This document discusses credit cards and debit cards in banking technology. It provides a brief history of credit cards dating back to ancient times and highlights key developments like Diners Club launching the first plastic credit card in 1950. It describes the different types of credit cards like bank cards, travel cards, and affinity cards. The document also outlines the credit card authorization and settlement processes between merchants, card networks and issuing banks. Additionally, it summarizes the economics of credit cards for issuers, acquirers and associated costs. Debit cards are also introduced along with their authorization process through debit card networks.

1. Banking Technology
Electronic Cards :
Debit and Credit

2. Banking Technology September 2005
In Brief
Credit Cards
History
Types of Credit Cards
Authorisation Process
Settlement Process
The Economics
Debit Cards

3. Banking Technology September 2005
Credit Cards
Credit cards are a type of consumer loan,
revolving in nature while automatically
renewing itself, within specific limits. The
embody 2 aspects:
• The Transmission of Payments
• The Granting of Credit
Key Features
• Have spending limits set by card issuer
• interest rate levied on unpaid balances is
typically many times the base-lending rate

4. Banking Technology September 2005
Electronic Payments…Growth

5. Banking Technology September 2005
Credit Cards - History
• Credit was first used in Assyria, Babylon and Egypt 3000 years
ago
• In the 1920s, a shopper’s plate - a ‘buy now, pay later’ system -
was introduced in the USA
• Charge cards date back to 1914 when Western Union provided
metal cards giving free, deferred-payment privileges to preferred
customers. These cards came to be called "metal money."
• In 1924, General Petroleum Corporation issued the first metal
money for gasoline and automotive services first to employees
and select customers and later to the general public.
• John C. Biggins, a consumer credit card specialist at the
Flatbush National Bank of Brooklyn, New York, who in 1946
launched a credit plan called “Charge-it
• In 1950, Diners Club and American Express launched their
charge cards in the USA, the first “plastic money”

6. Banking Technology September 2005
Credit Card Types
• Bank cards: Bank cards are issued by banks (for example,
Visa, MasterCard and Discover Card)
• Travel and Entertainment (T&E) cards: T&E cards such as
American Express and Diners Club
• House cards: House cards are cards that are issued by a
chain of stores
• Affinity Cards: This card, typically a MasterCard or Visa –
carries the logo of an organization in addition to the
lender’s emblem. Usually, these cardholders derive some
benefit from using the card such as frequent-flyer miles or
points toward merchandise

7. Banking Technology September 2005
Credit Cards
On the back side there is magnetic stripe with 3 tracks, but generally only 2
“read” tracks are used…the “read/write” track is not used typically

8. Banking Technology September 2005
Credit Card Authentication
• Electronic Data Capture is the commonly used
method…The EDC SW at POS sends the
information to acquirer, which checks for:
• Merchant ID
• Valid card number
• Expiration date
• Credit-card limit
• Card usage

9. Banking Technology September 2005
Credit Card
Processor
Card Association System
(Visa’s VisaNet or
MasterCard’s BankNet)
Merchant
Card Issuing Bank
Authorization Process -
Credit Cards
Network

10. Banking Technology September 2005
3rd Party Internet
Processor
Card
Authorization Network
Merchant Website
Card Issuing Bank
Authorization Process -
Credit Cards - Internet
Network

11. Banking Technology September 2005
Administration
Risk Management Operations Customer Services
Credit Processing Card Issue
Recovery Income Interchange
Security
Marketing
Cardholder Billing
Payment Processing
Authorization
Issuing Bank Functions

12. Banking Technology September 2005
Application
approval
Create
account on
master file
Customer data
transferred to
magnetic
media
Create tape
for card
production
Card
Production
Card
mailed to
cardholder
Card Production

13. Banking Technology September 2005
Card
Holders
Purchase
Transaction
Merchant
Establishme
nt
Issuer
Bank
5. Notice to the
cardholder
6. Customer
Payment
3. Bill
submission
4. Payment to the
merchant
1. Buying
goods
2. Produce
card
Credit Card
Settlement Cycle

14. Banking Technology September 2005
Economics
• For the Issuer
– Interest income
– Interchange income
– Annual membership fee
– Other fees – balance transfer, cash advance fee
• For the Acquirer
– Merchant discount
– Merchant annual fees, rental of POS, etc
– Earnings on deposits from merchants
• The Costs
– Outgoing interchange
– Processing costs
– Frauds
– Defaults

15. Banking Technology September 2005
Credit Cards
Have lion’s share – more than 80% of e-commerce payments globally. Yet,
there are certain issues
• Security
• Consumer perceptions/behaviour – comfort level, interest charges, limits
• Privacy
• Legal/regulatory
Fraud – A major cause of concern. Global bank fraud losses amounted to
US$3.8 billion per US$100 billion volume (Nilson Report)
• Identify Theft
• Card-Not-Present
• Triangulation
• Counterfeit, lost/stolen cards
• Mail Intercept
• Skimming

16. Banking Technology September 2005
Credit Card
Processor
Debit Card Networks
Merchant
Cardholder’s Bank
Debit Card Networks
Debit Card Networks
Cardholder’s Bank
Cardholder’s Banks
Cardholder’s Account
Cardholder’s Account
Cardholder’s Account
Authorization Process -
Debit Cards

17. Banking Technology September 2005
Debit Cards – Plus & Minus
• The Pluses
– Makes for a quicker and more convenient payment
– Eliminates the need to carry a Checkbook and a lot of cash.
– Can be used out of town or at locations where personal checks
are not accepted.
– Reduces the possibility of loss or theft of cash.
– You know what you are spending
• The Minuses
– Cannot be used in all situations
– Need to be sure of the account balances

18. Banking Technology September 2005