Types of bank payment cards
A bank payment card is a non-cash payment instrument, which is a plastic identification tool that allows the cardholder to pay for goods and services, as well as receive cash from ATMs. Some types of bank cards can act as a means of obtaining a loan.The payment card performs three functions:
- 1. A means of identifying the cardholder at the time of the transaction (using the information contained on the card - PIN, etc.).
- 2. A means of access to a special card account opened for the cardholder by the issuing bank.
- 3. The basis for the execution of settlement and monetary documents required for settlements on card transactions.
Debit cards (cards with a debit function) are designed to receive cash from ATMs or to purchase goods with payment through electronic terminals. In this case, the money is debited from the cardholder's bank account. These cards are tied to the check (typical for countries with a developed check turnover), current or savings account of the cardholder and do not provide for automatic provision of a loan. In fact, when you purchase goods through terminals at retail outlets, debit cards act as a bank check. However, they are more reliable, since the account holder is identified at the time of the transaction and the money is transferred to the merchant's bank account immediately.
Cards with a cash function are intended for use only in automated teller machines and are a type of debit card. They provide an opportunity for the owner of a bank account to receive cash within the balance on his account only through ATMs installed in branches of a commercial bank, trading floors, at airports, train stations, etc. If you have a card, you can get money at any time of the day, including holidays and weekends.
Cards with an e-money function can also be categorized as debit cards. They are rechargeable prepaid cards that can be used at points of sale of several service providers for a wide range of purposes: to pay for purchases and / or receive cash. With a prepaid bank cardmeans a card that is intended for transactions by its holders. It certifies the right of its holder to claim against the issuing credit institution to pay for goods and services, as well as intellectual property products or to issue cash. Payments on the card are carried out by the credit organization that issued it. The use of these cards as a means of payment in settlements is carried out only within the "value" previously entered by the cardholder.
However, prepaid cards can be more than just bank cards. These tools serve as a direct replacement for cash in those areas of retail turnover where the use of checks or payment cards is impractical. Prepaid cards have three main features:
- 1) a certain amount of monetary value is stored on the card in electronic form, loaded (credited) from an account (in a bank);
- 2) it does not require online authorization at the time of the transaction;
- 3) the amount of each operation is fixed on the instrument itself, and not on the server of the central computer in the bank (in this case, the amount of the transaction is deducted from the balance - it is debited).
Credit bank cards are of two types: cards that provide the owner with a line of credit at the bank (cards with a credit function), and cards with a delayed debit function (cards with a delayed debit function). First type cards (cards with credit function)allow the owner to use the loan automatically at the time of purchase of goods or receipt of funds. The bank sets a limit for spending money on the card, as well as a grace period, usually 30 days, during which no interest is charged when paying off the debt. If this period is exceeded, the bank charges interest on the outstanding loan balance. Sometimes the bank may establish an annual commission for servicing such a card, which can often be used for preferential payments for certain types of services (for example, in sports clubs, restaurants, etc.), as well as for receiving money from ATMs.
Deferred debit cards are issued by commercial banks and provide their holder with the opportunity to use funds from the account within the established limit. This card allows its owner to make purchases on credit, but does not imply extended credit, i.e.
the client is obliged to repay the loan amount in full and on time.
There are country differences in the extent to which different types of bank payment cards are used. So, in countries where the check-flow is traditionally developed (USA, Canada, Great Britain), credit cards prevail. In recent years, there has been a trend towards increased use of debit cards in these countries, especially during the financial crisis following the collapse of Lehman Brothers. In the EU countries, especially where fat turnover is developed (Belgium, the Netherlands, Germany, Switzerland), preference is traditionally given to debit cards [see: BIS, 20091.
Let us briefly dwell on the types of bank cards that are provided for by the regulatory documents of the Bank of Russia. According to Bank of Russia Regulation No. 266-P, credit institutions can issue cards of three types: settlement (debit), credit and prepaid cards. Despite the superficial similarity with the classification of cards (by name) KP PC, there are certain differences. Thus, a payment card in Russia assumes the possibility of using by the cardholder not only those funds that are in his bank account, but also a loan (in the form of an overdraft). The amount of the overdraft limit is determined by the credit institution that issued the card in accordance with the bank account agreement.
A credit bank card allows its holder to make retail payments using a credit line, the amount of which is determined by the commercial bank that issued the card. Currently, payment cards prevail in retail turnover in Russia, accounting for more than 90% of the total number of issued cards in the country [see: Bank of Russia, 20106J. The prevalence of debit cards over credit cards in Russia is explained by the fact that the bank card market in Russia was formed due to the implementation of "payroll projects" by credit institutions, within the framework of which most of the payment cards were issued.
As for prepaid cards, their payments are not widely used in Russia. Their share in the total number of cards issued in 2008 did not exceed 0.5% [Bank of Russia, 20106]. The Bank of Russia encourages the use of prepaid cards as a payment instrument. In particular, in 2008 it made it possible to issue prepaid cards in electronic form | see: Ordinance of the Bank of Russia No. 2073-U].
In addition to the aforementioned main types of credit cards, in international practice, there is a special kind of plastic cards, which in their functions can be compared to a bank credit card - card for travel and entertainment (travel and entertainment card). It is sometimes referred to as a deferred payment card. This type of card is issued, as a rule, by non-banking organizations, such as American Express or Diners Club. Such a card gives its holder the opportunity to buy goods on credit in trade and service enterprises, as well as use cash advances, ATMs for withdrawing cash, receive benefits when booking air tickets, hotel rooms or discounts on the price of goods, etc.
The differences between this type of card and bank credit cards are as follows. Firstly, there is no one-time limit on the purchase of goods and services, and secondly, the cardholder is obliged to pay off the debt within a month without the right to prolong the loan. In the event of a delay in payment, the cardholder will be charged an increased percentage.
Another classification of bank cards is associated with their technological features - with the methods of recording information on the card. The earliest and simplest form of recording information on a card was a graphic representation. Initially, information about the surname, name and patronymic of the cardholder, as well as information about the issuer of the bank card, was put on the card. Then a sample of the cardholder's signature was provided, and his surname and first name were mechanically squeezed out on the card (embossed). Embossing made it possible to process settlements with bank cards much faster by leaving an imprint on a sales receipt (slip).
Currently, the most common bank cards are of two types - with a magnetic stripe and with an embedded microcircuit (chip card - a chip card, smart card - a smart card). Cards with a magnetic stripe have a magnetic stripe on the back, which contains the data necessary to identify the identity of the cardholder when using it in ATMs and electronic terminals of trading establishments. When the card is inserted into the appropriate reader, the individual data of the holder is transmitted over communication networks to obtain permission (authorization) for the transaction.
On the cards of large international card associations (Visa, MasterCard), the magnetic stripe has three tracks for recording the necessary information in a coded form. One of them has a personal identification code (PIN - PIN - personal identification number, hereinafter - PIN-code), which is entered by the cardholder using a special keyboard when he uses ATMs and vending terminals. The dialed digits are compared with the PIN-code written on the strip. If they do not match, the holder is given the opportunity to make two more attempts to dial the PIN-code. The card is then withdrawn by the ATM.
The microcircuit card was invented in France in 1974 and has become widespread in this country and abroad. A microcircuit (chip) built into the card is the storage of information that is recorded in advance and then can be updated at the time of the transaction. This expands the functionality of the card and increases its reliability.
On the basis of the information recorded in the chip, a card transaction can be carried out in an off-line mode, i.e. without direct communication with the processing center at the time of the transaction. Since the card itself stores in memory the amount of funds available in the bank account, authorization is not required here. In the process of exchanging information contained on a bank card with an electronic terminal, it is "recognized", after which the money is debited from the card as payment for the purchased goods. If the amount of the transaction is less than the amount of the bank card limit, then at the time of its execution, the amount of the free limit will be reduced and a new balance is recorded, which can be used for the next purchase. If the limit is exceeded, the transaction simply will not take place. When money is deposited into the account, the limit is restored, about which a new entry is made on the chip.
