DEBIT CARD

&
CREDIT CARD

PRESENTED BY:-
Ravi Kumar Gupta

10/11/20 1
 INTRODUCTION
 A few years ago it was easy to tell the difference
between a credit card and a debit card.
 You used your debit card at the ATM with a
personal identification number, and you used
your credit card for purchases.
 But today both types of cards carry familiar
credit company logos, both can be swiped at the
checkout counter and both can be used to make
online purchases.

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 DEBIT CARD
 Debit card is a plastic card which provides a
alternative payment method to cash when
making purchases.
 Functionally, it can be called an electronic
check, as the funds are withdrawn directly
from either the bank account, or from the
remaining balance on the card.
 It is also known as BANK CARD or CHECK
CARD.

10/11/20 3
 Debit cards can also allow for instant
withdrawal of cash, acting as the ATM card
for withdrawing cash and as a cheque
guarantee card. Merchants can also offer
"cashback"/"cashout" facilities to customers,
where a customer can withdraw cash along
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
10/11/20 6
 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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 1. ONLINE DEBIT CARD
 Online debit cards require electronic
authorization of every transaction.
 The debits are reflected in the user’s account
immediately.
 The transaction may be additionally secured
with the personal identification number (PIN)
authentication system and some online cards
require such authentication for every
transaction, essentially becoming enhanced
automatic teller machine (ATM) cards.
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 One difficulty in using online debit cards is the
necessity of an electronic authorization device at the
point of sale (POS) and sometimes also a separate
PIN pad to enter the PIN, although this is becoming
common place for all card transactions in many
countries.
 Banks in some countries, such as Canada and Brazil,
only issue online debit cards.
 In the United Kingdom, Solo and Visa Electron are
examples of online debit cards, which are typically
issued by banks to customers whom the bank does
not want to go overdrawn under any circumstances,
for example under-18s.
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 2. OFFLINE DEBIT CARD
 Offline debit cards have the logos of major credit cards
or major debit cards and are used at the point of sale
like a credit card.
 This type of debit card may be subject to a daily limit,
and/or a maximum limit equal to the current/checking
account balance from which it draws funds.
Transactions conducted with offline debit cards require
2–3 days to be reflected on users’ account balances.
 In the United Kingdom, Maestro (formerly Switch)
and Visa Debit (formerly Delta) are examples of
offline debit cards.

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 3. PREPAID DEBIT CARD
 Prepaid debit cards, also called reloadable debit cards
or reloadable prepaid cards, are often used for
recurring payments.
 The payer loads funds to the cardholder's card
account.
 Particularly for US-based companies with a large
number of payment recipients abroad, prepaid debit
cards allow the delivery of international payments
without the delays and fees associated with
international checks and bank transfers.
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4. ELECTRONIC PURSE CARD
 Smart-card-based electronic purse systems (in
which value is stored on the card chip, not in
an externally recorded account, so that
machines accepting the card need no network
connectivity) were tried throughout Europe
from 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 made
available by a small number of banks. They are
sometimes called "virtual Visa cards", although they
usually do exist in the form of plastic. An example is
3V.
 Such a card prevents fraud by a card number thief
even if the card is not blocked, because the customer
normally does not store any money on the sub-
account and fraudulent transactions do not get
authorized by the bank
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 ADVANTAGES
AND
DISADVANTAGES

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 ADVANTAGES
1. A consumer who is not credit worthy and may
find it difficult or impossible to obtain a credit
card can more easily obtain a debit card.

2. Use of a debit card is limited to the existing

funds in the account to which it is linked.

3. For most transactions, a check card can be

used to avoid check writing altogether.

10/11/20 15
 CONTD….
4. Like credit cards, debit cards are accepted by
merchants with less identification.

5. Unlike a credit card, which charges higher

fees and interest rates when a cash advance is
obtained, a debit card may be used to obtain
cash from an ATM or a PIN-based
transaction at no extra charge, other than a
foreign ATM fee.

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 DISADVANTAGES
 Some banks are now charging over-limit fees
or non-sufficient funds fees based upon pre-
authorizations.
 Many merchants mistakenly believe that
amounts owed can be "taken" from a
customer's account after a debit card (or
number) has been presented.
 In some countries debit cards offer lower
levels of security protection than credit cards.

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 The Three Party Model
Purchase goods / services
using card payment
instrument
Cardholder Merchant
Card Payment Facility

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10/11/20 18
 The Four Party Model
(Debit Card)
Purchase goods / services
using card payment
instrument
Cardholder Merchant
Card Payment Facility

Service Charge
Convenience

Settlement &
Transaction
& payment
instrument

Merchant
Payment
Services
Fees

Settlement & Risk

Bearing
Issuer Acquirer
Interchange Fee

10/11/20 19
 This highly competitive market has
resulted in impressive card growth
Volume Growth of Payment Streams 2002-2006 (CAGR)

129%

140%

120%
High take
100% up of cards

80%

60%
Cash is the
largest volume
40% +20%
+11%
20%
-11%

0%
Source: FRB Data Cash Credit Debit
-20% Cheques Cards Cards
10/11/20 20
 CREDIT

CARD
10/11/20 21
 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.
10/11/20 22
 CONTD…..
 A credit card is different from a charge card,
where a charge card requires the balance to be
paid in full each month.
 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 7810 standard.
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10/11/20 24
 WORKING PROCESS
 When a purchase is made, the credit card user agrees
to pay the card issuer.
 The cardholder indicates his/her 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.
10/11/20 25
 CONTD…..
 Electronic verification systems allow
merchants to verify that the card is valid.
 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.
 Card is obtained from a magnetic stripe or chip
on the card, but is more technically an EMV
card (Europay, MasterCard and VISA). i.e.
VSDC – VISA, Mchip – mastercard, AEIPS –
American Express, J Smart - JCB
10/11/20 26
 INTEREST CHARGES
 Credit card issuers usually waive 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.
 EX:- If a user had a $1,000 transaction and
repaid 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 card
industry, credit card providers offer incentives
such as
 FREQUENT FLYER POINTS
 GIFT CERTIFICATES
 CASH BACK(1% based on total purchase)
 LOW INTEREST CREDIT CARDS
 EVEN 0% INTEREST CREDIT CARDS ARE
AVAILABLE
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 GRACE PERIOD
 A credit card's grace period is the time the
customer has to pay the balance before interest
is charged to the balance.
 Grace periods vary, but usually range from 20
to 40 days depending on the type of credit card
and the issuing bank.
 If a customer is late paying the balance,
finance charges will be calculated and the
grace period does not apply.
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 BENEFITS TO MERCHANTS
 A credit card transaction is often more secure
than other forms of payment, such as checks,
because the issuing bank commits to pay the
merchant the moment the transaction is
authorized, regardless of whether the consumer
defaults 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 before
extending credit.
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 COSTS TO MERCHANTS
 Merchants are charged many fees for the
privilege of accepting credit cards.
 The merchant may be charged a discount rate
of 1% - 3% + of each transaction obtained
through a credit card.
 Usually, the merchant will also pay a flat per-
item charge of $0.05 - $0.50 for each
transaction.

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 PARTIES INVOLVED
 CARDHOLDER: Used to make a purchase.

 CARD ISSUING BANK: The financial

institution or other organization that issues the
card to the cardholder.

 MERCHANT: The individual or business

accepting credit card payments for products or
services sold to the cardholder.
10/11/20 32
 CONTD……
 ACQUIRING BANK: The financial institution
accepting payment for the products or services
on behalf of the merchant.

 INDEPENDENT SALES ORGANISATION:

Resellers (to merchants) of the services of the
acquiring bank.

 MERCHANT ACCOUNT: Organization that

the merchant deals with.
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 CONTD……
 CREDIT CARD ASSOCIATION: An association of
card-issuing banks such as Visa, MasterCard,
Discover, American Express, etc.

 TRANSACTION NETWORK: The system that

implements the mechanics of the electronic
transactions.

 AFFINITY PARTNER: Some institutions lend their

names to an issuer to attract customers that have a
strong relationship with that institution, and get paid a
fee or a percentage of the balance for each card issued
using their name.
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 TRANSACTION STEPS
 AUTHORIZATION – Approval code which the
merchant stores with the transaction.
 BATCHING – Transactions stored in “batches”
which are send to the acquirer.
 CLEARING AND SETTLEMENT – debits the
issuers 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 dispute
relating to the transaction.
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 TYPES OF CREDIT CARDS
CREDIT CARDS FOR BAD CREDITS
1. SECURED CREDIT CARDS
A secured credit card is a type of credit card
secured by a deposit account owned by the
cardholder.
Typically, the cardholder must deposit between
100% and 200% of the total amount of credit
desired.
Thus if the cardholder puts down $1000, they
will be given credit in the range of $500–$1000.
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2. PREPAID “CREDIT” CARDS
 A prepaid credit card is not a credit card,
since no credit is offered by the card issuer:
the card-holder spends money which has been
"stored" via a prior deposit by the card-holder
or someone else, such as a parent or employer.

 Prepaid cards can be issued to minors (above

13) since there is no credit line involved.

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 STANDARD CREDIT CARDS
1. BALANCE TRANSFER CREDIT CARDS
Balance transfer credit cards allow consumers
to transfer a high interest credit card balance
onto a credit card with a low interest rate.
Typical in the market today are balance
transfer credit cards with an introductory
annual percentage rate (APR) of 0 percent,
with that introductory or "teaser" rate lasting
several months up to a year.

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 2. LOW INTEREST CREDIT
CARDS
Low interest credit cards offer either a low
introductory APR that jumps to a higher rate
after a certain period, or a single low fixed-rate
APR. Low interest cards can be very useful
when consumers need make a large purchase
because it allows several months to a year to
pay it off with very low or no interest.

10/11/20 39
 SECURITY
 Credit card security relies on the physical
security of the plastic card as well as the privacy
of the credit card number.
 Whenever a person other than the card owner has
access to the card or its number, security is
potentially compromised. i.e. security PIN is
required
 Some merchants will accept a credit card number
for in-store purchases, where upon access to the
number allows easy fraud, but many require the
card itself to be present, and require a signature.

10/11/20 40
 CONTD….
 Thus, a stolen card can be cancelled, and if
this is done quickly, will greatly limit the fraud
that can take place in this way.

 The PCI DSS is the security standard issued by

The PCI SSC (Payment Card Industry Security
Standards Council).

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 CREDIT CARD COSTS
 Annual Fees  Low Interest Teaser
 Interest Rates
 Annual Percentage Rate  Balance Transfers
(APR)
 Late Fees
 Average Daily Balance
Method
 Over Credit Limit Fees
 Cash Advances
 Bounced Check Fees
 Convenience Checks
 Currency Conversion
Fees
 Penalty Rates

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Credit Card Do’s
Use a debit card vs a credit card
Use a card with no annual fee and low interest rates
Know all of your card’s hidden fees
Always pay more than the minimum each month
Pay on time, all the time

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Credit Card Don’ts
Don’t get more than one
Don’t use them for cash advances
Don’t use them to pay for basics: rent, groceries, etc.
Don’t charge more than you can pay off in a month
Don’t let banks increase you credit limit

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 The Four Party Model
(Credit Card)
Purchase goods / services
using card payment
instrument
Cardholder Merchant
Card Payment Facility

Service Charge
Convenience

Settlement &
Card Fees

Merchant
Payment
Services
& Credit

Settlement & Credit Risk

Bearing
Issuer Acquirer
Interchange Fee

10/11/20 45
WHICH CARD DO YOU WANT IN
YOUR WALLET??

 Current data suggests that debit cards are more

popular with consumers than credit cards.

 A recent TNS Financial Services Consumer

Credit Card Program Study indicated that over
60 percent of consumers prefer using debit
cards to credit cards as a payment vehicle,
because debit feels more like "real money."
10/11/20 46
 CONTD…..
 Debit cards are also gaining favor as a form of
online payment. Based on data from Jupiter
Research in American Banker, debit cards will
account for 46 percent of all online purchases
by 2010, compared to 41 percent in 2006. The
same data forecasts a slide in credit card use to
35 percent of all online purchases in 2010
from 41 percent in 2006

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