Basic Knowledge about Debit Card and Credit Card

A debit card is a plastic card that provides a cardholder electronic access to his / her bank account. It can be used to withdraw funds or to make purchases using money in the bank account. Since a debit card is essentially linked to a checking account (saving / current), it is also known as a Checking Card. A balance in the checking account is must for the use of debit card.

A credit card is a payment card which allows the cardholder to pay for goods and services on the basis of line of credit granted to him / her by the issuing bank.  A credit card essentially creates a revolving account from which cardholder can borrow money for payment to merchant (and also withdraw cash). A credit card is not linked to a bank account but is linked to the bank / financial institution which has issued it.

First Credit Card

The use of Credit Card first started in 1920s in United States of America for selling the fuel to the automobile owners. Later, it reached the customers when when Diners Club was launched in early 1950s. In 1958, the Bank of America issued the BankAmericard in the California state and this is known to be the first successful modern credit card.

Differences between Debit Card and Credit Card

• A debit card is like an electronic cheque book, which is linked to the account of cardholder. Balance in the account is essential to use debit card. Credit cards give a line of credit to the cardholders and they don’t need a linked bank account. Credit Card payment is like a loan which needs to be paid back within a fixed period (such as 30 days).
• There is no monthly bills to be paid on debit cards. In case of Credit cards, monthly bills need to be paid by the customer. Late payments are charged a high interest.
• Obtaining the debit card is quite easy. Now a days, most banks provide Debit cards to checking account holders. After the RBI guidelines in 2005; obtaining a Credit Card has become difficult and it depends on many factors including credit score of the applicant.
• The Credit worthiness of the account holder plays no role in case of Debit Cards. The limit of usage is dependent on the balance in linked account. However, in case of credit cards, the limit of usage or credit line may increase or decrease depending on cardholder’s creditworthiness. This limit is set by the card issuer.
• Debit Card payments invite no interest charges; Credit card loans have one of the highest interest rates.

Major players in the Credit Card transactions

There are several players in the working of credit card / debit cards.

• The cardholderis the authorized user of a credit or debit card.
• Merchantor Point of sale is any business entity that is authorized to accept cards for the payment of goods and services; it can be a brick and mortar shop or a website.
• Merchant Bank or Acquirer is a financial institution that provides card processing services to the merchant.
• Card Issuer is a financial institution that issues payment cards and contracts with its cardholders for billing and payment of transactions.
• Further, there is a Credit Card Network orAssociation, which is a membership organization of financial institutions that issue payment cards and/or sign merchants to accept such cards for payment of goods and services. There are two Credit Card Associations – Visa’s and MasterCard.

How the Credit Card transaction works?

The process can be divided into two parts viz. authorization and Clearing & Settlement.

Authorization

A credit card holder finalizes the goods to be bought and presents his card to the merchant. Merchant processes the card and while processing it seeks authorization from the Merchant Bank giving it information on transaction information. Merchant Bank submits the authorization request to Credit Card Network  (MasterCard or VISA). Credit Card Network sends the request to the Card Issuer which is ICICI bank. Card Issuer either approves or declines the transaction. If it authorizes, the Credit Card Network forwards this authorization to merchant bank. Merchant bank forwards this response to the Merchant and Merchant once receiving this authorization completes the transaction.

Clearing and Settlement

The merchant deposits the transaction receipt with the merchant bank, which credits the Merchant’s account and submits this transaction to Credit Card Network for settlement. Credit card Network pays the Merchant Bank and debits the account of Card Issuer. The Card Issuer posts the transaction to the account of Card holder. The cardholder received monthly statement from the Issuer. The Cardholder pays as per the conditions.

What is the Size of the Credit Card?

ISO/IEC 7810 is the international standard which defines the shape and size of the I-Cards. In most countries, it defines ATM cards, credit cards, debit cards etc. as ID-1 which corresponds to 85.60×53.98 mm.

What is a Swipe Card?

Swipe card or magstripe or Magnetic stripe card has a band of magnetic material on the card and is capable of storing data. It was first developed by IBM for a US Government security system. IBM engineer Forrest Parry is known to have discovered Swipe Card, thanks to his wife (search Google). The data on the strips can be read by the most point-of-sale hardware.

What does the Credit Card Number denote?

The credit Card Numbers are governed by the ISO/IEC 7812 which is a numbering system for the identification of issuers of cards that require an issuer identification number (IIN) to operate in international, inter-industry and/or intra-industry interchange. The Length of the number is from 14 to 19. The first 6 digits are known as the Issuer Identification Number (IIN). Out of them, the first 2 or more digits identify the Card network. For example- The card number that begins with 34, 35, 36 or 37 is an American Express Card; another which begins with 51,52,53,54 or 55 is a MasterCard and the number which becomes with 4 is a Visa card.

What is National Payments Corporation of India’s (NPCI)?

National Payments Corporation of India’s (NPCI) was established in 2008 and is being promoted by State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC. NPCI is an umbrella organization for all retail payment systems in the country owned and operated by banks. Its National Financial Switch (NFS) is linked to 61702 ATMs (September 2010). The relevant data is released by NPCI.

Cumulative monthly transaction volumes recorded by the National Payments Corporation of India’s (NPCI) crossed the 10-crore mark for the first time in August 2010. The Switch recorded 7.32 crore ATM transactions in July 2010.

What is Floor Limit and Card Limit?

Floor limit is the discretion to the merchant establishment up to which it can accept the card for payment. The Card limit is the limit up to which a holder can use the card. This is restored on making the previous payments.

Hot Card v/s Hot List: A hot card is a lost or stolen card. A hot list is the list of caution against the use of a credit card by a defaulter holder.