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Functionally, it can be called an electronic check,as the funds are withdrawn directly from eitherthe bank account, or from the remaining balanceon the card.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