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CREDIT CARDS &

DEBIT CARDS
BY:

Priyal Shah
Sandeep Gupta

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.

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.

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
interest liability and no preset sending limits either.

Based on Status of Credit Card


1. Standard card
Credit cards that are regularly issued by all card-issuing banks are called
standard 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 card
Business 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. These cards 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
executive cards.

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.

Private label cards


These cards are uniquely tied to the retailer issuing the card and can be
used only in that retailers 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.

An example of the front of a typical credit card

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 reverse side of a


typical credit card
1. Magnetic stripe
2. Signature strip
3. Card security code

Benefits of Credit Cards


Benefits to Card holders
Shopping convenience
Credit facility
Safety
Meticulous record
Acceptability
Benefits to Merchants
Enhanced sales
Easy validation
No risk

Benefits to issuer banks


Source of income
Market expansion
Cross selling

Drawbacks of Credit Cards


Waste of money
Thoughtless buying
Financial problem
Mental agony

Costly

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

customers

card,
to

which
make

helps

the

payments

instantaneously for goods and services

purchased.

Dangers of Debit Cards


Most debit card holders prefer using the debit cards only for standard ATM
withdrawals. 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.

Difference between Debit Cards and Credit


Cards
Debit Card
Drawings are against own assets

Credit Card
It allows a borrowing power on

or money lying in the savings bank the bank for which the customer or
account

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

Debit Card

Credit Card

Does 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

It provides additional finance to

cost or even travellers cheque. It the holder by allowing him to


is

as

good

as

money

accounts with his bank

in

the 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