data can be cracked.
A controlled payment number (also known as a virtual credit card or disposable credit card) is another option to protect against credit card fraud where physical card presentation is not required, such as on phone and online purchases. This is a one-time usage number that acts as a payment card and is linked to the user's original account, but does not reveal details, and can not be used for future unauthorized transactions. They can apply for a relatively short period of time, and are limited to the actual number of purchases or limits set by the user. Its use can be limited to one trader. If the number given to the merchant is compromised, it will be rejected if attempts are made to use it a second time.
A similar control system can be used on a physical card. Technology provides the option for banks to support many other controls that can be enabled and disabled and varied by credit card owners in real-time due to changing circumstances (e.g. They can change temporal, numeric, geographic and many other parameters on their primary and child cards company). Regardless of the real benefits of such control: from a security perspective this means that customers can have real-time guaranteed Chip and PIN cards, and are limited for use in home countries. In this case, thieves who steal the details will be prevented from using these abroad in non-chip countries and EMV pins. Similarly, the original card may be restricted from on-line use so that stolen details will be rejected if this is attempted. Then when the card users shop online they can use virtual account number. In both situations, a warning system can be established to inform the user that fraudulent attempts have been made that violate their parameters, and may provide this data in real-time.
In addition, there are security features that exist on the physical card itself to prevent forgery. For example, most modern credit cards have watermarks that will glow under ultraviolet light. Most major credit cards have holograms. Visa cards have a V letter superimposed over the regular Visa logo and MasterCard has an MC letter on the front of the card. An older Visa card has a bald eagle or a dove on the front. In the above mentioned cases, security features are only visible under ultraviolet light and are not visible in normal light.
The US Secret Service, the Federal Bureau of Investigation, US Immigration and Customs Enforcement, and the US Postal Inspection Service are responsible for prosecuting criminals involved in credit card fraud in the United States. However, they do not have the resources to pursue all criminals, and in general they only demand cases that exceed $ 5,000.
Three improvements to card security have been introduced to a more common credit card network, but nothing has been proven to help reduce credit card fraud so far. First, the cards themselves are replaced with similar tamper resistant smart cards intended to make counterfeiting more difficult. The majority of credit cards based on smart cards (IC cards) comply with EMV (Europay MasterCard Visa) standards. Secondly, an additional 3 or 4 digit card security code (CSC) is now present on the back of most cards, for use in no transaction cards. Stakeholders at all levels of electronic payments have recognized the need to develop consistent global standards for security that account for and integrate current and emerging security technologies. They have begun to meet these needs through organizations such as PCI DSS and Safe POS Vendor Alliance.
Listing 10
Code 10 calls are made when a merchant is suspicious about accepting credit cards.
The operator then asks the merchant a series of YES or NO questions to see if the trader is suspecting the card or cardholder. Merchants may be required to keep a card if it is safe to do so. Merchants may receive a reward for returning a seized card to a issuing bank, especially if the arrest is made.
Cost
The credit card issuer (bank) has several cost types:
Interest expense
Banks generally borrow money that they then lend to their customers. When they receive loans at very low interest rates from other companies, they can borrow as much as their customers require, while lending their capital to other borrowers at a higher price. If the card issuer charges 15% of the money lent to the user, and it costs 5% to borrow money to lend, and the sitting balance with the cardholder for a year, the issuer gets 10% of the loan. The 10% difference is "net interest spread" and 5% is "interest cost".
Operating costs
This is the cost of running a credit card portfolio, including everything from paying executives who run the company to plastic printing, submitting reports, to running a computer that tracks every cardholder balance, to take many phone calls that card holders are placed to their publishers, to protect customers of the fraud ring. Depending on the publisher, the marketing program is also a significant cost part.
Charging
When a cardholder becomes overwhelmingly in debt (often at point six months without payment), the creditor can declare that the debt is a charge. It will then be listed as such on the debtor credit bureau report. (Equifax, for example, lists "R9" in the "status" column to indicate the transfer of charges.)
Reject pay is considered "abolished because it can not be charged". For banks, bad loans and fraud are part of the cost of doing business.
However, the debt is still legally valid, and creditors may try to collect the full amount for a permitted period under state law, which is usually three to seven years. This includes contacts from internal collection staff, or more likely, outside collection agencies. If the amount is large (usually more than $ 1,500-2,000), there may be a lawsuit or arbitration.
Gift
Many credit card customers receive gifts, such as frequent flyer points, gift certificates, or cash as an incentive to use the card. Gifts are generally bound to purchase goods or services on the card, which may or may not include balance transfers, cash advance, or other special use. Depending on the type of card, the return will generally weigh on the issuer between 0.25% and 2.0% of the spread. Networks such as Visa or MasterCard have increased their costs to enable issuers to fund their reward systems. Some publishers refuse redemption by forcing cardholders to contact customer service for rewards. On their service website, redeeming awards is usually a feature that is highly hidden by publishers. With a cracking and competitive environment, award points are cut dramatically into the bottom line of the issuer, and reward points and associated incentives must be carefully managed to ensure a profitable portfolio. Unlike unused gift cards, in cases where damage in certain US states goes to the state treasury, credit card points that have not been redeemed are retained by the issuer.
Fraud
In relative amounts, the lost value in small bank card frauds, calculated in 2006 at 7 cents per 100 dollar transactions (7 basis points). In 2004, in the UK, the cost of fraud was over  £ 500 million. When a card is stolen, or an invalid copy is made, most card issuers will refund some or all of the fees that customers have received for things they do not buy. This refund, in some cases, will harm merchants, especially in the case of orders by mail in which merchants can not claim to see the card. In some countries, merchants will lose money if no KTPs are requested, therefore traders usually require ID cards in these countries. Credit card companies generally guarantee that merchants will be paid on legitimate transactions regardless of whether consumers pay their credit card bills. Most banking services have their own credit card services that handle fraud cases and monitor possible fraud attempts. Employees who specialize in fraud monitoring and investigation are often placed in Risk Management, Fraud and Authorization, or Unsecured Business Cards and Businesses. Fraud monitoring emphasizes minimizing fraudulent losses while trying to track those responsible and contain the situation. Credit card fraud is a huge white-collar crime that has existed for decades, even with the emergence of chip-based cards (EMV) practiced in some countries to prevent such cases. Even with the adoption of such measures, credit card fraud continues to be a problem.
Revenue
Offset costs are the following revenue:
Interchange fee
In addition to fees paid by cardholders, merchants also have to pay interchange fees to card issuing banks and card associations. For typical credit card issuers, interchange fee revenues can represent about a quarter of total revenue.
These fees are typically from 1 to 6 percent of each sale, but will vary not only from merchants to merchants (wholesalers can negotiate lower rates), but also from card to card, with business cards and gift cards generally costing more merchants to process. Interchange fees applicable to certain transactions are also influenced by many other variables including: merchant type, merchant card sales volume, average merchant transaction amount, whether the card is physically present, how the information required for the transaction is accepted, special card type, completed, and the number of transactions approved and completed. In some cases, merchants add an additional charge to a credit card to cover interchange fees, encouraging their customers to use cash, debit cards, or even checks.
Interest in outstanding balance
Interest charges vary from card issuer to card issuer. Often, there is a "tempting" rate applicable to the initial time period (as low as zero percent for, say, six months), while the regular rate can be as high as 40 percent. In the US there is no federal limit on interest or late fees charged by credit card issuers; interest rates set by the state, with some countries like South Dakota, having no upper limit on interest rates and fees, inviting several banks to set up their credit card operations there. Other countries, such as Delaware, have a very weak usury law. The teaser rate is no longer valid if the customer does not pay the bill on time, and is replaced by a penalty rate (eg, 23.99%) which is retroactive.
Costs charged to customers
The main costs are to:
- Payment is late or late
- A charge resulting in exceeding the credit limit on the card (whether intentionally or unintentionally), is called an overlimit charge
- Return a check or payment processing fee (e.g., phone payment fee)
- Advances and convenience checks (often 3% of the amount)
- Transactions in foreign currency (3% of total). Some financial institutions do not charge for this.
- Membership fees (annual or monthly), sometimes a percentage of the credit limit.
- Exchange rate loading charges (sometimes this may not be reported on customer statements, even when applied). The exchange rate variations applied by different credit cards can be huge, as much as 10% according to the Lonely Planet report in 2009.
In the US, the 2009 Credit Cards Act stipulates that credit card companies must send notices to cardholders 45 days before they can add or change certain fees. This includes annual fees, upfront costs, and late fees.
Over limit charges
Consumers who keep their accounts in good standing are always within their credit limit, and always make at least a minimum monthly payment will see interest as the greatest cost of their card providers. Those who are not so careful and regularly overstep their credit line or are late in making payments are exposed to many allegations that are usually as high as Ã, Â £ 25-35 until the decision of the Just Trade Office that they will deem the charge of Ã, £ 12 it becomes unfair that it causes the majority of card providers to reduce their costs up to Ã, £ 12.
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