CREDIT CARD

What is credit card???

A credit card is part of a system of payments named after the small plastic

card issued to users of the system. It is a card entitling 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 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.
In contrast, credit cards allow the consumers to 'revolve' their balance, at the

cost of having interest charged. Most credit cards are issued by local banks
or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is defined as 85.60 53.98 mm in size.

Credit card
ISSUING BANK LOGO EMV CHIP ON SMART CARDS HOLOGRAM CREDIT CARD NUMBER CARD BRAND LOGO EXPIRATION DATE CARD HOLDER NAME CONTACTLESS CHIP

Credit card numbering

The card number's prefix, called the Bank Identification Number, is the

sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs.
This is the first six digits for MasterCard and Visa cards. The next nine digits are the individual account number. And the final digit is a validity check code. In addition to the main credit card number, credit cards also carry issue and

expiration dates (given to the nearest month), as well as extra codes such as issue numbers and security codes. Not all credit cards have the same sets of extra codes nor do they use the same number of digits.

How credit card works???

Credit cards are issued after an account has been approved by the credit

provider, after which cardholders can use it to make purchases at merchants accepting that card.
When a purchase is made, the credit card user agrees to pay the card issuer.

The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN).
Also, many merchants now accept verbal authorizations via telephone and

electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction

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Electronic verification systems allow merchants to verify that the card is

valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase.
The verification is performed using a credit card payment terminal or Point

of Sale (POS) system with a communications link to the merchant's acquiring bank.
Data from the card is obtained from a magnetic stripe or chip on the card.

Other variations of verification systems are used by E-Commerce merchants to determine if the user's account is valid and able to accept the charge. .

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These will typically involve the cardholder providing additional

information, such as the security code printed on the back of the card, or the address of the cardholder.
Each month, the credit card user is sent a statement indicating the purchases

undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect. Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed.
The credit issuer charges interest on the amount owed if the balance is not

paid in full (typically at a much higher rate than most other forms of debt).

Interest charges???
Interest charges Credit card issuers usually waive(not-claim) interest

charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase

if the total balance is not paid. For example, if a user had a $1,000
transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained

unpaid, interest would be charged on the $1,000 from the date of purchase
until the payment is received.

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The general calculation formula most financial institutions use to determine

the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account.

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Interest rates can vary considerably from card to card, and the interest rate

on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue.

Benefits to cutomers
The main benefit to each customer is convenience. Compared to debit cards

and cheques, a credit card allows small short-term loans to be quickly made to a customer who need not calculate a balance remaining before every

transaction, provided the total charges do not exceed the maximum credit
line for the card. Credit cards also provide more fraud protection than debit cards. In the UK for example, the bank is jointly liable with the merchant

for purchases of defective products over 100.

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Many credit cards offer rewards and benefits packages, such as offering

enhanced product warranties at no cost, free loss/damage coverage on new purchases, and points which may be redeemed for cash, products, or airline tickets.
Additionally, carrying a credit card may be a convenience to some

customers as it eliminates the need to carry any cash for most purposes.

Grace period
A credit card's grace period is the time the customer has to pay the balance

before interest is assessed on the outstanding balance.

Grace periods vary, but usually range from 20 to 50 days depending on the

type of credit card and the issuing bank. Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply.

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Finance charges incurred depend on the grace period and balance,

with most credit cards there is no grace period if there is any outstanding balance from the previous billing cycle or statement (i.e. interest is applied on both the previous balance and new transactions).
However, there are some credit cards that will only apply finance

charge on the previous or old balance, excluding new transactions.

Benefits to merchants
A credit card transaction is often more secure than other forms of payment,

cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises.
For each purchase, the bank charges the merchant a commission (discount

fee) for this service and there may be a certain delay before the agreed payment is received by the merchant.
The commission is often a percentage of the transaction amount, plus a

fixed fee (interchange rate). Some small merchants require credit purchases to have a minimum amount to compensate for the transaction costs.

Parties invloved in cardholder

The holder of the card used to make a purchase; the consumer.
Card-issuing bank: The financial institution or other organization that issued

the credit card to the cardholder.

This bank bills the consumer for repayment and bears the risk that the card

is used fraudulently.

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Merchant: The individual or business accepting credit card payments

for products or services sold to the cardholder.

Acquiring bank: The financial institution accepting payment for the

products or services on behalf of the merchant.

Independent sales organization: Resellers (to merchants) of the

services of the acquiring bank.

Parties invloved in merchant

This could refer to the acquiring bank or the independent sales organization,

but in general is the organization that the merchant deals with.

Credit Card association: An association of card-issuing banks such as Visa,

MasterCard, Discover, American Express, etc. that set transaction terms for
merchants, card-issuing banks, and acquiring banks.
Transaction network: The system that implements the mechanics of the

electronic transactions. May be operated by an independent company, and one company may operate multiple networks.

Transaction

steps

Authorization: The cardholder pays for the purchase and the merchant
submits the transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the

issuer (Card-issuing bank) and reserves that amount of the cardholder's

credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction.

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Batching: Authorized transactions are stored in "batches", which are sent to
the acquirer. Batches are typically submitted once per day at the end of the business day. If a transaction is not submitted in the batch, the authorization

will stay valid for a period determined by the issuer, after which the held
amount will be returned back to the cardholder's available credit.

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Clearing and Settlement: The acquirer sends the batch transactions through

the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction. Funding: Once the acquirer has been paid, the acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus either the "discount rate," "mid-qualified rate", or "non-qualified rate" which are tiers of fees the merchant pays the acquirer for processing the transactions.

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Charge backs: A chargeback is an event in which money in a merchant

account is held due to a dispute relating to the transaction. Charge backs are typically initiated by the cardholder. In the event of a chargeback, the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it. A merchant is responsible for the chargeback only if he/she has violated the card acceptance procedures as per the merchant agreement with card acquirers.

Fees charged to customers

Fees charged to customers Late payments or overdue payments Charges that

result in exceeding the credit limit on the card (whether done deliberately or by mistake), called over limit fees Returned cheque, fees or payment processing fees (eg phone payment fee) Cash advances and convenience cheques (often 3% of the amount) Transactions in a foreign currency (as much as 3% of the amount).
A few financial institutions do not charge a fee for this. Membership fees

(annual or monthly), sometimes a percentage of the credit limit. Exchange rate

loading fees (these may sometimes not be reported on the customer's statement, even when they are applied)

Credit cards in atms

Many credit cards can also be used in an ATM to withdraw money
against the credit limit extended to the card, but many card issuers charge interest on cash advances before they do so on purchases.
The interest on cash advances is commonly charged from the date

the withdrawal is made, rather than the monthly billing date.

Many consumers have large cash balances, which have no grace

period and incur interest at a rate that is (usually) higher than the
purchase rate, and will carry those balance for years, even if they pay off their statement balance each month

Types of credit cards

Premium Credit Cards
Cash Back Credit Cards Gold Credit Cards Airline Credit Cards Silver Credit Cards

Business Credit Cards Balance

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Transfer Credit Cards
Co-branded Credit Cards Low Interest Credit Cards Lifetime Free Credit Cards Rewards There are some additional credit cards that are available in India as

well. Rewards credit cards available in India can be subdivided into

six categories Points, Hotels and Travels, Retail, Auto and Fuel.