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The Beginning
The history of debit cards is an interesting one. Debit cards helped to change the way that people used money and bank accounts. Debit cards are used to pay for purchases at stores and other locations around the world. A debit card works by
debiting the money from your checking account. For many people debit cards have taken the place of cash and cheques. However, debit cards are still a relatively new banking tool. Credit cards paved the way for debit cards. Many people used credit cards to pay for transactions. This also put in place the infrastructure that debit cards needed to be practical as a method of payment. Seattle's First National Bank offered the first debit card to business executives in 1978. Initially they were like a cheque signature or guarantee card, with which the bank would guarantee that the fund would be paid, but you did not need a cheque to do the transaction. They also required a large savings account be kept at the bank to cover the funds. These cards were only issued to people who had a long and good standing with the bank, because the funds were not directly debited from the account. These types of cards generally come with the Visa or MasterCard symbol on them. In 1984 Landmark created the first nationwide debit system, using ATMs and other networks that allowed debit cards to be used nationwide. This allowed the smaller banking systems within states to connect with banks systems outside of states. As technology improved the debit cards moved to a system that was able to directly debit the money from a checking account. When this happened the debit cards became available to more and more consumers. These types of debit cards may have the Plus symbol or other similar symbols on them. However many banks will also use the Visa or MasterCard symbol for a direct debit card because they are accepted at so many different places around the country. In 1998 debit card transactions first outnumbered the use of cheques around the world. This number has continued to grow over time. Debit cards are now commonly used for most transactions at stores in the United States. Debit cards are more convenient to use than a cheque. Debit cards speed up transactions at stores. Additionally debit cards are safer than carrying cash, because banks can stop fraudulent purchases and consumers are not held liable for purchases made when the card is stolen. Debit cards have made banking a much easier process for many people. Consumers are using debit cards with greater frequency. A recent survey found that, when making daily purchases, about 55 percent of consumers say they use their debit card more than half the time. Manning said many borrowers have seen their credit card limits cut. Others voluntarily cut back on credit card use. But banks see that as a problem, because in a few months, regulations -- which don't apply to credit cards -- will limit the amount they can charge in swipe fees.
Credit Cards
According to Encyclopedia Britannica, "the use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers." However, references to credit cards have been made as far back as 1890 in Europe. Early credit cards involved sales directly between the merchant offering the credit and credit card, and that merchant's customer. Around 1938, companies started to accept each other's cards. Today, credit cards allows to make purchases with countless third parties. 2
type of loan that kicked in automatically if an account didnt have enough money in it to cover the checks written against it.
As the bankcard industry grew, banks interested in issuing cards became members of either Bank of America card or Master Charge. Their members shared card program costs, making the bankcard program available to even small financial institutions. By the mid 1970s, the credit card industry started exploring international waters. But the name America caused some problems. So, in 1977, Bank of America card became VISA. Then in 1979, Master Charge followed suit and changed its name to MasterCard. In 1979, with the improvement of electronic processing, electronic dial-up terminals and magnetic stripes on the back of credit cards allowed retailers to swipe the customers credit card through the dial-up terminal, which accessed issuing bank cardholder information. The advantage of this system, besides saving paper, was the increased speed of processing authorizations one to two minutes. It also decreased credit card fraud.
There are other check processing companies trying to penetrate the market, like Euro Card, JCB and ATM companies, but credit cards still account for over 90% of all ecommerce transactions. Visa has been a leader in credit card innovation. This has brought them the recognition as the worlds leading credit card association, with over one billioncards being issued, and carrying over 50% of all credit card transactions conducted worldwide.
The need was clear: They were safer than carrying cash while travelling. They could easily be replaced if lost or stolen. Most hotels accepted them as payment as long as you were staying with them, as did superstores. Then began a period of consolidation, and the number of players reduced to barely 10, of which American Express, Thomas Cook and Citibank remain some of the major players. Now even they seem to be on the way out. But a high-tech innovation could spell the end for travellers' cheques, according to American Express. The banking giant is conducting a pilot scheme involving an electronic version of its traditional travellers' cheques which takes the form of a plastic card "programmed" with foreign currency.The company has chosen the UK for the trial, and the cards are being targeted at people visiting the US in the next few months. Called "Travel Funds," the cards can store up to 10,000 US dollars and are bought in the same way as ordinary travellers' cheques. People pay for the amount of dollars they want on the card. The cards can be used in the US wherever American Express is welcome. People simply present them when making a purchase and sign the receipt, with no need to show identification.The cards are refundable if lost or stolen and can also be used to get money from American Express cash machines.
(AVS) test. Once a business has activated either a retail merchant account it can accept credit cards from customers. The process generally goes like this:
1. A transaction begins when the cardholder presents his or her credit card for payment. The credit card number and transaction information is entered into the merchant's transaction processing system (a credit card terminal, computer, or website). 2. The information is then forwarded into the processor's network along with a request for authorization to secure funds in the amount of the purchase from the cardholder's credit card account.
3. The credit card processor links up with the credit card network in order to transmit the "Authorization Request" to the Issuing Bank's computer network 4. The Issuing Bank verifies the credit card number and checks that the cardholder has enough money available to fund the transaction. 5. A "hold" for the transaction amount is placed on the cardholder's account, thus reducing the available balance for future transactions. 6. Once the approval is received the processing network sends a response to the merchant's credit card terminal or computer interface. 7. At the end of the business day, the merchant sends a request to the processing network to secure the authorized funds from all the credit card transactions conducted through out the day. 8. The total amount of all the credit card transactions, minus any processing fees, is then deposited into the merchant's business bank account.
While making an online purchase the customers gives his credit card information to the merchant for payment.. The online customer finds the merchant's website and adds products to their shopping cart. When they are ready to check out, they enter their billing information. 1. If the merchant does not have a secure page, the customer can be transferred to a secure payment gateway. If the merchant does have a secure site, then the information will be "passed" to the payment gateway without the customer ever leaving the merchant's site. 2. Once the billing information has made it to the payment gateway, it is then transmitted to the processor. 3. The processor passes the information from the online payment gateway onto the bank that issued the credit card, which verifies that the card is valid and that the amount requested is available on the card. 4. The bank sets aside the purchase amount for the merchant, then sends back an approval number or a decline message to the processor. 5. Within 3-15 seconds, the information in steps 2-6 is passed back to the gateway. 6. The gateway passes the approval code back to the merchant's site or, if the merchant does not have a secure site, gives the customer their approval information. At this point, the merchant can also choose to have the payment gateway email the customer a payment receipt.
7. Final payment is secured and is deposited in the internet merchants account. It typically takes two business days from the time of the original transaction for the funds to reach the merchant's checking account. The model below shows how online payment gateways are used in order to accept credit cards on websites
Debit cards are as easy to use as credit cards and allow an individual to use available funds from their own bank account. This gives them the ease of accessing their own money, without taking any credits, through just a card. The process is very similar to that of a credit card processing with the difference being that the amount which covers the purchase made is deducted from existing bank balance. Online debit card processing When an individual applies for a debit card, the card issuer first checks the eligibility criteria. If the card issuer finds that the person is eligible, it issues the card to him. At the time of the issuance of the card, he is also given a personal identification number (PIN). Whenever, the cardholder uses the card for any transaction, he is required to type the PIN. The PIN is unique to a cardholder and none other can have access to it. Whenever a transaction is carried out by using the debit card by typing the PIN, amount transacted is deducted from the checking account. Whatsoever, by typing the PIN, the card holder gets 9
instant access to the checking account. The online debit card processing is a very safe way of transaction because of the encryption of the by the PIN pad. Offline debit card processing In order to use a debit card offline, the debit card should have the logo of either Visa Card or Master Card on it. Card holder can use that debit card at any Automated Teller Machine (ATM) irrespective of its location. For this kind of processing, however, a merchant account is required. Money that cardholder withdraws by using the ATM, is not deducted from the account immediately. Money is withdrawn from the checking account only after few days and when the transactions are reconciled by the merchants bank. However, this type of offline debit card processing has some drawbacks too. This may result into serious problems such as overdrawn account.
Stolen Cards
Stolen cards are one of the very well-known modes of credit card frauds. Stolen credit cards remain usable until and unless credit card holders call up the card users and block their cards. Criminals can use the stolen cards to purchase any products or services if the card is not blocked.
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Phishing Mails
Internet is a huge medium of credit card frauds. In case of CNP (Card Not Present) transactions, merchants have to rely on the person who is providing the information on the credit cards. Hence, if one can provide all the information relating to the credit card (such as credit card number, name of card holder, expiry date of the credit card and the CVV or verification number) during an online purchase, one can easily use the card while buying products/services. As correct information about the card is provided, the merchant recognizes him/her as the original owner of the credit card. Criminals use various ways to steal information about the credit card. Phishing mails are one of the most well-known methods of stealing credit card information, where mails are sent to the credit card holders asking to provide information on the cards. Phones are also used to collect credit card information from the card holders.
Skimming
Skimming is stealing credit card information through various means in an otherwise genuine transaction. In these cases, some insiders (dishonest employees of the merchant) help criminals to steal information on the credit cards. Here, small electronic devices are used to read the information stored in the magnetic tape of the credit cards. Photocopies of the receipts are also used to steal the information.
Carding
Carding is the process to verify the authenticity of the stolen data of the credit cards. Criminals provide the information of the card in the website that deal with real-time transaction processing. If the information is accepted, it is understood that the information are correct.
Application Fraud
Application fraud is the scam during the application process. Here fake or stolen data is used to open an account in the name of others. Utility bills, bank statements are used to open fake accounts.
Account Takeover
Account takeover is taking possession of other's account. Criminals gather all the necessary information about the credit card and the cardholders. Then they contact the card issuer and masquerade as genuine cardholder and request them to change their billing address. At a later stage, they report a card loss and request for a new card (replacement) at the new address.
Precautions to Be Taken
There is always threat of credit card frauds. However, you can take some precautions to avoid those. Following are some of the ways you can prevent credit card frauds: Being vigilant is the most useful way to protect your credit cards. Don't give your credit card details to anyone.
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CVV (Card Verification Value) or CSC (Card Security Code) is a three-digit secret code printed on the back of your credit card that you must not divulge to anyone. While going for any online transaction, make sure that the website is a trusted one. Don't click on any unknown link in your mail, it could be phishing mail. While getting new credit card, make sure that you get that in sealed condition. Sign on the back of your credit card immediately after you receive it. Regularly monitor your account Memorize the PIN number of your card and DO NOT write it anywhere in your card. Do not share your personal account information with anyone else. Do not handover your card to anyone. Be physically present during a transaction.
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When You Charge by Mail, Phone, or on the Internet: 6. Never use a Web site that doesn't use SSL (secure socket layer) technology to conduct credit card transactions. SSL assures you that confidential information like names and credit card numbers are transmitted in an encrypted manner so they can't be read as they travel across communication lines. Look for names like VeriSign or Thawte--common security providers--indicating that encryption technology is in use. If you are unsure as to a site's security, look to your browser. Most browsers alert users when a page is a "secure" page. Major retailers use such technology, but be careful when you do business with smaller vendors who may not be able to afford the technology. 7. Don't disclose your credit card number to anyone who phones you. There are exceptions, of course, but for the most part, Macy's shouldn't be calling to confirm that their records of your account number are correct. Nor is a trip to the Bahamas yours just for giving a stranger on the phone your name, address, and credit card number. 8. Don't write your credit card number on the outside of an envelope. It's a mystery why certain banks and credit card companies ask you to record this information on the outside of a payment envelope that traverses the U.S. mail system. Would you parade your social security number before a bunch of strangers? Of course not, yet that's the equivalent of what credit card companies are expecting you to do when they provide a line on an envelope that begins with "account number." 9. Deposit your mail in an official mailbox. Many people leave their bill payments in their personal mailboxes, relying on their mail carriers to pick them up and forward them to their destinations. Scores of credit card fraud cases start just this way. Mail thieves raid entire neighborhoods, combing mailboxes for payment envelopes. They steal the envelopes, thereby obtaining access not only to your credit account numbers, but also your checking account number and your signature. 10. Place your catalog orders on a landline phone. Cellular and cordless phones don't provide the privacy you need--it's too easy to tap into conversations that use air signals. Don't disclose anything over a cordless phone you wouldn't want the world to know. Additional Precautions: 11. Shred pre-approved credit card offers and credit card receipts. Anything that has your name and a credit card number (or the promise of one) on it can become the basis for credit card fraud. Do yourself a favor and destroy the evidence.
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12. Check the accuracy of your credit card statements as soon as you get them. Immediately report anything that doesn't look right. Question every charge that you either don't recall making or don't have a receipt to support. 13. Keep a list of all your credit card numbers and their expiration dates. In case your cards are lost or stolen, you'll be able to report it faster and more efficiently if you have this information readily available to give to police and credit card companies. 14. Call your creditors immediately if a billing statement is late. Late statements often indicate that someone has taken "ownership" of your account and diverted your statements to a new address. 15. Check your credit report annually. If the report lists accounts you don't recognize or more credit than you thought you had, you may be a victim of credit card or identity fraud. Stay on top of your credit situation by reviewing your credit report at least once a year, preferably before you apply for credit. If your credit or charge cards get lost or stolen, immediately call the issuer(s). Many companies have toll free numbers and round-the-clock service to respond to such emergencies. By law, once you report the loss or theft, you have no further responsibility for unauthorized charges
Citibank
Citibank has witnessed maximum 92 frauds of cloning of debit/credit cards or use of fake cards involving over Rs 1.89 crore from 2007-08 to December 2010. RBI's committee has suggested a number of steps including replacing the magnetic strip on cards by a chip.
Other banks
A total of 703 and 2,484 cases were received by American Express Bank and HSBC Bank related to credit card frauds, in which they lost Rs 6.04 crore and Rs 4.90 crore respectively. Other banks, which lost significant amount to such practices, were Standard Chartered Bank Rs 2.39 crore and Deutsche Bank with a loss of Rs 2.09 crore. Bank of India lost Rs 6.63 lakh, Bank of Maharashtra Rs 2.61 lakh and Bank of Rajasthan Rs 2.83 lakh in the year 2009-10. Compensation to the victims, who lost money in these frauds, has been made.
Purchasing Power:
Credit or Debit cards made it easier to purchase things. Now we dont have any need to carry hard cash in a large amount. Plastic money is accepted everywhere, anytime.
Time Saving:
Through a credit card or debit card you can purchase anything from anywhere without spend money on fare or cash transition. Just provide your card details to seller store or companies and finalize your order. Now you dont have need to worry about time wastes. Use internet for minimum time consuming.
Extra Safety:
While you are not carrying cash, how can it be lost? But if your card has lost, just contact to your bank or financial institution, which provide you cards. It will block the account and nobody can draw a single coin without your permission. So it is 100% safe without any tension.
Credit Limits:
You get an extra amount to spend with your card. This extra spent money you can return before a fix time schedule or you will have to pay a little interest. So there is no problem to having less money.
A need of emergencies:
Think, that you have no time to go to bank or someone to get money, what will you do? Definitely you will use your credit or debit card which will give you confidence for your difficult time. We can say it a true friend which help us in need.
Additional features:
Mostly credit card offer additional benefits, as discount from some particular stores, bonus in airline fare, free insurance policies and much more. This discounts and bonus encourages you to purchase more things as it is good for us.
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gets lost or stolen and you end up paying for things, which you have neither bought nor own. In todays technical intelligence it is also possible to get a clone of any credit card or debit card, which works like original and they can be give you a heavy financial loss. So be aware from credit cards fraud as they are like stolen your money from your pocket without your information.
Limited Options:
With so many companies in the market, chances are that the stores that you step in does not accept card of the particular company you have. Result - you have to either pay a bulk of cash or just walk out of the shop with no shopping bags (as most of us do not care to carry cash, because we overtly rely on the credit card).
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Most of the major features of a debit card such as withdrawal of cash from ATMs are available on credit cards as well. A credit card has a wider acceptance and recognition, especially in online transactions. A credit card has greater security measures ad checks than a debit card. Credit cards allow for cash back and bonus points schemes that a debit card is not eligible for. A credit card can be used as a convenient way to check and record your spending. Since there is a fixed credit limit, a cardholder cannot overstretch his purchases.
The disadvantages of using a credit card: Following are the disadvantages of Credit card
The major one is the hidden costs of a credit card in the form of late payments, transaction fees, fuel surcharge. The consumer must take all of this into account before getting a card issued. It is not compulsory for the entire balance to be paid, but the interest is charged on the entire amount, regardless of the part paid. This causes a debt trap for the cardholder. The security of a card is not total and cases of fraud are extremely common even today. Credit cards can be used as ATM cards, but there is a considerable processing fee required.
All in all, a credit card should be used responsibly and the amount due should be paid in full.
Debit cards provide access to ready money in a more convenient and less invasive form than cheques, and allow for a faster withdrawal of cash. They can be used by people who do not qualify for a credit card, and the major advantage is that a person spends money that he actually possesses from his bank account. A debit card can be used to withdraw money from an ATM with no processing charge. A debit card is a more convenient way of carrying cash around.
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The major problems of a debit card are negated by instant notifications of transactions via sms and emails. A credit card or a debit card are both useful tools that must be used carefully and sparingly to maximize your advantage.
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As compared to 2.56 crore credit card transactions in July 2011, debit cards were used 2.66 crore times. This has continued in August when credit cards were used 2.76 crore times, while debit was used on 2.77 crore occasions. In the past, credit card swipes always outstripped that of debit. In the whole of 2010-11, credit cards were used for 26.51 crore payments, while debit cards were used 23.7 crore times. The decline has been largely because of the foreign banks and banks like ICICI which have been shrinking their portfolio. According to industry sources, ICICI Bank's card portfolio has continued to shrink during the current year as well. While other lenders such as HDFC Bank and Axis Bank have started issuing cards at a much higher pace, the issuances are not enough to bring up the overall industry numbers. While debit cards have seen growth in issuances, cardholders have not been using them for transactions. In 2010-11, the average transaction per card has been 14. As compared to this, the average debit card has been used only once in a year. While the number of debit cards has gone up more than five times in five years the average number of transactions has not. Even five years back the debit card usage was on an average just once in a year. Credit cards, on the other hand, are seeing an increase in usage. At the time of the global financial crisis, the average usage of cards had dipped to eight times in a year. At the end of March 2011, this had improved to 14.According to the Bankers this is because issuers have become choosy on issuing cards. Multiple card holdings have come down as even cardholders are realizing that it makes more sense to consolidate purchases in one card in terms of rewards. In the recent past, credit cards have found acceptance with the Indian consumer after banks introduced several security features and even simple purchases could be made using plastic money. However, the falling numbers in both the number of cards issued and the transactions carried out with them is a source of worry for most major banks . Increasing reliance on cashless transactions is seen as sign of a modern economy where there is a strong synergy between the ordinary consumers and its financial institutions. The buoyancy in the credit card spending reflects that the consumer's confidence is back, which was missing during the economic slowdown After the slowdown, banks narrowed their focus to existing customers only and avoided issuance of new cards, as a precautionary approach With economic situation better now, banks have again started issuing new cards. Banks vow to be more selective this time as they tap rising spending power and the high interest rates and fees they can charge on cards Debit cards, ever since the numbers have been revealed have gone way above the credit card numbers. The 24 crore (240 million) debit cards out there far outnumber the 1.76 cr. credit cards, a number that has been declining since 2008 January.
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The fight has been won by debit cards, for what seems to be many reasons: 1. Banks have taken large hits on credit card portfolios, and have thus cut issuances. 2. Debit cards are issued by default with most bank accounts now, with core banking systems becoming universal, and the National Financial Switch (NFS) allowing all member bank accounts to inter-transact through ATMs. 3. Debit cards are easier to get, since you need no credit assessment (you cant spend more than is in your account at any given time).
credit card purchase volume is equivalent to 12.9 percent of U.S. Gross Domestic Product Still a status symbol in many parts of China and India, credit and debit cards are quickly gaining momentum as the preferred way to pay. While cash and cheques yet remain the most popular way to pay rising consumer spending, increasing incomes, an easier access to plastic money by banks and governments promoting cards over cash, electronic money is beginning to rule China and India. While the number of debit cards in use still dominate over credit cards, the shift in mode of payment is particularly meaningful considering the regions historical aversion to debt, and is likely to have indelible consequences on both nations growth. According to Mark Zandi, Moodys Economy.com chief economist, . In most Asian economies, savings rates are very high, and consumption is very low, Governments want to stimulate consumer spending, and this is a way to do it. As electronic payments catch on they come with their virtues and vices. With a majority of urban Chinese and Indians increasingly swiping their cards, the black economy in which cash transactions arent recorded or taxed, rife in both nations is expected to take a hit. Notwithstanding, there is a fear that the lure of plastic money would be too enticing for Indian and Chinese consumers who could ratchet up large debt bills. While Asia is an attractive market for electronic payments, Zandi warns If people borrow too heavily, it could create a very significant economic problem, undermining the benefit to consumers and governments,. Card use often begets higher spending: Its a proven fact that if you can make people move from cash to electronic payment, then the average (amount spent) will increase, along with the average number of transactions, David Robertson, publisher of the Nilson Report. Further the advent of new, cool technologies are expected to spur the rate of adoption of plastic money, enticing the Chinese and Indian consumer to buy even more. New technologies such as cell phones and contact less payments in which one passes ones card over an electronic reader rather than swipe it promises to speed up Asian consumers adoption of debit, credit and even prepaid cards, which allow money to be loaded for purchases. It now needs to be seen if Chinese and Indian consumers can be more prudent about their money than their western counterparts. It's become popular to demonize the credit card industry, but that's not entirely fair. Yes, some rates and fees can seem excessive, and yes, aggressive marketing tactics can make it all too easy for people to get hooked on debt. Still, credit cards play a vital role in the modern economy. They help provide liquidity--the convenient and timely access to capital that facilitates day-to-day transactions. Capitalism could exist without credit cards, but only at a much slower pace.
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