Credit Cards and its Types – Banking Awareness

    Credit Cards and its Types - Banking Awareness
    Credit Cards and its Types – Banking Awareness:
    A brief notes about the Credit Cards and its types were given here below, which was important banking awareness topic for the upcoming banking exams. Candidates those who are preparing for those exams can use this.

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    1).Acredit card is a payment card issued to users as a system of payment which allows the card holder to pay for goods and services based on the holder’s promise to pay for them

    2).The size of most of the credit cards are 85.60 × 53.98 mm according to theISO/IEC 7810 ID-1 standard

    3).Thefront of a typical credit card consists of the following parts:
    ·        Issuing bank logo
    ·        EMV chip
    ·        Hologram
    ·        Card number
    ·        Card Network Logo
    ·        Expiration Date
    ·        Card Holder name
    ·        Contactless Chip

    4).Similarly thereverse side of a credit card consists of the following parts:
    ·        Magnetic Strip
    ·        Signature Strip
    ·        Card Security Code

    5).Importantterminologies related to credit cards are as follows:
    ·        Card holder – the consumer or the holder of the card
    ·        Card – issuing bank – the financial institution or other organizations that issued the credit card to the consumer
    ·        Merchant– the individual or business accepting credit card payments for the products or services sold to the consumer
    ·        Acquiring Bank– the financial institution accepting the payment on behalf of the merchant
    ·        Independent sales organization – resellers of the services of the acquiring bank
    ·        Merchant account – it is the organization that the merchant deals with
    ·        Credit card association – an association of the card issuing banks that set transaction terms for merchants, card issuing banks and acquiring banks.
    ·        Transaction networks – the system that implements the mechanics of the electronic transactions
    ·        Affinity partner – an institution that lends their names to an issuer to attract customers that have a strong relationship with that institution and get paid a percentage of the balance for each card issued using their name

    6).Thetransaction steps that are involved in the usage of a credit card are as follows:
    ·        Authorization– verification done by the acquiring bank on the card number, the transaction type and the amount with the issuing bank
    ·        Batching– the authorized transactions are stored in batches which are sent to the acquirer
    ·        Clearing and Settlement – the acquirer sends the batch transactions through the credit card association which debits the issuers for payment and credits the acquirer
    ·        Funding– once the acquirer has been paid, the acquirer in turn pays the merchant
    ·        Chargebacks– is an event initiated by the cardholder where the money in a merchant account is held due to a dispute relating to the transaction

    7). Types of Credit Cards
    ·        Business credit cards – specialized credit cards issued in the name of a registered business and can only be used typically for business purposes
    ·        Secured credit cards – it’s a card that is secured by a deposit account owned by the cardholder. The cardholder must deposit between 100% to 200% of the total amount of credit needed

    8).Advantages of credit card system to the banks
    ·        Scope and potential for better profitability out of share earned from the merchant’s income
    ·        Helps in banking relationship with new customers
    ·        Provides additional customer service to the existing clients
    ·        Savings of expenses on manpower to handle clearing transactions

    9).Advantages of credit card system to the merchants
    ·        Systematic accounting since sale receipts are routed through banking channels
    ·        Assured and immediate settlement
    ·        Avoids all costs and security problems involved in handling cash
    ·        Development of a prestigious clientele base
    ·        Increase in sale because of increased purchasing power of the cardholder due to the unbilled credit available to him
    ·        Advertising and promotional support on a national scale

    10).Advantages of the credit card system to the cardholder
    ·        It incorporates a sense of financial discipline in him/her
    ·        Allows the cardholder to delegate spending powers to add-on members
    ·        It extends additional facilities like insurance cover and discounts
    ·        It provides proof of purchase through banking channels thus strengthening the cardholder’s position in case of any disputes with the sellers

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