Types of bank plastic cards and their features

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The rapid development of information technologies is also constantly affecting the banking sector: cash payments are increasingly being replaced by plastic card transactions. At the same time, according to experts, the volume of use of bank cards will only grow, because this payment instrument has serious advantages for both buyers and entrepreneurs, as well as for banking structures.

What is a plastic bank card and how does it work?​

A bank's plastic card, or bank payment card, is an irreplaceable means of non-cash payments that combines many modern technologies. Each card can be linked to one or more bank accounts, used to pay for any goods and services (including online), as well as to withdraw cash. The owner of the plastic card is the credit institution that issued it (the issuing bank), and the holder is the bank's client.

Plastic bank cards began to be actively issued in the United States in the 1950s as a new non-cash payment tool, gradually replacing obsolete checkbooks. The first such product was introduced into the "mass" circulation by the New York bank Long Island Bank in 1951, in Europe, the "discoverer" of plastic cards was the British company Finders Services. Magnetic stripe appeared on cards in the 1960s, and chips - in the 1990s.

This is interesting!
The history of bank cards began in the United States back in 1914. It was then that the first analogs of modern plastic cards were released, although they were made of cardboard and were nothing more than a certificate of customer solvency. In 1928, cellulose was replaced by a more reliable material — metal, which made it possible to automate data processing at a primitive level. But the world's first truly mass payment card system appeared in 1949 with the creation of the Diners Club company. Although such a system was a club system, not a banking system, and had limited use within a certain range of retail and service businesses, it worked and operates on the same system as all its modern banking followers-American Express, Visa, and MasterCard.

How are bank card payments made?​

Plastic card payments can be made at any retail outlet equipped with a trading terminal of the corresponding payment system (POS-terminal). And if for ordinary cardholders this process consists in reading the card from the terminal, then in fact the process is much more complicated. The calculation is performed according to the following scheme:

1. At the time of payment for a product or service, the terminal verifies the authenticity of the card and the availability of funds on the account through the processing center.
2. Then funds are debited from the bank card account and a receipt is generated.
3. At the end of the business day, the point of sale transfers all checks to the acquiring bank. The acquirer transfers the total amount of all checks to the company's account.
4. The acquirer transmits to the processing center information about transactions using bank cards of which it is not an issuer.
5. The processing center provides interaction between all settlement participants. It collects information about all transactions on plastic cards, generates summary data and brings them to the attention of the issuing bank, acquirer and settlement bank of the payment system used by this plastic card.
6. Based on the information provided, the settlement bank debits the required amount from the issuer's correspondent account and credits it to the acquirer's correspondent account.
7. The issuing bank debits the transaction amount from the cardholder's special bank account, taking into account the commission fee (as can be seen from the process described above, this usually happens the day after the purchase is made).

Credit Card Holder's Dictionary​

• Acquiring bank — a credit institution that provides payments on plastic cards of a retail outlet (serves it).
• Issuing bank — a credit institution that issued the credit card used to pay for the purchase.
• Processing center — a division of the bank that interacts between settlement participants and provides intra-bank processing of transactions with plastic cards.
• Transaction – any operation using a bank account.
• Correspondent account — an account opened by the bank in a subdivision of the Central Bank or in another credit institution.

Plastic cards in Russia​

Despite the economic peculiarities of the Russian market and the conservatism of the domestic consumer, plastic card payments are becoming increasingly popular in our country. From 2010 to 2023, the plastic card market in Russia grew steadily (see Fig. 1): the number of issued cards during this period increased by approximately 80% to 270.734 million (236.672 million debit cards and 34.062 million credit cards.

Starting from 01.04.2013, information about the number of debit and credit cards is included (information about prepaid cards is not included).

Statistics of transactions made by individuals using plastic cards in Russia and abroad show steady growth:

• the volume of transactions in Russian rubles and foreign currency increased from RUB 1,799. 6 billion in the first quarter of 2008 to RUB 12,136 billion in the third quarter of 2023, i.e. by 6.7 times;
• the number of operations in the same period increased from 457.7 million units to 7,047 million units, or almost 15.4 times.

Pay attention to the dynamics and proportions (structure )of transactions made by our citizens from the first quarter of 2008 to the second quarter of 2023:

• cash withdrawals increased from RUB 1,663. 1 billion (352 million units) to RUB 7,158. 2 billion (795.7 million units) — 4.3 times in volume and only 2.3 times in the number of transactions;
• payment for goods and services increased from RUB 136.5 billion (105.6 million units) to RUB 4,977. 8 billion (6,251. 3 million units) — 36.5 times in volume and 59.2 times in the number of transactions!

All these figures clearly demonstrate the growing popularity of bank payment cards in the field of non-cash payments and the decrease in their demand for receiving cash. However, it should be recognized that "our people" over the past 9 years, although they began to pay with cards 59 times more often, they still excessively gravitate to ATMs as cash withdrawal equipment.

The use of plastic cards is becoming more convenient due to the systematic increase in retail chains, shops and small retail outlets equipped with payment terminals. And also due to the growth in the number of ATMs — according to the Central Bank of the Russian Federation, as of the end of the second quarter of 2017, 203,684 devices with the cash withdrawal function were located in Russia, of which 123,089 ATMs provide the ability to pay for goods and services.

For your information
To date, more than 1.5 billion plastic cards have been issued worldwide. Every year, the global turnover is over $ 3 trillion. Cards are accepted in more than 20 million retail organizations.

Types of plastic cards​

Consider different types of plastic cards. There are many features that can be used to classify bank cards. We will list the most important ones.

By type of funds: "debit-credit"​

Debit and credit cards are distinguished by the type of funds placed on the card. In Russia, there is some confusion about the use of the term "credit card". Sometimes they mean any plastic cards, sometimes-only cards with credit funds. The reason for this confusion is that historically, the first plastic cards were credit cards, not debit cards. Therefore, all the cards are still called "credit cards".

• Debit cards. Only the holder's personal funds are stored on the debit plastic card. Payment for goods and services, as well as cash withdrawal, is only possible if there are funds in the account linked to this card. In addition, there are overdraft cards that allow you to make payments both at the expense of the cardholder's funds and at the expense of a loan provided by the bank in case of a lack of funds in the account. Debit cards that are issued by an enterprise for its employees in order to transfer salaries and other charges are called "salary" cards. Such cards are issued within the framework of a "salary project", that is, an agreement concluded between the bank and the enterprise. Salary plastic cards are debit cards, sometimes overdraft cards.
• Credit cards. A credit card, as mentioned above, stores money that the bank provides for the use of the cardholder. Each bank sets a certain credit limit within which the customer can make purchases and withdraw cash. At the same time, the credit card holder's own funds can also be stored on the credit card. Credit cards differ according to the scheme of charging interest for using the loan. Most plastic credit cards have a so-called grace period, or a preferential interest-free period, during which no interest is accrued on the funds used (usually 50-60 days), if the debt is repaid during this period. There are also credit cards that charge interest immediately after making a purchase, meaning they don't have an interest-free grace period.

By card category: from classic to platinum​

The higher the card category, the more features it has, but the cost of servicing it increases proportionally. There are cards of the classic category, gold, platinum and higher "black" cards, such as MasterCard Black Edition or Visa Black. In addition, the possession of a gold, platinum or even "black" card emphasizes the status of its holder, which is important for many. As the card category increases, the credit limits on it increase. For comparison, the credit limit for a classic Alfa-Bank card is up to 500,000 rubles, and for a platinum card-up to 1,000,000 rubles. It should also be noted that the higher the status of the card, the more privileges it grants to the holder. Thus, international payment systems provide discounts for premium card holders, and banks provide a special service in the form of priority service, concierge service, and much more, which depends on the specific issuing bank.

There is also a category of virtual cards: they do not have a physical carrier and are intended exclusively for making purchases via the Internet, without the possibility of withdrawing cash.

By time of registration: express cards vs classic cards​

Classic credit and debit cards are usually issued within 2-5 business days. If necessary, in some banks you can use the service of urgent registration of a plastic card. The service is paid, but allows you to get the coveted card on the same or the next business day. Some banks offer instant issuance of a plastic card. These cards are issued immediately to the customer within a few minutes to one hour. Usually, instant cards have all the same functions as other cards.

By payment system type: Visa or MasterCard​

The world market of plastic cards is currently "divided" by three major payment systems: Visa International, MasterCard International and Asian Union Pay. The Visa payment system accounts for about 30%, MasterCard for about 15.35%, and Union Pay for just over 53%.

Payment systems, first of all, provide the possibility of making payments between different banks. For example, MasterCard unites 22,000 financial institutions in 210 countries, while VISA unites 21,000 financial institutions. VISA differs from MasterCard mainly in that it focuses on transactions in dollars, while MasterCard focuses on transactions in dollars and euros. For an ordinary Russian client, there is no significant difference in using one or another payment system. Union Pay is practically not used in Russia.

Statistics
By 2023, Mastercard's share in Russia was 49.4%, while VISA's share was 44.7% of issued cards.

By types of additional services: great features​

Co-branded plastic cards are issued in partnership with various large companies, usually retail chains. Such cards provide their holders with any privileges or bonuses from the bank's partner company. For example, if the partner is an airline or air ticket sales service, then when making purchases, the client receives so-called bonus "miles", which can then be spent on buying an air ticket. If the partner is Aeroflot, then miles are spent on purchasing tickets for this airline. It makes sense to choose a co-branded card only if you are already an active user of the partner company's services. Otherwise, these cards are no different from other plastic cards.

Another attractive service that some banks provide in addition to a plastic card is Cash Back. The meaning of the option is that when making various purchases with a credit or debit card, at the end of the month the client receives a certain percentage of the total amount spent on the card back to their account. For example, if Cash Back is 3% and you made 100,000 rubles worth of transactions on the card in a month, the bank will refund up to 3,000 rubles to it.

By security type: technologies in the security service​

Plastic cards have two ways of recording information: a magnetic stripe and a microchip. The first cards with an electronic magnetic stripe appeared in 1971, and in the late 1990s chips began to be integrated into credit cards. The need for chips arose when the magnetic stripe ceased to provide the necessary level of protection of information from fraud and forgery. Payment with a card equipped with a chip in a regular store can only be made after the cardholder enters the PIN code that is "issued" along with the card. This increases the level of identification of the owner.

The most modern cards are equipped with a new one-touch payment technology, called Pay pass (from the MasterCard payment system) and Pay wave (from Visa). To pay for the purchase, just touch the card to the reader terminal at the checkout. If the purchase amount is up to 1,000 rubles, you don't even have to enter your PIN code. This technology provides additional protection, as the card does not need to be handed over to the cashier during payment.

There is also 3D Secure technology, which ensures the security of online payments using plastic cards. The technology was developed by the VISA payment system, and MasterCard introduced a similar technology called MasterCard SecureCode. 3D Secure authentication allows retail outlets and banks to verify that the payment is made by the cardholder.

Which bank card should I choose?​

Let's start with the question, in which cases, in addition to a debit plastic card, you need to have a credit card as well? In principle, the presence of a" spare "card with credit funds is always relevant — on long trips, if you need to make urgent payments or purchases, or simply if you have problems with a debit card, a credit card can become a real"lifesaver". Today, a credit plastic card is an extremely convenient and useful tool for making payments. A credit card is not suitable only for cash withdrawals (the bank charges a relatively high commission for cash withdrawals). If you want, you can find a credit card with free service (banks often arrange such promotions) and a long grace period, that is, the period during which you can use the card and not pay interest, which makes it especially profitable.

The virtual card is only relevant for those who make a lot of purchases on the Internet or conduct their professional activities in it. It is necessary if you want to protect your debit card from fraud and theft of personal information, which sometimes happens when shopping online. In this case, you must transfer the required amount from the debit card to the virtual one before performing the operation. However, keep in mind that you can't withdraw cash from a virtual card, just like you can't pay in offline stores.

A debit card is a universal tool: if you need a plastic card exclusively for using your own funds, then a debit card will be enough. It is also the most convenient way to withdraw cash.

EDITORIAL OPINION
As you can see, all bank payment cards are extremely similar to each other in terms of performing their main function. Meanwhile, it is obvious that a credit card opens up a wider range of opportunities for the owner than a debit card. When choosing between a credit card and a debit card, keep in mind that these are completely different payment instruments. A debit card usually involves accumulating your own funds. If you need funds that you do not have today, a credit card is convenient. The main thing is not to get carried away and start living "on credit".