Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society.

Contents

1 Features 2 History

3 Security

4 See also

5 References

6 External links

] Features

Online banking solutions have many features and capabilities in common, but traditionally also have some that are application specific.

The common features fall broadly into several categories Transactional (e.g., performing a financial transaction such as an account to account

transfer, paying a bill, wire transfer, apply for a loan, new account, etc.) o Payments to third parties, including bill payments and telegraphic/wire transfers

o Funds transfers between a customer's own transactional account and savings accounts

o Investment purchase or sale

o Loan applications and transactions, such as repayments of enrollments

Non-transactional (e.g., online statements, cheque links, co browsing, chat)

o Viewing recent transactions

o Downloading bank statements, for example in PDF format

o Viewing images of paid cheques

Financial Institution Administration

Management of multiple users having varying levels of authority

Transaction approval process

Features commonly unique to Internet banking include

Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

History

The precursor for the modern home online banking services were the distance banking services over electronic media from the early 1980s. The term online became popular in the late '80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. ‘Home banking’ can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the city’s major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services[1] using the videotex system. Because of the commercial failure of videotex these banking services never became popular except in France where the use of videotex (Minitel) was subsidised by the telecom provider and the UK, where the Prestel system was used.

The UK's first home online banking services[2] was set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983[3]. The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone system and television set. The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly.

Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in October 1994.[citation needed]

Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates and online banking features.

[edit] Security

Security token devices

Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Basically there exist two different security methods for online banking.

The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.

Another way to provide TANs to an online banking user, is to send the TAN of the current bank transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes the transaction amount and details, the TAN is only valid for a short period of time. Especially in Germany and Austria, many banks have adapted this "SMS TAN" service as it is considered as very secure.

Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.

Attacks

Most of the attacks on online banking used today are based on deceiving the user to steal login data and valid TANs. Two well known examples for those attacks are phishing and pharming. Cross-site scripting and keylogger/Trojan horses can also be used to steal login information.

A method to attack signature based online banking methods is to manipulate the used software in a way, that correct transactions are shown on the screen and faked transactions are signed in the background.

A recent FDIC Technology Incident Report, compiled from suspicious activity reports banks file quarterly, lists 536 cases of computer intrusion, with an average loss per incident of $30,000. That adds up to a nearly $16-million loss in the second quarter of 2007. Computer intrusions increased by 150 percent between the first quarter of 2007 and the second. In 80 percent of the cases, the source of the intrusion is unknown but it occurred during online banking, the report states.[4]

The most recent kind of attack is the so-called Man in the Browser attack, where a Trojan horses permits a remote attacker to modify the destination account number and also the amount.

Countermeasures

There exist several countermeasures which try to avoid attacks. Digital certificates are used against phishing and pharming, the use of class-3 card readers is a measure to avoid manipulation of transactions by the software in signature based online banking variants. To protect their systems against Trojan horses, users should use virus scanners and be careful with downloaded software or e-mail attachments.

In 2001 the FFIEC issued guidance for multifactor authentication (MFA) and then required to be in place by the end of 2006.[5]

Mobile bankingFrom Wikipedia, the free encyclopedia

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Mobile banking (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers [1].

Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web. Apple's initial success with iPhone and the rapid growth of phones based on Google's Android (operating system) have led to increasing use of special client programs, called apps, downloaded to the mobile device.

Contents

[hide]

1 A mobile banking conceptual model 2 Trends in mobile banking

3 Mobile banking business models

o 3.1 Bank-focused model

o 3.2 Bank-led model

o 3.3 Non-bank-led model

4 Mobile Banking Services

o 4.1 Account Information

o 4.2 Payments, Deposits, Withdrawals, and Transfers

o 4.3 Investments

o 4.4 Support

o 4.5 Content Services

5 Challenges for a Mobile Banking Solution

o 5.1 Handset operability

o 5.2 Security

o 5.3 Scalability & Reliability

o 5.4 Application distribution

o 5.5 Personalization

6 Mobile banking in the world

7 See also

8 Notes

9 References

[edit] A mobile banking conceptual model

In one academic model,[2] mobile banking is defined as:

Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information."

According to this model Mobile Banking can be said to consist of three inter-related concepts:

Mobile Accounting Mobile Brokerage

Mobile Financial Information Services

Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.

Mobile phone banking may also be used to help in business situations

[edit] Trends in mobile banking

The advent of the Internet has enabled new ways to conduct banking business, resulting in the creation of new institutions, such as online banks, online brokers and wealth managers. Such institutions still account for a tiny percentage of the industry.[citation needed]

Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now[when?] exceeds 2.5 billion (of which more than 2 billion are GSM).[citation needed]

With mobile technology, banks can offer services to their customers such as doing funds transfer while travelling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. Smartphones and 3G connectivity provide some capabilities that older text message-only phones do not.

This article appears to contain unverifiable speculation and unjustified claims. Information must be verifiable and based on reliable published sources. Please remove unverified speculation from the article.

According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones. Mobile banking will eventually allow users to make payments at the physical point of sale. "Mobile contactless payments” will make up 10% of the contactless market by 2010.[3] Another study from 2010 by Berg Insight forecasts that the number of mobile banking users in the US will grow from 12 million in 2009 to 86 million in 2015. The same study also predicts that the European market will grow from 7 million mobile banking users in 2009 to 115 million users in 2015.[4]

Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phones. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where mobile infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where mobile phone penetration is very high (at least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more.

[edit] Mobile banking business models

A wide spectrum of Mobile/branchless banking models is evolving. However, no matter what business model, if mobile banking is being used to attract low-income populations in often rural locations, the business model will depend on banking agents, i.e., retail or postal outlets that process financial transactions on behalf telcos or banks. The banking agent is an important part of the mobile banking business model since customer care, service quality, and cash management will depend on them. Many telcos will work through their local airtime resellers. However, banks in Colombia, Brazil, Peru, and other markets use pharmacies, bakeries, etc.

These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories - Bank Focused, Bank-Led and Nonbank-Led.

[edit] Bank-focused model

The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Examples range from use of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks’ customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.

[edit] Bank-led model

The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank

[edit] Non-bank-led model

The non-bank-led model is where a bank has a limited role in the day-to-day account management. Typically its role in this model is limited to safe-keeping of funds. Account management functions are conducted by a non-bank (e.g. telco) who has direct contact with individual customers.

[edit] Mobile Banking Services

Mobile banking can offer services such as the following:

[edit] Account Information1. Mini-statements and checking of account history2. Alerts on account activity or passing of set thresholds

3. Monitoring of term deposits

4. Access to loan statements

5. Access to card statements

6. Mutual funds / equity statements

7. Insurance policy management

8. Pension plan management

9. Status on cheque, stop payment on cheque

10. Ordering cheque books

11. Balance checking in the account

12. Recent transactions

13. Due date of payment (functionality for stop, change and deleting of payments)

14. PIN provision, Change of PIN and reminder over the Internet

15. Blocking of (lost, stolen) cards

[edit] Payments, Deposits, Withdrawals, and Transfers1. Domestic and international fund transfers2. Micro-payment handling

3. Mobile recharging

4. Commercial payment processing

5. Bill payment processing

6. Peer to Peer payments

7. Withdrawal at banking agent

8. Deposit at banking agent

A specific sequence of SMS messages will enable the system to verify if the client has sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent. When depositing money, the merchant receives cash and the system credits the client's bank account or mobile wallet. In the same way the client can also withdraw money at the merchant: through

exchanging sms to provide authorization, the merchant hands the client cash and debits the merchant's account.

[edit] Investments1. Portfolio management services2. Real-time stock quotes

3. Personalized alerts and notifications on security prices

4. mobile banking

[edit] Support1. Status of requests for credit, including mortgage approval, and insurance coverage2. Check (cheque) book and card requests

3. Exchange of data messages and email, including complaint submission and tracking

4. ATM Location

[edit] Content Services1. General information such as weather updates, news2. Loyalty-related offers

3. Location-based services

Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the younger, more "tech-savvy" customer segment. A third of mobile phone users say that they may consider performing some kind of financial transaction through their mobile phone. But most of the users are interested in performing basic transactions such as querying for account balance and making bill payment.

[edit] Challenges for a Mobile Banking Solution

Key challenges in developing a sophisticated mobile banking application are :

[edit] Handset operability

There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support Java ME and others support SIM Application Toolkit, a WAP browser, or only SMS.

Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone.

The desire for interoperability is largely dependent on the banks themselves, where installed applications(Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions.

There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world.

On January 2009, Mobile Marketing Association (MMA) Banking Sub-Committee, chaired by CellTrust and VeriSign Inc., published the Mobile Banking Overview for financial institutions in which it discussed the advantages and disadvantages of Mobile Channel Platforms such as Short Message Services (SMS), Mobile Web, Mobile Client Applications, SMS with Mobile Web and Secure SMS.[5]

[edit] Security

Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments.

The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network :

1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important.

2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application.

3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions.

4. User ID / Password authentication of bank’s customer.

5. Encryption of the data being transmitted over the air.

6. Encryption of the data that will be stored in device for later / off-line analysis by the customer.

One-time password (OTPs) are the latest tool used by financial and banking service providers in the fight against cyber fraud [6]. Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumer’s phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.

Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services. Therefore, the provision of service level agreements (SLAs) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform.

[edit] Scalability & Reliability

Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations.

[edit] Application distribution

Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called "Over The Air" updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components.

[edit] Personalization

It would be expected from the mobile application to support personalization such as :

1. Preferred Language2. Date / Time format

3. Amount format

4. Default transactions

5. Standard Beneficiary list

6. Alerts

[edit] Mobile banking in the world

Mobile banking is used in many parts of the world with little or no infrastructure, especially remote and rural areas. This aspect of mobile commerce is also popular in countries where most of their population is unbanked. In most of these places, banks can only be found in big cities, and customers have to travel hundreds of miles to the nearest bank.

In Iran, banks such as Parsian, Tejarat, Mellat, Saderat, Sepah, Edbi, and Bankmelli offer the service. Banco Industrial provides the service in Guatemala. Citizens of Mexico can access mobile banking with Omnilife, Bancomer and MPower Venture. Kenya's Safaricom (part of the Vodafone Group) has the M-Pesa Service, which is mainly used to transfer limited amounts of money, but increasingly used to pay utility bills as well. In 2009, Zain launched their own mobile money transfer business, known as ZAP, in Kenya and other African countries.

Telenor Pakistan has also launched a mobile banking solution, in coordination with Taameer Bank, under the label Easy Paisa, which was begun in Q4 2009. Eko India Financial Services, the business correspondent of State Bank of India (SBI) and ICICI Bank, provides bank accounts, deposit, withdrawal and remittance services, micro-insurance, and micro-finance facilities to its customers (nearly 80% of whom are migrants or the unbanked section of the population) through mobile banking.[7]

SMS bankingFrom Wikipedia, the free encyclopedia

(Redirected from SMS Banking)

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The neutrality of this article is disputed. Please see the discussion on the talk page. Please do not remove this message until the dispute is resolved. (April 2010)

It has been suggested that this article or section be merged into Mobile banking. (Discuss)

Screenshot of a typical SMS Banking message on a mobile screen

SMS banking is a technology-enabled service offering from banks to its customers, permitting them to operate selected banking services over their mobile phones using SMS messaging.

Contents

[hide]

1 Push and pull messages 2 Typical push and pull services offered under SMS banking

3 Concerns and skepticism about SMS banking

4 Quality of service in SMS banking

5 The convenience factor

6 Compensating controls for lack of encryption

7 Technologies employed for SMS banking

8 See also

[edit] Push and pull messages

SMS banking services are operated using both push and pull messages. Push messages are those that the bank chooses to send out to a customer's mobile phone, without the customer initiating a request for the information. Typically push messages could be either Mobile marketing messages or messages alerting an event which happens in the customer's bank account, such as a large withdrawal of funds from the ATM or a large payment using the customer's credit card, etc. (see section below on Typical Push and Pull messages).

Another type of push message is One-time password (OTPs). OTPs are the latest tool used by financial and banking service providers in the fight against cyber fraud. Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumer’s phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.

Pull messages are those that are initiated by the customer, using a mobile phone, for obtaining information or performing a transaction in the bank account. Examples of pull messages for information include an account balance enquiry, or requests for current information like currency exchange rates and deposit interest rates, as published and updated by the bank.

The bank’s customer is empowered with the capability to select the list of activities (or alerts) that he/she needs to be informed. This functionality to choose activities can be done either by integrating to the internet banking channel or through the bank’s customer service call centre.

[edit] Typical push and pull services offered under SMS banking

Depending on the selected extent of SMS banking transactions offered by the bank, a customer can be authorized to carry out either non-financial transactions, or both and financial and non-financial transactions. SMS banking solutions offer customers a range of functionality, classified by push and pull services as outlined below.

Typical push services would include:

Periodic account balance reporting (say at the end of month); Reporting of salary and other credits to the bank account;

Successful or un-successful execution of a standing order;

Successful payment of a cheque issued on the account;

Insufficient funds ;

Large value withdrawals on an account;

Large value withdrawals on the ATM or EFTPOS on a debit card;

Large value payment on a credit card or out of country activity on a credit card.

One-time password and authentication

Typical pull services would include:

Account balance enquiry; Mini statement request;

Electronic bill payment ;

Transfers between customer's own accounts, like moving money from a savings account to a current account to fund a cheque;

Stop payment instruction on a cheque;

Requesting for an ATM card or credit card to be suspended;

De-activating a credit or debit card when it is lost or the PIN is known to be compromised;

Foreign currency exchange rates enquiry;

Fixed deposit interest rates enquiry.

[edit] Concerns and skepticism about SMS banking

This section requires expansion.

There is a very real possibility for fraud when SMS banking is involved, as SMS uses insecure encryption and is easily spoofable (see the SMS page for details). Supporters of SMS banking claim that while SMS banking is not as secure as other conventional banking channels, like the ATM and internet banking, the SMS banking channel is not intended to be used for very high-risk transactions.

[edit] Quality of service in SMS banking

Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services. Therefore, the provision of Service Level Agreement(SLA) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform.

[edit] The convenience factor

The convenience of executing simple transactions and sending out information or alerting a customer on the mobile phone is often the overriding factor that dominates over the skeptics who tend to be overly bitten by security concerns.

As a personalized end-user communication instrument, today mobile phones are perhaps the easiest channel on which customers can be reached on the spot, as they carry the mobile phone all the time no matter where they are. Besides, the operation of SMS banking functionality over phone key instructions makes its use very simple. This is quite different from internet banking which can offer broader functionality, but has the limitation of use only when the customer has access to a computer and the Internet. Also, urgent warning messages, such as SMS alerts, are

received by the customer instantaneously; unlike other channels such as the post, email, Internet, telephone banking, etc. on which a bank's notifications to the customer involves the risk of delayed delivery and response.

The SMS banking channel also acts as the bank’s means of alerting its customers, especially in an emergency situation; e.g. when there is an ATM fraud happening in the region, the bank can push a mass alert (although not subscribed by all customers) or automatically alert on an individual basis when a predefined ‘abnormal’ transaction happens on a customer’s account using the ATM or credit card. This capability mitigates the risk of fraud going unnoticed for a long time and increases customer confidence in the bank’s information systems.

[edit] Compensating controls for lack of encryption

The lack of encryption on SMS messages is an area of concern that is often discussed. This concern sometimes arises within the group of the bank’s technology personnel, due to their familiarity and past experience with encryption on the ATM and other payment channels. The lack of encryption is inherent to the SMS banking channel and several banks that use it have overcome their fears by introducing compensating controls and limiting the scope of the SMS banking application to where it offers an advantage over other channels.

Suppliers of SMS banking software solutions have found reliable means by which the security concerns can be addressed. Typically the methods employed are by pre-registration and using security tokens where the transaction risk is perceived to be high. Sometimes ATM type PINs are also employed, but the usage of PINs in SMS banking makes the customer's task more cumbersome.

[edit] Technologies employed for SMS banking

Most SMS banking solutions are add-on products and work with the bank’s existing host systems deployed in its computer and communications environment. As most banks have multiple backend hosts, the more advanced SMS banking systems are built to be able to work in a multi-host banking environment; and to have open interfaces which allow for messaging between existing banking host systems using industry or de-facto standards.

Well developed and mature SMS banking software solutions normally provide a robust control environment and a flexible and scalable operating environment. These solutions are able to connect seamlessly to multiple SMSC operators in the country of operation. Depending on the volume of messages that are require to be pushed, means to connect to the SMSC could be different, such as using simple modems or connecting over leased line using low level communication protocols (like SMPP, UCP etc.). Advanced SMS banking solutions also cater to providing failover mechanisms and least-cost routing options.

Bank cardBankcardFrom Wikipedia, the free encyclopedia

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This article is about the credit card. For other uses, see Bank card.

Bankcard

Launch year 1974

Company Bankcard Association of Australia

Availability No

http://www.bankcard.com.au/

Bankcard was a shared-brand credit card issued by financial institutions in Australia and New Zealand between 1974 and 2006. It was managed by the Bankcard Association of Australia, a joint venture of Australia's largest banks, and was the nation's first mass-market credit card. Before 1974, only store cards, Diners Club and American Express were available in Australia and these were either restrictive or only accessible to the wealthy.[1][2] In the first decade after its introduction, Bankcard dominated the Australian credit card market, with more than 5 million cardholders at its peak in 1984.[3] As a result of a declining cardholder base, falling transaction volumes and shrinking market share in relation to internationally-accepted credit cards such as VISA and MasterCard, the card was withdrawn from use in 2006.[3]

Contents

[hide]

1 History

2 Withdrawal

3 Cultural impact

4 References

5 External links

[edit] History

Before Bankcard, the relatively small population of Australia, coupled with its vast geographical spread made a credit card system cost prohibitive for any single Australian bank. In the early 1970s a number of banks combined to seek approval from the Reserve Bank of Australia and the Australian Federal Treasury to commence a credit card scheme in the Australian financial market.[2] Approval was granted in 1972. The banks formed a company, Charge Card Services Limited, to manage Bankcard and process credit card transactions. Each member bank issued its own variant the Bankcard card and each established its own credit rules and maintained direct customer relations with its own cardholders. Bankcard was officially launched in October 1974 by then Prime Minister of Australia, Gough Whitlam.[1]

A significant marketing campaign followed the card's launch. This included what was then the biggest direct mail marketing campaign in Australia to date.[2] Among other things, banks posted a card with a $A300 credit limit to potential clients, following analysis of their accounts.[4] In 1974, David Jones became the first major retailing organisation to accept Bankcard[5] and by 1976 the card was accepted by almost every Australian department chain.[6] Within 18 months of the card's issue, there were more than one million cardholders, representing more than 6% of the Australian population. 1983 saw the expansion of Bankcard to New Zealand. By 1984, there were more than five million cardholders in Australia and New Zealand.

In 1986 there was a dispute between the banks as to whether Bankcard would be included in the then new electronic banking EFTPOS system.[7] At the time, Westpac and the Commonwealth Bank were heavily promoting MasterCard and providing only minimal support to the Bankcards they issued, while the National Australia Bank, ANZ and state banks all supported Bankcard.[8] The banks came to an accord whereby magnetic strips would be placed on all Bankcards, allowing them to be used in the EFTPOS system.[8]

[edit] Withdrawal

By early 2006, the number of cardholders had declined to around one million. Popularity of the card had declined as other credit card options became available. Bankcard was significantly limited by its lack of acceptance outside Australia and New Zealand. It could not be used for electronic procurement on the internet and by the turn of the century was considered as outdated.[1] Despite this, Bankcard continued to generate profits for member banks, largely because the elderly demographic of cardholders had a low instance of default.[9] In February 2006, however, the Bankcard Association of Australia announced that it would phase out Bankcard by the end of that year, citing the exceptional growth of credit card operations and improvements in

technology allowing member banks to perform their own data capture and processing in-house.[2]

Existing cardholders were offered alternative credit cards by their issuing banks.

At the time of this announcement, the National Australia Bank remained the only bank still issuing Bankcard. Westpac and the Commonwealth Bank had stopped issuing the card in June and December 2005 respectively. Merchants within Australia were able to accept Bankcards until the end of 2006. Bankcard operations were closed in New Zealand in October 2005.

[edit] Cultural impact

Bankcard was the first widely available credit card issued by Australian banks for general consumption.[4] Banks actively sought to educate consumers on how to use credit cards[10] and it "revolutionised" the way Australian consumers paid for goods and services.[10] According to Gregory Melleuish, the introduction of Bankcard helped accelerate the process of establishing consumerism in Australia.[11] On the withdrawal of Bancard in 2006, retailer Gerry Harvey stated that the credit card had "inspired, or enabled, more people to buy on credit and all retailers' sales improved."[10] Supriya Singh, a professor at RMIT, argued that the introduction of Bankcard marked the beginning of Australia's transformation to "virtual money".[12] The availability of credit cards in Australia after 1974, together with wider financial deregulation, resulted in significant increases in household indebtedness.[13

ATM cardFrom Wikipedia, the free encyclopedia

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For other uses, see Bank card (disambiguation).

Sample ATM card.

An ATM card (also known as a bank card, client card, key card or cash card) is a card issued by a bank, credit union or building society that can be used at an ATM for deposits, withdrawals, account information, and other types of transactions, often through interbank networks.

Some ATM cards can also be used:

at a branch, as identification for in-person transactions at merchants, for EFTPOS (point of sale) purchases

ATM cards are typically about 86 × 54 mm, i.e. ISO/IEC 7810 ID-1 size.

Unlike a debit card, in-store purchases or refunds with an ATM card can generally be made in person only, as they require authentication through a personal identification number or PIN. In other words, ATM cards cannot be used at merchants that only accept credit cards.

However, other types of transactions through telephone or online banking may be performed with an ATM card without in-person authentication. This includes account balance inquiries, electronic bill payments or in some cases, online purchases (see Interac Online).

In some countries, the two functions of ATM cards and debit cards are combined into a single card called a debit card or also commonly called a bank card. These are able to perform banking tasks at ATMs and also make point-of-sale transactions, both functions using a PIN. Canada's Interac and Europe's Maestro are examples of networks that link bank accounts with point-of-sale equipment.

Due to increased card fraud with magnetic stripe cloning, the European Payments Council established a Card Fraud Prevention Task Force in 2003 that spawned a commitment to migrate all ATMs and POS applications to use a chip-and-pin solution until the end of 2010.[1] The "SEPA for Cards"[2] has completely removed the magnetic stripe requirement from the former Maestro debit cards, and the savings banks have announced that they will ship their debit cards without a magnetic stripe beginning in 2012.[

Credit cardFrom Wikipedia, the free encyclopedia

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This article may be too long to read and navigate comfortably. Please consider splitting content into sub-articles and using this article for a summary of the key points of the subject. (May 2009)

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National bankv · d · e

Credit card

An example of the front in a typical credit card:

1. Issuing bank logo2. EMV chip on "smart cards"

3. Hologram

4. Credit card number

5. Card brand logo

6. Expiration Date

7. Card Holder Name

8. contactless chip

An example of the reverse side of a typical credit card:

1. Magnetic Stripe 2. Signature Strip

3. Card Security Code

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services.[1] The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.

A credit card is different from a charge card: a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. Most credit cards are issued by banks or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is defined as 85.60 × 53.98 mm (3.370 × 2.125 in) (33/8 × 21/8 in) in size.

Contents

[hide]

1 History o 1.1 Collectible credit cards

2 How credit cards work

o 2.1 Advertising, solicitation, application and approval

o 2.2 Interest charges

o 2.3 Benefits to customers

o 2.4 Detriments to customers

2.4.1 High interest and bankruptcy

2.4.2 Inflated pricing for all consumers

o 2.5 Grace period

o 2.6 Benefits to merchants

o 2.7 Costs to merchants

o 2.8 Parties involved

o 2.9 Transaction steps

o 2.10 Secured credit cards

o 2.11 Prepaid "credit" cards

3 Features

4 Security problems and solutions

o 4.1 Code 10

5 Credit history

6 Profits and losses

7 Costs

o 7.1 Interest expenses

o 7.2 Operating costs

o 7.3 Charge offs

o 7.4 Rewards

o 7.5 Fraud

o 7.6 Promotion

o 7.7 Revenues

7.7.1 Interchange fee

7.7.2 Interest on outstanding balances

7.7.3 Fees charged to customers

8 Over limit charges

o 8.1 US

o 8.2 UK

9 Neutral consumer resources

o 9.1 Canada

10 Controversy

o 10.1 Hidden costs

11 Credit card numbering

12 Credit cards in ATMs

13 Credit cards as funding for entrepreneurs

14 See also

15 References

16 External links

[edit] History

The concept of using a card for purchases was described in 1887 by Edward Bellamy in his utopian novel Looking Backward. Bellamy used the term credit card eleven times in this novel.[2]

The modern credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s, in the United States, specifically to sell fuel to a growing number of automobile owners. In 1938 several companies started to accept each other's cards. Western Union had begun issuing charge cards to its frequent customers in 1921. Some charge cards were printed on paper card stock, but were easily counterfeited.

The Charga-Plate, developed in 1928, was an early predecessor to the credit card and used in the U.S. from the 1930s to the late 1950s. It was a 2½" × 1¼" rectangle of sheet metal related to Addressograph and military dog tag systems. It was embossed with the customer's name, city and state. It held a small paper card for a signature. In recording a purchase, the plate was laid into a recess in the imprinter, with a paper "charge slip" positioned on top of it. The record of the transaction included an impression of the embossed information, made by the imprinter pressing an inked ribbon against the charge slip.[3] Charga-Plate was a trademark of Farrington Manufacturing Co. Charga-Plates were issued by large-scale merchants to their regular customers, much like department store credit cards of today. In some cases, the plates were kept in the issuing store rather than held by customers. When an authorized user made a purchase, a clerk retrieved the plate from the store's files and then processed the purchase. Charga-Plates speeded back-office bookkeeping that was done manually in paper ledgers in each store, before computers.

The concept of customers paying different merchants using the same card was implemented in 1950 by Ralph Schneider and Frank McNamara, founders of Diners Club, to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first "general purpose" charge card, and required the entire bill to be paid with each statement. That was followed by Carte Blanche and in 1958 by American Express which created a worldwide credit card network (although these were initially charge cards that acquired credit card features after BankAmericard demonstrated the feasibility of the concept).

However, until 1958, no one had been able to create a working revolving credit financial instrument issued by a third-party bank that was generally accepted by a large number of merchants (as opposed to merchant-issued revolving cards accepted by only a few merchants). A dozen experiments by small American banks had been attempted (and had failed). In September

1958, Bank of America launched the BankAmericard in Fresno, California. BankAmericard became the first successful recognizably modern credit card (although it underwent a troubled gestation during which its creator resigned), and with its overseas affiliates, eventually evolved into the Visa system. In 1966, the ancestor of MasterCard was born when a group of California banks established Master Charge to compete with BankAmericard; it received a significant boost when Citibank merged its proprietary Everything Card (launched in 1967) into Master Charge in 1969.

Early credit cards in the U.S., of which BankAmericard was the most prominent example, were mass produced and mass mailed unsolicited to bank customers who were thought to be good credit risks. But, “They have been mailed off to unemployables, drunks, narcotics addicts and to compulsive debtors, a process President Johnson’s Special Assistant Betty Furness found very like ‘giving suger to diabetics’.”[4] These mass mailings were known as "drops" in banking terminology, and were outlawed in 1970 due to the financial chaos that they caused, but not before 100 million credit cards had been dropped into the U.S. population. After 1970, only credit card applications could be sent unsolicited in mass mailings.

The fractured nature of the U.S. banking system under the Glass–Steagall Act meant that credit cards became an effective way for those who were traveling around the country to move their credit to places where they could not directly use their banking facilities. In 1966 Barclaycard in the UK launched the first credit card outside of the U.S.

There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user credit cards, store cards and so on.

Although credit cards reached very high adoption levels in the US, Canada and the UK in the mid twentieth century, many cultures were more cash-oriented, or developed alternative forms of cash-less payments, such as Carte bleue or the Eurocard (Germany, France, Switzerland, and others). In these places, adoption of credit cards was initially much slower. It took until the 1990s to reach anything like the percentage market-penetration levels achieved in the US, Canada, or UK. In some countries, acceptance still remains poor as the use of a credit card system depends on the banking system being perceived as reliable. Japan remains a very cash oriented society, with credit card adoption being limited to only the largest of merchants, although an alternative system based on RFIDs inside cellphones has seen some acceptance. Because of strict regulations regarding banking system overdrafts, some countries, France in particular, were much faster to develop and adopt chip-based credit cards which are now seen as major anti-fraud credit devices. Debit cards and online banking are used more widely than credit cards in some countries.

The design of the credit card itself has become a major selling point in recent years. The value of the card to the issuer is often related to the customer's usage of the card, or to the customer's financial worth. This has led to the rise of Co-Brand and Affinity cards - where the card design is related to the "affinity" (a university or professional society, for example) leading to higher card usage. In most cases a percentage of the value of the card is returned to the affinity group.

[edit] Collectible credit cards

A growing field of numismatics (study of money), or more specifically exonumia (study of money-like objects), credit card collectors seek to collect various embodiments of credit from the now familiar plastic cards to older paper merchant cards, and even metal tokens that were accepted as merchant credit cards. Early credit cards were made of celluloid plastic, then metal and fiber, then paper, and are now mostly plastic.

[edit] How credit cards work

Credit cards are issued by a credit card issuer, such as a bank or credit union, after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card. Merchants often advertise which cards they accept by displaying acceptance marks – generally derived from logos – or may communicate this orally, as in "Credit cards are fine" (implicitly meaning "major brands"), "We take (brands X, Y, and Z)", or "We don't take credit cards".

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a card not present transaction (CNP).

Electronic verification systems allow merchants to verify in a few seconds that the card is valid and the credit card customer has sufficient credit to cover the purchase, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or point-of-sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is called Chip and PIN in the United Kingdom and Ireland, and is implemented as an EMV card.

For card not present transactions where the card is not shown (e.g., e-commerce, mail order, and telephone sales), merchants additionally verify that the customer is in physical possession of the card and is the authorized user by asking for additional information such as the security code printed on the back of the card, date of expiry, and billing address.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see 15 U.S.C. §   1643 , which limits cardholder liability for unauthorized use of a credit card to $50, and the Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit issuer charges interest on the amount owed if the balance is not paid in full (typically at a much higher rate than most other forms of debt). In addition, if the credit card user fails to make at least the minimum payment by the due date, the issuer may impose a "late fee" and/or other penalties on the user. To help mitigate this, some financial

institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding such penalties altogether as long as the cardholder has sufficient funds.

[edit] Advertising, solicitation, application and approval

Credit card advertising regulations include the Schumer box disclosure requirements. A large fraction of junk mail consists of credit card offers created from lists provided by the major credit reporting agencies. In the United States, the three major US credit bureaus (Equifax, TransUnion and Experian) allow consumers to opt out from related credit card solicitation offers via its Opt Out Pre Screen program.

[edit] Interest charges

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made, the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid, i.e. when the balance stopped revolving).

The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, to encourage balance transfers from cards of other issuers. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue.

[edit] Benefits to customers

The main benefit to each customer is convenience. Compared to debit cards and cheques, a credit card allows small short-term loans to be quickly made to a customer who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card. Credit cards also provide more fraud protection than debit cards. In the UK for example, the bank is jointly liable with the merchant for purchases of defective products over £100.[5]

Many credit cards offer rewards and benefits packages, such as offering enhanced product warranties at no cost, free loss/damage coverage on new purchases, and points which may be redeemed for cash, products, or airline tickets. Additionally, carrying a credit card may be a convenience to some customers as it eliminates the need to carry any cash for most purposes.

[edit] Detriments to customers

[edit] High interest and bankruptcy

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Low introductory credit card rates are limited to a fixed term, usually between 6 and 12 months, after which a higher rate is charged. As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy. Some credit cards often levy a rate of 20 to 30 percent after a payment is missed; in other cases a fixed charge is levied without change to the interest rate. In some cases universal default may apply: the high default rate is applied to a card in good standing by missing a payment on an unrelated account from the same provider. This can lead to a snowball effect in which the consumer is drowned by unexpectedly high interest rates. Further, most card holder agreements enable the issuer to arbitrarily raise the interest rate for any reason they see fit. As of December 2009, First Premier Bank is reportedly offering a credit card with a 79.9% interest rate.[6]

[edit] Inflated pricing for all consumers

Merchants that accept credit cards must pay interchange fees and discount fees on all credit-card transactions.[7][8] In some cases merchants are barred by their credit agreements from passing these fees directly to credit card customers, or from setting a minimum transaction amount (no longer prohibited in the United States).[9] The result is that merchants may charge all customers (including those who do not use credit cards) higher prices to cover the fees on credit card transactions.[8] In the United States in 2008 credit card companies collected a total of $48 billion in interchange fees, or an average of $427 per family, with an average fee rate of about 2% per transaction.[8]

[edit] Grace period

A credit card's grace period is the time the customer has to pay the balance before interest is assessed on the outstanding balance. Grace periods may vary, but usually range from 20 to 50 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met.

Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charges incurred depend on the grace period and balance; with most credit cards there is no grace period if there is any outstanding balance from the previous billing cycle or statement (i.e. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.

[edit] Benefits to merchants

An example of street markets accepting credit cards. Most simply display the acceptance marks (stylized logos, shown in the upper-left corner of the sign) of all the cards they accept.

For merchants, a credit card transaction is often more secure than other forms of payment, such as cheques, because the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on the credit card payment (except for legitimate disputes, which are discussed below, and can result in charges back to the merchant). In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises.

Prior to credit cards, each merchant had to evaluate each customer's credit history before extending credit. That task is now performed by the banks which assume the credit risk. Credit cards can also aid in securing a sale, especially if the customer does not have enough cash on his or her person or checking account. Extra turnover is generated by the fact that the customer can purchase goods and/or services immediately and is less inhibited by the amount of cash in his or her pocket and the immediate state of his or her bank balance. Much of merchants' marketing is based on this immediacy.

For each purchase, the bank charges the merchant a commission (discount fee) for this service and there may be a certain delay before the agreed payment is received by the merchant. The commission is often a percentage of the transaction amount, plus a fixed fee (interchange rate). In addition, a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges as a result of disputes. Some small merchants require credit purchases to have a minimum amount to compensate for the transaction costs.

In some countries, for example the Nordic countries, banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will instead have to show their passport, and the passport number will be written down on the receipt, sometimes together with other information. Some shops use the card's PIN for identification, and in that case showing an ID card is not necessary.

[edit] Costs to merchants

Merchants are charged several fees for the privilege of accepting credit cards. The merchant is usually charged a commission of around 1 to 3 per-cent of the value of each transaction paid for by credit card. The merchant may also pay a variable charge, called an interchange rate, for each transaction.[7] In some instances of very low-value transactions, use of credit cards will significantly reduce the profit margin or cause the merchant to lose money on the transaction. Merchants must accept these transactions as part of their costs to retain the right to accept credit card transactions. Merchants with very low average transaction prices or very high average transaction prices are more averse to accepting credit cards. In some cases merchants may charge users a "credit card supplement", either a fixed amount or a percentage, for payment by credit card.[10] This practice is prohibited by the credit card contracts in the United States, although the contracts allow the merchants to give discounts for cash payment.

[edit] Parties involved Cardholder: The holder of the card used to make a purchase; the consumer. Card-issuing bank: The financial institution or other organization that issued the credit card to

the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case. Cards issued by banks to cardholders in a different country are known as offshore credit cards.

Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder.

Acquiring bank : The financial institution accepting payment for the products or services on behalf of the merchant.

Independent sales organization : Resellers (to merchants) of the services of the acquiring bank.

Merchant account : This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with.

Credit Card association: An association of card-issuing banks such as Visa, MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.

Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks.

Affinity partner: Some institutions lend their names to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. Examples of typical affinity partners are sports teams, universities, charities, professional organizations, and major retailers.

The flow of information and money between these parties — always through the card associations — is known as the interchange, and it consists of a few steps.

This section requires expansion.

[edit] Transaction steps Authorization : The cardholder pays for the purchase and the merchant submits the transaction

to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the issuer (Card-issuing bank) and reserves that amount of the cardholder's credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction.

Batching: Authorized transactions are stored in "batches", which are sent to the acquirer. Batches are typically submitted once per day at the end of the business day. If a transaction is not submitted in the batch, the authorization will stay valid for a period determined by the issuer, after which the held amount will be returned back to the cardholder's available credit (see authorization hold). Some transactions may be submitted in the batch without prior authorizations; these are either transactions falling under the merchant's floor limit or ones where the authorization was unsuccessful but the merchant still attempts to force the transaction through. (Such may be the case when the cardholder is not present but owes the merchant additional money, such as extending a hotel stay or car rental.)

Clearing and Settlement: The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction.

Funding: Once the acquirer has been paid, the acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus either the "discount rate," "mid-qualified rate", or "non-qualified rate" which are tiers of fees the merchant pays the acquirer for processing the transactions.

Chargebacks: A chargeback is an event in which money in a merchant account is held due to a dispute relating to the transaction. Chargebacks are typically initiated by the cardholder. In the event of a chargeback, the issuer returns the transaction to the acquirer for resolution. The

acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

[edit] Secured credit cards

A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus if the cardholder puts down $1000, they will be given credit in the range of $500–$1000. In some cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases, the deposit required may be significantly less than the required credit limit, and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Credit card issuers offer this because they have noticed that delinquencies were notably reduced when the customer perceives something to lose if the balance is not repaid.

The cardholder of a secured credit card is still expected to make regular payments, as with a regular credit card, but should they default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows for building of positive credit history.

Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account which is less than 150 days delinquent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt.

Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened.

Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. They are often offered as a means of rebuilding one's credit. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, however, for people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards are almost always more expensive then unsecured credit cards.

Sometimes a credit card will be secured by the equity in the borrower's home.

[edit] Prepaid "credit" cardsSee also: Stored-value card

A prepaid credit card is not a true credit card,[11] since no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (such as Visa, MasterCard, American Express, Discover, or JCB) and can be used in similar ways just as though it were a regular credit card.[11] Unlike debit cards, prepaid credit cards generally do not require a PIN. An exception are prepaid credit cards with an EMV chip. These cards do require a PIN if the payment is processed via Chip and PIN technology.

After purchasing the card, the cardholder loads the account with any amount of money, up to the predetermined card limit and then uses the card to make purchases the same way as a typical credit card. Prepaid cards can be issued to minors (above 13) since there is no credit line involved. The main advantage over secured credit cards (see above section) is that you are not required to come up with $500 or more to open an account.[12] With prepaid credit cards purchasers not charged any interest but are often charged a purchasing fee plus monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.[11]

Prepaid credit cards are sometimes marketed to teenagers[11] for shopping online without having their parents complete the transaction.[13]

Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money".[14] The agency publishes a booklet entitled Pre-paid Cards[15] which explains the advantages and disadvantages of this type of prepaid card.

[edit] Features

As well as convenient, accessible credit, credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. Credit cards are accepted worldwide, and are available with a large variety of credit limits, repayment arrangement, and other perks (such as rewards schemes in which points earned by purchasing goods with the card can be redeemed for further goods and services or credit card cashback).

Some countries, such as the United States, the United Kingdom, and France, limit the amount for which a consumer can be held liable due to fraudulent transactions as a result of a consumer's credit card being lost or stolen.

[edit] Security problems and solutions

Main article: Credit card fraud

See also: Wireless identity theft

Credit card security relies on the physical security of the plastic card as well as the privacy of the credit card number. Therefore, whenever a person other than the card owner has access to the

card or its number, security is potentially compromised. Once, merchants would often accept credit card numbers without additional verification for mail order purchases. It's now common practice to only ship to confirmed addresses as a security measure to minimise fraudulent purchases. Some merchants will accept a credit card number for in-store purchases, whereupon access to the number allows easy fraud, but many require the card itself to be present, and require a signature. A lost or stolen card can be cancelled, and if this is done quickly, will greatly limit the fraud that can take place in this way. European banks can require a cardholder's security PIN be entered for in-person purchases with the card.

The PCI DSS is the security standard issued by The PCI SSC (Payment Card Industry Security Standards Council). This data security standard is used by acquiring banks to impose cardholder data security measures upon their merchants.

A smart card, combining credit card and debit card properties. The 3 by 5 mm security chip embedded in the card is shown enlarged in the inset. The contact pads on the card enable electronic access to the chip.

The goal of the credit card companies is not to eliminate fraud, but to "reduce it to manageable levels".[16] This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction - as would be expected from organisations whose goal is profit maximisation.

Internet fraud may be by claiming a chargeback which is not justified ("friendly fraud"), or carried out by the use of credit card information which can be stolen in many ways, the simplest being copying information from retailers, either online or offline. Despite efforts to improve security for remote purchases using credit cards, security breaches are usually the result of poor practice by merchants. For example, a website that safely uses SSL to encrypt card data from a client may then email the data, unencrypted, from the webserver to the merchant; or the merchant may store unencrypted details in a way that allows them to be accessed over the Internet or by a rogue employee; unencrypted card details are always a security risk. Even encryption data may be cracked.

Controlled Payment Numbers which are used by various banks such as Citibank (Virtual Account Numbers), Discover (Secure Online Account Numbers, Bank of America (Shop Safe), 5 banks using eCarte Bleue and CMB's Virtualis in France, and Swedbank of Sweden's eKort product are another option for protecting against credit card fraud. These are generally one-time use numbers that front one's actual account (debit/credit) number, and are generated as one shops on-line. They can be valid for a relatively short time, for the actual amount of the purchase, or for a price limit set by the user. Their use can be limited to one merchant. If the number given to the merchant is compromised, it will be rejected if an attempt is made to use it again.

A similar system of controls can be used on physical cards. Technology provides the option for banks to support many other controls too that can be turned on and off and varied by the credit card owner in real time as circumstances change (i.e., they can change temporal, numerical, geographical and many other parameters on their primary and subsidiary cards). Apart from the obvious benefits of such controls: from a security perspective this means that a customer can have a Chip and PIN card secured for the real world, and limited for use in the home country. In this eventuality a thief stealing the details will be prevented from using these overseas in non chip and pin (EMV) countries. Similarly the real card can be restricted from use on-line so that stolen details will be declined if this tried. Then when card users shop online they can use virtual account numbers. In both circumstances an alert system can be built in notifying a user that a fraudulent attempt has been made which breaches their parameters, and can provide data on this in real time. This is the optimal method of security for credit cards, as it provides very high levels of security, control and awareness in the real and virtual world.

Additionally, there are security features present on the physical card itself in order to prevent counterfeiting. For example, most modern credit cards have a watermark that will fluoresce under ultraviolet light. A Visa card has a letter V superimposed over the regular Visa logo and a Mastercard has the letters MC across the front of the card. Older Visa cards have a bald eagle or dove across the front. In the aforementioned cases, the security features are only visible under ultraviolet light and are invisible in normal light.

The Federal Bureau of Investigation and U.S. Postal Inspection Service are responsible for prosecuting criminals who engage in credit card fraud in the United States, but they do not have the resources to pursue all criminals. In general, federal officials only prosecute cases exceeding US$5,000. Three improvements to card security have been introduced to the more common credit card networks but none has proven to help reduce credit card fraud so far. First, the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder. Second, the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smart card (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Third, an additional 3 or 4 digit Card Security Code (CSC) is now present on the back of most cards, for use in card not present transactions. Stakeholders at all levels in electronic payment have recognized the need to develop consistent global standards for security that account for and integrate both current and emerging security technologies. They have begun to address these needs through organizations such as PCI DSS and the Secure POS Vendor Alliance.[17]

[edit] Code 10

Code 10 calls are made when merchants are suspicious about accepting a credit card.

The operator then asks the merchant a series of YES or NO questions to find out whether the merchant is suspicious of the card or the cardholder. The merchant may be asked to retain the card if it is safe to do so.

[edit] Credit history

The way credit card owners pay off their balances has a tremendous effect on their credit history. Two of the most important factors reported to a credit bureau are the timeliness of the debt payments and the amount of debt to credit limit. Lenders want to see payments made as agreed, usually on a monthly basis, and a credit balance of around one-third the credit limit. The credit information stays on the credit report generally for 7 years. However, there are a few jurisdictions and situations where the timeframe might differ.

[edit] Profits and losses

In recent times, credit card portfolios have been very profitable for banks, largely due to the booming economy of the late nineties. However, in the case of credit cards, such high returns go hand in hand with risk, since the business is essentially one of making unsecured (uncollateralized) loans, and thus dependent on borrowers not to default in large numbers.

[edit] Costs

Credit card issuers (banks) have several types of costs:

[edit] Interest expenses

Banks generally borrow the money they then lend to their customers. As they receive very low-interest loans from other firms, they may borrow as much as their customers require, while lending their capital to other borrowers at higher rates. If the card issuer charges 15% on money lent to users, and it costs 5% to borrow the money to lend, and the balance sits with the cardholder for a year, the issuer earns 10% on the loan. This 10% difference is the "net interest spread" and the 5% is the "interest expense".

[edit] Operating costs

This is the cost of running the credit card portfolio, including everything from paying the executives who run the company to printing the plastics, to mailing the statements, to running the computers that keep track of every cardholder's balance, to taking the many phone calls which cardholders place to their issuer, to protecting the customers from fraud rings. Depending on the issuer, marketing programs are also a significant portion of expenses.

[edit] Charge offs

When a consumer becomes severely delinquent on a debt (often at the point of six months without payment), the creditor may declare the debt to be a charge-off. It will then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a charge-off.)

A charge-off is considered to be "written off as uncollectable." To banks, bad debts and even fraud are simply part of the cost of doing business.

However, the debt is still legally valid, and the creditor can attempt to collect the full amount for the time periods permitted under state law, which is usually 3 to 7 years. This includes contacts from internal collections staff, or more likely, an outside collection agency. If the amount is large (generally over $1500–$2000), there is the possibility of a lawsuit or arbitration.

[edit] Rewards

Many credit card customers receive rewards, such as frequent flyer points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses. Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spread. Networks such as Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. Some issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. With a fractured and competitive environment, rewards points cut dramatically into an issuer's bottom line, and rewards points and related incentives must be carefully managed to ensure a profitable portfolio. Unlike unused gift cards, in whose case the breakage in certain US states goes to the state's treasury, unredeemed credit card points are retained by the issuer.

[edit] Fraud

In relative numbers the values lost in bank card fraud are minor, calculated in 2006 at 7 cents per 100 dollars worth of transactions (7 basis points).[18] In 2004, in the UK, the cost of fraud was over £500 million.[19] When a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of the charges that the customer has received for things they did not buy. These refunds will, in some cases, be at the expense of the merchant, especially in mail order cases where the merchant cannot claim sight of the card. In several countries, merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries. Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. Most banking services have their own credit card services that handle fraud cases and monitor for any possible attempt at fraud. Employees that are specialized in doing fraud monitoring and investigation are often placed in Risk Management, Fraud and Authorization, or Cards and Unsecured Business. Fraud monitoring emphasizes minimizing fraud losses while making an attempt to track down those responsible and contain the situation. Credit card fraud is a major white collar crime that has

been around for many decades, even with the advent of the chip based card (EMV) that was put into practice in some countries to prevent cases such as these. Even with the implementation of such measures, credit card fraud continues to be a problem.

[edit] Promotion

Promotional purchase is any purchase on which separate terms and conditions are set on each individual transaction unlike a standard purchase where the terms are set on the cardholder’s account record and their pricing strategy. All promotional purchases that post to a particular account will be carrying its own balance called as Promotional Balance.

[edit] Revenues

Offsetting costs are the following revenues:

[edit] Interchange fee

Main article: Interchange fee

In addition to fees paid by the card holder, merchants must also pay interchange fees to the card-issuing bank and the card association.[20][21] For a typical credit card issuer, interchange fee revenues may represent about a quarter of total revenues.[22]

These fees are typically from 1 to 6 percent of each sale, but will vary not only from merchant to merchant (large merchants can negotiate lower rates[22]), but also from card to card, with business cards and rewards cards generally costing the merchants more to process. The interchange fee that applies to a particular transaction is also affected by many other variables including: the type of merchant, the merchant's total card sales volume, the merchant's average transaction amount, whether the cards were physically present, how the information required for the transaction was received, the specific type of card, when the transaction was settled, and the authorized and settled transaction amounts. In some cases, merchants add a surcharge to the credit cards to cover the interchange fee, encouraging their customers to instead use cash, debit cards, or even cheques.

[edit] Interest on outstanding balances

Interest charges vary widely from card issuer to card issuer. Often, there are "teaser" rates in effect for initial periods of time (as low as zero percent for, say, six months), whereas regular rates can be as high as 40 percent. In the U.S. there is no federal limit on the interest or late fees credit card issuers can charge; the interest rates are set by the states, with some states such as South Dakota, having no ceiling on interest rates and fees, inviting some banks to establish their credit card operations there. Other states, for example Delaware, have very weak usury laws. The teaser rate no longer applies if the customer doesn't pay their bills on time, and is replaced by a penalty interest rate (for example, 23.99%) that applies retroactively.

[edit] Fees charged to customers

The major fees are for:

Late payments or overdue payments Charges that result in exceeding the credit limit on the card (whether done deliberately or by

mistake), called overlimit fees

Returned cheque fees or payment processing fees (e.g. phone payment fee)

Cash advances and convenience cheques (often 3% of the amount)

Transactions in a foreign currency (as much as 3% of the amount). A few financial institutions do not charge a fee for this.

Membership fees (annual or monthly), sometimes a percentage of the credit limit.

Exchange rate loading fees (sometimes these might not be reported on the customer's statement, even when applied).[23] The variation of exchange rates applied by different credit cards can be very substantial, as much as 10% according to a Lonely Planet report in 2009.[24]

[edit] Over limit charges

Consumers who keep their account in good order by always staying within their credit limit, and always making at least the minimum monthly payment will see interest as the biggest expense from their card provider. Those who are not so careful and regularly surpass their credit limit or are late in making payments are exposed to multiple charges that were typically as high as £25 - £35 [25] until a ruling from the Office of Fair Trading [26] that they would presume charges over £12 to be unfair which led the majority of card providers to reduce their fees to exactly that level.

[edit] US

The Credit CARD Protection Act of 2009, initiated during the term of President G W Bush, and signed into law by President Obama, requires that consumers "opt-in" to over-limit charges. Some card issuers have therefore commenced solicitations requesting customers to opt in to overlimit fees, presenting this as a benefit as it may avoid the possibility of a future transaction being declined. Other issuers have simply discontinued the practice of charging overlimit fees. Whether a customer opts in to the overlimit fee or not, banks will in practice have discretion as to whether they choose to authorize transactions above the credit limit or not. Of course, any approved over limit transactions will only result in an overlimit fee for those customers who have opted in to the fee. This legislation took effect on February 22, 2010.

[edit] UK

The higher level of fees originally charged were claimed to be designed to recoup the costs of the card operator's overall business and to ensure that the credit card business as a whole generated a profit, rather than simply recovering the cost to the provider of the limit breach which has been estimated as typically between £3-£4. Profiting from a customer's mistakes is arguably not

permitted under UK common law, if the charges constitute penalties for breach of contract, or under the Unfair Terms In Consumer Regulations 1999.

Subsequent rulings in respect of personal current accounts suggest that the argument that these charges are penalties for breach of contract is weak, and given the OFT's ruling it seems unlikely that any further test case will take place.

Whilst the law remains in the balance, many consumers have made claims against their credit cards providers for the charges that they have incurred, plus interest that they would have earned had the money not been deducted from their account. It is likely that claims for amounts charged in excess of £12 will succeed, but claims for charges at the OFT's £12 threshold level are more contentious.

[edit] Neutral consumer resources

[edit] Canada

The Government of Canada maintains a database of the fees, features, interest rates and reward programs of nearly 200 credit cards available in Canada. This database is updated on a quarterly basis with information supplied by the credit card issuing companies. Information in the database is published every quarter on the website of the Financial Consumer Agency of Canada (FCAC).

Information in the database is published in two formats. It is available in PDF comparison tables that break down the information according to type of credit card, allowing the reader to compare the features of, for example, all the student credit cards in the database.

The database also feeds into an interactive tool on the FCAC website.[27] The interactive tool uses several interview-type questions to build a profile of the user's credit card usage habits and needs, eliminating unsuitable choices based on the profile, so that the user is presented with a small number of credit cards and the ability to carry out detailed comparisons of features, reward programs, interest rates, etc.

[edit] Controversy

Credit card debt has increased steadily. Since the late 1990s, lawmakers, consumer advocacy groups, college officials and other higher education affiliates have become increasingly concerned about the rising use of credit cards among college students. The major credit card companies have been accused of targeting a younger audience, in particular college students, many of whom are already in debt with college tuition fees and college loans and who typically are less experienced at managing their own finances. Credit card debt may also negatively affect their grades as they are likely to work more both part and full time positions.[28]

Another controversial area is the universal default feature of many North American credit card contracts. When a cardholder is late paying a particular credit card issuer, that card's interest rate can be raised, often considerably. With universal default, a customer's other credit cards, for

which the customer may be current on payments, may also have their rates and/or credit limit changed. The universal default feature allows creditors to periodically check cardholders' credit portfolios to view trade, allowing these other institutions to decrease the credit limit and/or increase rates on cardholders who may be late with another credit card issuer. Being late on one credit card will potentially affect all the cardholder's credit cards. Citibank voluntarily stopped this practice in March 2007 and Chase stopped the practice in November 2007.[29] The fact that credit card companies can change the interest rate on debts that were incurred when a different rate of interest was in place is similar to adjustable rate mortgages where interest rates on current debt may rise. However, in both cases this is agreed to in advance, and is a trade off that allows a lower initial rate as well as the possibility of an even lower rate (mortgages, if interest rates fall) or perpetually keeping a below-market rate (credit cards, if the user makes their debt payments on time). It should be noted that the Universal Default practice was actually encouraged by Federal Regulators, particularly those at the Office of the Comptroller of the Currency (OCC) as a means of managing the changing risk profiles of cardholders.

Another controversial area is the trailing interest issue. Trailing interest is the practice of charging interest on the entire bill no matter what percentage of it is paid. U.S Senator Carl Levin raised the issue of millions of Americans affected by hidden fees, compounding interest and cryptic terms. Their woes were heard in a Senate Permanent Subcommittee on Investigations hearing which was chaired by Senator Levin, who said that he intends to keep the spotlight on credit card companies and that legislative action may be necessary to purge the industry.[30] In 2009, the C.A.R.D. Act was signed into law, enacting protections for many of the issues Levin had raised.

In the United States, some have called for Congress to enact additional regulations on the industry; to expand the disclosure box clearly disclosing rate hikes, use plain language, incorporate balance payoff disclosures, and also to outlaw universal default. At a congress hearing around March 1, 2007, Citibank announced it would no longer practice this, effective immediately. Opponents of such regulation argue that customers must become more proactive and self-responsible in evaluating and negotiating terms with credit providers. Some of the nation's influential top credit card issuers, who are among the top fifty corporate contributors to political campaigns, successfully opposed it.

[edit] Hidden costs

In the United Kingdom, merchants won the right through The Credit Cards (Price Discrimination) Order 1990[31] to charge customers different prices according to the payment method. As of 2007, the United Kingdom was one of the world's most credit-card-intensive countries, with 2.4 credit cards per consumer, according to the UK Payments Administration Ltd.[32]

In the United States, until 1984 federal law prohibited surcharges on card transactions. Although the federal Truth in Lending Act provisions that prohibited surcharges expired that year, a number of states have since enacted laws that continue to outlaw the practice; California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, New York, Oklahoma, and Texas have laws against surcharges. As of 2006, the United States probably had one of the

world's if not the top ratio of credit cards per capita, with 984 million bank-issued Visa and MasterCard credit card and debit card accounts alone for an adult population of roughly 220 million people.[33] The credit card per US capita ratio was nearly 4:1 as of 2003[34] and as high as 5:1 as of 2006.[35]

[edit] Credit card numbering

Main article: Credit card number

The numbers found on credit cards have a certain amount of internal structure, and share a common numbering scheme.

The card number's prefix, called the Bank Identification Number, is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first six digits for MasterCard and Visa cards. The next nine digits are the individual account number, and the final digit is a validity check code.

In addition to the main credit card number, credit cards also carry issue and expiration dates (given to the nearest month), as well as extra codes such as issue numbers and security codes. Not all credit cards have the same sets of extra codes nor do they use the same number of digits.

[edit] Credit cards in ATMs

Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card, but many card issuers charge interest on cash advances before they do so on purchases. The interest on cash advances is commonly charged from the date the withdrawal is made, rather than the monthly billing date. Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the same bank as the card issuer. Merchants do not offer cashback on credit card transactions because they would pay a percentage commission of the additional cash amount to their bank or merchant services provider, thereby making it uneconomical.

Many credit card companies will also, when applying payments to a card, do so at the end of a billing cycle, and apply those payments to everything before cash advances. For this reason, many consumers have large cash balances, which have no grace period and incur interest at a rate that is (usually) higher than the purchase rate, and will carry those balance for years, even if they pay off their statement balance each month.

[edit] Credit cards as funding for entrepreneurs

Credit cards are a risky way for entrepreneurs to acquire capital for their start ups when more conventional financing is unavailable. It's widely reported that Len Bosack and Sandy Lerner used personal credit cards[36] to start Cisco Systems. It is rumoured that Larry Page and Sergey

Brin's start up of Google was financed by credit cards to buy the necessary computers and office equipment, more specifically "a terabyte of hard disks".[37] Similarly, filmmaker Robert Townsend financed part of Hollywood Shuffle using credit cards.[38] Director Kevin Smith funded Clerks in part by maxing out several credit cards. Actor Richard Hatch also financed his production of Battlestar Galactica: The Second Coming partly through his credit cards. Famed hedge fund manager Bruce Kovner began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his credit card. UK entrepreneur James Caan (as seen on Dragon's Den) financed his first business using several credit cards.

[edit] See also

Debit cardFrom Wikipedia, the free encyclopedia

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edit this box

A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic check, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card.[1][2]

In many countries the use of debit cards has become so widespread that their volume of use has overtaken or entirely replaced the check and, in some instances, cash transactions. Like credit cards, debit cards are used widely for telephone and Internet purchases and, unlike credit cards, the funds are transferred immediately from the bearer's bank account instead of having the bearer pay back the money at a later date.

Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a check guarantee card. Merchants may also offer cashback facilities to customers, where a customer can withdraw cash along with their purchase.

Contents

[hide]

1 Types of debit card systems o 1.1 Online Debit System

o 1.2 Offline Debit System

o 1.3 Electronic Purse Card System

o 1.4 Prepaid debit cards

2 Advantages and disadvantages

o 2.1 Consumer protection

o 2.2 Financial access

o 2.3 Issues with deferred posting of offline debit

o 2.4 Internet purchases

o 2.5 Overdraft fees

3 Debit cards around the world

o 3.1 Australia

o 3.2 Brazil

o 3.3 Canada

3.3.1 Consumer protection in Canada

o 3.4 Chile

o 3.5 Colombia

o 3.6 Denmark

o 3.7 France

o 3.8 Germany

o 3.9 Hong Kong

o 3.10 Hungary

o 3.11 India

o 3.12 Iraq

o 3.13 Italy

o 3.14 Japan

o 3.15 Kuwait

o 3.16 The Netherlands

o 3.17 New Zealand

o 3.18 Philippines

o 3.19 Poland

o 3.20 Portugal

o 3.21 Russia

o 3.22 Saudi Arabia

o 3.23 Singapore

o 3.24 United Kingdom

o 3.25 United States

3.25.1 FSA, HRA, and HSA debit cards

4 See also

5 References

[edit] Types of debit card systems

Debit card

An example of the front of a typical debit card:

1. Issuing bank logo2. EMV chip

3. Hologram

4. Card number

5. Card brand logo

6. Expiration date

7. Cardholder's name

An example of the reverse side of a typical debit card:

1. Magnetic stripe 2. Signature strip

3. Card Security Code

There are currently three ways that debit card transactions are processed: online debit (also known as PIN debit), offline debit (also known as signature debit) and the Electronic Purse Card System.[3] It should be noted that one physical card can include the functions of an online debit card, an offline debit card and an electronic purse card.

Although many debit cards are of the Visa or MasterCard brand, there are many other types of debit card, each accepted only within a particular country or region, for example Switch (now: Maestro) and Solo in the United Kingdom, Interac in Canada, Carte Bleue in France, Laser in Ireland, "EC electronic cash" (formerly Eurocheque) in Germany and EFTPOS cards in Australia and New Zealand. The need for cross-border compatibility and the advent of the euro recently led to many of these card networks (such as Switzerland's "EC direkt", Austria's "Bankomatkasse" and Switch in the United Kingdom) being re-branded with the internationally recognised Maestro logo, which is part of the MasterCard brand. Some debit cards are dual branded with the logo of the (former) national card as well as Maestro (e.g. EC cards in Germany, Laser cards in Ireland, Switch and Solo in the UK, Pinpas cards in the Netherlands, Bancontact cards in Belgium, etc.). The use of a debit card system allows operators to package their product more effectively while monitoring customer spending. An example of one of these systems is ECS by Embed International.

[edit] Online Debit System

Online debit cards require electronic authorization of every transaction and the debits are reflected in the user’s account immediately. The transaction may be additionally secured with the personal identification number (PIN) authentication system and some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine (ATM) cards. One difficulty in using online debit cards is the necessity of an electronic authorization device at the point of sale (POS) and sometimes also a separate PINpad to enter the PIN, although this is becoming commonplace for all card transactions in many countries. Overall, the online debit card is generally viewed as superior to the offline debit card because of its more secure authentication system and live status, which alleviates problems with processing lag on transactions that may only issue online debit cards. Some on-line debit systems are using the normal authentication processes of Internet banking to provide real-time on-line debit transactions. The most notable of these are Ideal and POLi.

[edit] Offline Debit System

Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and other countries, but not the United States) and are used at the point of sale like a credit card (with payer's signature). This type of debit card may be subject to a daily limit, and/or a maximum limit equal to the current/checking account balance from which it draws funds. Transactions conducted with offline debit cards require 2–3 days to be reflected on users’ account balances. In some countries and with some banks and merchant service organizations, a "credit" or offline debit transaction is without cost to the purchaser beyond the face value of the transaction, while a small fee may be charged for a "debit" or online debit transaction (although it is often absorbed by the retailer). Other differences are that online debit purchasers may opt to withdraw cash in addition to the amount of the debit purchase (if the merchant supports that functionality); also, from the merchant's standpoint, the merchant pays lower fees on online debit transaction as compared to "credit" (offline) debit transaction.

[edit] Electronic Purse Card System

Smart-card-based electronic purse systems (in which value is stored on the card chip, not in an externally recorded account, so that machines accepting the card need no network connectivity) are in use throughout Europe since the mid-1990s, most notably in Germany (Geldkarte), Austria (Quick), the Netherlands (Chipknip), Belgium (Proton), Switzerland (CASH) and France (Mon€o, which is usually carried by a debit card). In Austria and Germany, all current bank cards now include electronic purses.

[edit] Prepaid debit cards

Prepaid debit cards, also called reloadable debit cards or reloadable prepaid cards, are often used for recurring payments.[4] The payer loads funds to the cardholder's card account. Prepaid debit cards use either the offline debit system or the online debit system to access these funds. Particularly for companies with a large number of payment recipients abroad, prepaid debit cards allow the delivery of international payments without the delays and fees associated with international checks and bank transfers.[5] Providers include Caxton FX prepaid cards,[6] Escape prepaid cards, Travelex prepaid cards[7] and TransCash prepaid Visa cards.[8] Whereas, web-based services such as stock photography websites (istockphoto), outsourced services (oDesk), and affiliate networks (MediaWhiz) have all started offering prepaid debit cards for their contributors/freelancers/vendors.

[edit] Advantages and disadvantages

The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (December 2010)

The widespread use of debit and check cards have revealed numerous advantages and disadvantages to the consumer and retailer alike.

Advantages of debit cards

A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions. For example, legislation often prevents minors from taking out debt, which includes the use of a credit card, but not online debit card transactions.

For most transactions, a check card can be used to avoid check writing altogether. Check cards debit funds from the user's account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder's personal information.

Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal

checks, merchants generally do not believe that a payment via a debit card may be later dishonored.

Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.

Disadvantages of debit cards

Use of a debit card is not usually limited to the existing funds in the account to which it is linked, most banks allow a certain threshold over the available bank balance which can cause overdraft fees if the users transaction does not reflect available balance.

Many banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may be unknown until later discovery by account holder).

Many merchants mistakenly believe that amounts owed can be "taken" from a customer's account after a debit card (or number) has been presented, without agreement as to date, payee name, amount and currency, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks.

In some countries debit cards offer lower levels of security protection than credit cards.[9] Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. However, theft of users' PIN codes using skimming devices can be equally easily accomplished with a debit transaction PIN input, as with a credit transaction PIN input, and theft using a signature-based credit transaction is equally easy as theft using a signature-based debit transaction.

In many places, laws protect the consumer from fraud much less than with a credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. The consumer also has a shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card,[9] whereas with a credit card, this time may be up to 60 days. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer's bank account, and the consumer will have no recourse.

Federally Imposed Maximum Liability for Unauthorized Card Use (United States)

ReportedMaximum Card Holder Liability

Credit Card Debit Card

Before Use $0 $0

Within 2 business days $50 $50

After 2 but before 60 business days $50 $500

After 60 business days Unlimited Unlimited

[10][11]

In the UK and Ireland, among other countries, a consumer who purchases goods or services with a credit card can pursue the credit card issuer if the goods or services are not delivered or are unmerchantable. While they must generally exhaust the process provided by the retailer first, this is not necessary if the retailer has gone out of business. This protection is not provided by legislation when using a debit card but may be offered to a limited extent as a benefit provided by the card network, e.g. Visa debit cards.

When a transaction is made using a credit card, the bank's money is being spent, and therefore, the bank has a vested interest in claiming its money where there is fraud or a dispute. The bank may fight to void the charges of a consumer who is dissatisfied with a purchase, or who has otherwise been treated unfairly by the merchant. But when a debit purchase is made, the consumer has spent his/her own money, and the bank has little if any motivation to collect the funds.

In some countries, and for certain types of purchases, such as gasoline (via a pay at the pump system), lodging, or car rental, the bank may place a hold on funds much greater than the actual purchase for a fixed period of time.[9] However, this isn't the case in other countries, such as Sweden. Until the hold is released, any other transactions presented to the account, including checks, may be dishonoured, or may be paid at the expense of an overdraft fee if the account lacks any additional funds to pay those items.

While debit cards bearing the logo of a major credit card are accepted for virtually all transactions where an equivalent credit card is taken, a major exception in some countries is at car rental facilities.[12] In some countries, such as Canada & Australia, car rental agencies require an actual credit card to be used, or at the very least, will verify the creditworthiness of the renter using a debit card. In Canada and additional unspecified countries, car rental companies will deny a rental to anyone who does not fit the requirements, and such a credit check may actually hurt one's credit score, as long as there is such a thing as a credit score in the country of purchase and/or the country of residence of the customer.

[edit] Consumer protection

Consumer protections vary, depending on the network used. Visa and MasterCard, for instance, prohibit minimum and maximum purchase sizes, surcharges, and arbitrary security procedures on the part of merchants. Merchants are usually charged higher transaction fees for credit transactions, since debit network transactions are less likely to be fraudulent. This may lead them to "steer" customers to debit transactions. Consumers disputing charges may find it easier to do so with a credit card, since the money will not immediately leave their control. Fraudulent charges on a debit card can also cause problems with a checking account because the money is withdrawn immediately and may thus result in an overdraft or bounced checks. In some cases debit card-issuing banks will promptly refund any disputed charges until the matter can be

settled, and in some jurisdictions the consumer liability for unauthorized charges is the same for both debit and credit cards.

In some countries, like India and Sweden, the consumer protection is the same regardless of the network used. Some banks set minimum and maximum purchase sizes, mostly for online-only cards. However, this has nothing to do with the card networks, but rather with the bank's judgement of the person's age and credit records. Any fees that the customers have to pay to the bank are the same regardless of whether the transaction is conducted as a credit or as a debit transaction, so there is no advantage for the customers to choose one transaction mode over another. Shops may add surcharges to the price of the goods or services in accordance with laws allowing them to do so. Banks consider the purchases as having been made at the moment when the card was swiped, regardless of when the purchase settlement was made. Regardless of which transaction type was used, the purchase may result in an overdraft because the money is considered to have left the account at the moment of the card swiping.

[edit] Financial access

Debit cards and secured credit cards are popular among college students who have not yet established a credit history. Debit cards may also be used by expatriated workers to send money home to their families holding an affiliated debit card.

[edit] Issues with deferred posting of offline debit

To the consumer, a debit transaction is perceived as occurring in real-time; i.e. the money is withdrawn from their account immediately following the authorization request from the merchant, which in many countries, is the case when making an online debit purchase. However, when a purchase is made using the "credit" (offline debit) option, the transaction merely places an authorization hold on the customer's account; funds are not actually withdrawn until the transaction is reconciled and hard-posted to the customer's account, usually a few days later. However, the previous sentence applies to all kinds of transaction types, at least when using a card issued by a European bank. This is in contrast to a typical credit card transaction; though it can also have a lag time of a few days before the transaction is posted to the account, it can be many days to a month or more before the consumer makes repayment with actual money.

Because of this, in the case of a benign or malicious error by the merchant or bank, a debit transaction may cause more serious problems (e.g. money not accessible; overdrawn account) than in the case of a credit card transaction (e.g. credit not accessible; over credit limit). This is especially true in the United States, where check fraud is a crime in every state, but exceeding your credit limit is not.

[edit] Internet purchases

Debit cards may also be used on the Internet. Internet transactions may be conducted in either online or offline mode, although shops accepting online-only cards are rare in some countries (such as Sweden), while they are common in other countries (such as the Netherlands). For a

comparison, PayPal offers the customer to use an online-only Maestro card if the customer enters a Dutch address of residence, but not if the same customer enters a Swedish address of residence.

Internet purchases use neither a PIN code nor a signature for identification. Transactions may be conducted in either credit or debit mode (which is sometimes, but not always, indicated on the receipt), and this has nothing to do with whether the transaction was conducted on online or offline mode, since both credit and debit transactions may be conducted in both modes.

[edit] Overdraft fees

A 2007 Washington Post article — on banks' lucrative debit card overdraft fees — pointed out that debit card issuers could notify customers electronically, allowing them to avoid overdraft fees. Nessa Feddis, banking industry spokesperson and lobbyist, contended that "current technology makes real-time notification of overdrafts cost-prohibitive."[13] The article contended that "financial institutions don't want to change the status quo because they make good and easy money off their own customers' mistakes and irresponsibility."[13]

[edit] Debit cards around the world

In some countries, banks tend to levy a small fee for each debit card transaction. In some countries (e.g. the UK) the merchants bear all the costs and customers are not charged. There are many people who routinely use debit cards for all transactions, no matter how small. Some (small) retailers refuse to accept debit cards for small transactions, where paying the transaction fee would absorb the profit margin on the sale, making the transaction uneconomic for the retailer.

[edit] AustraliaMain article: EFTPOS

Debit cards in Australia are called different names depending on the issuing bank: Commonwealth Bank of Australia: Keycard; Westpac Banking Corporation: Handycard; National Australia Bank: FlexiCard; ANZ Bank: Access card; Bendigo Bank: Cashcard.

EFTPOS is very popular in Australia and has been operating there since the 1980s. EFTPOS-enabled cards are accepted at almost all swipe terminals able to accept credit cards, regardless of the bank that issued the card, including Maestro cards issued by foreign banks, with most businesses accepting them, with 450,000 Point Of Sale terminals.[14]

EFTPOS cards can also be used to deposit and withdraw cash over the counter at Australia Post outlets participating in giroPost, just as if the transaction was conducted at a bank branch, even if the bank branch is closed. Electronic transactions in Australia are generally processed via the Telstra Argent and Optus Transact Plus network - which has recently superseded the old Transcend network in the last few years. Most early keycards were only usable for EFTPOS and at ATM or bank branches, whilst the new debit card system works in the same ways a credit card, except it will only use funds in the specified bank account. This means that, among other

advantages, the new system is suitable for electronic purchases without a delay of 2 to 4 days for bank-to-bank money transfers.

Australia operates both electronic credit card transaction authorization and traditional EFTPOS debit card authorization systems, the difference between the two being that EFTPOS transactions are authorized by a personal identification number (PIN) while credit card transactions are usually authorized by the printing and signing of a receipt. If the user fails to enter the correct pin 3 times, the consequences range from the card being locked out and requiring a phone call or trip to the branch to reactivate with a new PIN, the card being cut up by the merchant, or in the case of an ATM, being kept inside the machine, both of which require a new card to be ordered.

Generally credit card transaction costs are borne by the merchant with no fee applied to the end user while EFTPOS transactions cost the consumer an applicable withdrawal fee charged by their bank.

The introduction of Visa and MasterCard debit cards along with regulation in the settlement fees charged by the operators of both EFTPOS and credit cards by the Reserve Bank has seen a continuation in the increasing ubiquity of credit card use among Australians and a general decline in the profile of EFTPOS. However, the regulation of settlement fees also removed the ability of banks, who typically provide merchant services to retailers on behalf of Visa, MasterCard or Bankcard, from stopping those retailers charging extra fees to take payment by credit card instead of cash or EFTPOS. Though only a few operators with strong market power have done so, the passing on of fees charged for credit card transactions may result in an increased use of EFTPOS.

[edit] Brazil

In Brazil debit cards are called cartão de débito (singular) and are getting increasingly popular[15]

as a replacement of checks, that are still uncommonly popular in the country.

[edit] CanadaMain article: Interac

Canada has a nation-wide EFTPOS system, called Interac Direct Payment. Since being introduced in 1994, IDP has become the most popular payment method in the country. Previously, debit cards have been in use for ABM usage since the late 1970's, with Credit Unions in Saskatchewan and Alberta, Canada introducing the first card-based, networked ATMs beginning in June, 1977. Debit Cards, which could be used anywhere a credit card was accepted, were first introduced in Canada by Saskatchewan Credit Unions in 1982.[16] In the early 1990s, pilot projects were conducted among Canada's six largest banks to gauge security, accuracy and feasibility of the Interac system. Slowly in the later half of the 1990s, it was estimated that approximately 50% of retailers offered Interac as a source of payment. Retailers, many small transaction retailers like coffee shops, resisted offering IDP to promote faster service. In 2009, 99% of retailers offer IDP as an alternative payment form.

In Canada, the debit card is sometimes referred to as a "bank card". It is a client card issued by a bank that provides access to funds and other bank account transactions, such as transferring funds, checking balances, paying bills, etc., as well as point of purchase transactions connected on the Interac network. Since its national launch in 1994, Interac Direct Payment has become so widespread that, as of 2001, more transactions in Canada were completed using debit cards than cash.[17] This popularity may be partially attributable to two main factors: the convenience of not having to carry cash, and the availability of automated bank machines (ABMs) and Direct Payment merchants on the network.

Debit cards may be considered similar to stored-value cards in that they represent a finite amount of money owed by the card issuer to the holder. They are different in that stored-value cards are generally anonymous and are only usable at the issuer, while debit cards are generally associated with an individual's bank account and can be used anywhere on the Interac network.

In Canada, the bank cards can be used at POS and ABMs. Interac Online has also been introduced in recent years allowing clients of most major Canadian banks to use their debit cards for online payment with certain merchants as well. Certain financial institutions also allow their clients to use their debit cards in the United States on the NYCE network.[18]

[edit] Consumer protection in Canada

Consumers in Canada are protected under a voluntary code* entered into by all providers of debit card services, The Canadian Code of Practice for Consumer Debit Card Services[19] (sometimes called the "Debit Card Code"). Adherence to the Code is overseen by the Financial Consumer Agency of Canada (FCAC), which investigates consumer complaints.

According to the FCAC website, revisions to the Code that came into effect in 2005 put the onus on the financial institution to prove that a consumer was responsible for a disputed transaction, and also place a limit on the number of days that an account can be frozen during the financial institution's investigation of a transaction.

[edit] Chile

Chile has an EFTPOS system called Redcompra (Purchase Network) which is currently used in at least 23,000 establishments throughout the country. Goods may be purchased using this system at most supermarkets, retail stores, pubs and restaurants in major urban centers.

[edit] Colombia

Colombia has a system called Redeban-Multicolor and Credibanco Visa which are currently used in at least 23,000 establishments throughout the country. Goods may be purchased using this system at most supermarkets, retail stores, pubs and restaurants in major urban centers. Colombian debit cards are Maestro (pin), Visa Electron (pin), Visa Debit (as Credit) and MasterCard-Debit (as Credit).

[edit] Denmark

The Danish debit card Dankort was introduced on 1 September 1983, and despite the initial transactions being paper-based, the Dankort quickly won widespread acceptance in Denmark. By 1985 the first EFTPOS terminals were introduced, and 1985 was also the year when the number of Dankort transactions first exceeded 1 million.[20] It is not uncommon that Dankort is the only card accepted at smaller stores, thus making it harder for tourists to travel without cash.

Miscellaneous facts & numbers

In 2007 PBS, the Danish operator of the Dankort system, processed a total of 737 million Dankort transactions.[21] Of these, 4.5 million just on a single day, 21 December. This remains the current record.

At the end of 2007, there were 3.9 million Dankort in existence.[21]

More than 80,000 Danish shops have a Dankort terminal. Another 11,000 internet shops also accept the Dankort.[21]

[edit] France

Carte Bancaire (CB), the national payment scheme, in 2008, had 57,5 milion cards carrying its logo and 7,76 billion transactions (POS and ATM) were processed through the e-rsb network (135 transactions per card mostly debit or deferred debit). Most CB cards are debit cards, either debit or deferred debit. Less than 10% of CB cards were credit cards. Banks in France charge annual fees for debit cards (despite card payments being very cost efficient for the banks), yet they do not charge personal customers for checkbooks or processing checks (despite checks being very costly for the banks). This imbalance most probably dates from the unilateral introduction in France of Chip and PIN debit cards in the early 1990s, when the cost of this technology was much higher than it is now. Credit cards of the type found in the United Kingdom and United States are unusual in France and the closest equivalent is the deferred debit card, which operates like a normal debit card, except that all purchase transactions are postponed until the end of the month, thereby giving the customer between 1 and 31 days of interest-free credit. The annual fee for a deferred debit card is around €10 more than for one with immediate debit. Most France debit cards are branded with the Carte Bleue logo, which assures acceptance throughout France. Most card holders choose to pay around €5 more in their annual fee to additionally have a Visa or a MasterCard logo on their Carte Bleue, so that the card is accepted internationally. A Carte Bleue without a Visa or a MasterCard logo is often known as a "Carte Bleue Nationale" and a Carte Bleue with a Visa or a MasterCard logo is known as a "Carte Bleue Internationale", or more frequently, simply called a "Visa" or "MasterCard". Many smaller merchants in France refuse to accept debit cards for transactions under a certain amount because of the minimum fee charged by merchants' banks per transaction (this minimum amount varies from €5 to €15.25, or in some rare cases even more). But more and more merchants accept debit cards for small amounts, due to the massive daily use of debit card nowadays. Merchants in France do not differentiate between debit and credit cards, and so both have equal acceptance. It is legal in France to set a minimum amount to transactions but the merchants must display it clearly.

[edit] Germany

Debit cards have enjoyed wide acceptance in Germany for years. Facilities already existed before EFTPOS became popular with the Eurocheque card, an authorization system initially developed for paper checks where, in addition to signing the actual check, customers also needed to show the card alongside the check as a security measure. Those cards could also be used at ATMs and for card-based electronic funds transfer (called Girocard) with PIN entry. These are now the only functions of such cards: the Eurocheque system (along with the brand) was abandoned in 2002 during the transition from the Deutsche Mark to the euro. As of 2005, most stores and petrol outlets have EFTPOS facilities. Processing fees are paid by the businesses, which leads to some business owners refusing debit card payments for sales totalling less than a certain amount, usually 5 or 10 euro.

To avoid the processing fees, many businesses resorted to using direct debit, which is then called electronic direct debit (German: Elektronisches Lastschriftverfahren, abbr. ELV). The point-of-sale terminal reads the bank sort code and account number from the card but instead of handling the transaction through the Girocard network it simply prints a form, which the customer signs to authorise the debit note. However, this method also avoids any verification or payment guarantee provided by the network. Further, customers can return debit notes by notifying their bank without giving a reason. This means that the beneficiary bears the risk of fraud and illiquidity. Some business mitigate the risk by consulting a proprietary blacklist or by switching to Girocard for higher transaction amounts.

Around 2000, an Electronic Purse Card was introduced, dubbed Geldkarte ("money card"). It makes use of the smart card chip on the front of the standard issue debit card. This chip can be charged with up to 200 euro, and is advertised as a means of making medium to very small payments, even down to several euros or cent payments. The key factor here is that no processing fees are deducted by banks. It did not gain the popularity its inventors had hoped for. However, this could change as this chip is now used as means of age verification at cigarette vending machines, which has been mandatory since January 2007. Furthermore, some payment discounts are being offered (e.g. a 10% reduction for public transport fares) when paying with "Geldkarte". The "Geldkarte" payment lacks all security measures, since it does not require the user to enter a PIN or sign a sales slip: the loss of a "Geldkarte" is similar to the loss of a wallet or purse - anyone who finds it can then use their find to pay for their own purchases.

[edit] Hong Kong

A popular payment instant method widely used in Hong Kong is EPS. Bank customers can use their ATM card to make an instant EPS payment, much like a debit card. Most banks in Hong Kong provide ATM cards with EPS capability.

[edit] Hungary

In Hungary debit cards are far more common and popular than credit cards. Many Hungarians even refer to their debit card ("betéti kártya") mistakenly using the word for credit card ("hitelkártya").[22]

[edit] India

The debit card has limited popularity in India as the merchant is charged for each transaction. The debit card therefore is mostly used for ATM transactions. Most of the banks issue VISA debit cards, while some banks (like SBI and Citibank India) issue Maestro cards. The debit card transactions are routed through the VISA or MasterCard networks rather than directly via the issuing bank.

The National Payments Corporation of India (NPCI) is introducing a payment network and debit card dubbed 'India card'. The Reserve Bank of India is expecting this system will gradually replace the overseas run networks from Visa and MaterCard for Indian ATM, debit and credit card services.[23]

[edit] Iraq

Iraq's two biggest state-owned banks, Rafidain Bank and Rasheed Bank, together with the Iraqi Electronic Payment System (IEPS) have established a company called International Smart Card, which have developed a national credit card called 'Qi Card'. The card is issued since 2008. According to the company's website: 'after less than two years of the initial launch of the Qi card solution, we have hit 1.6 million cardholder with the potential to issue 2 million cards by the end of 2010, issuing about 100,000 card monthly is a testament to the huge success of the Qi card solution. Parallel to this will be the expansion into retail stores through a network of points of sales of about 30,000 units by 2015'

[edit] Italy

Debit cards are quite popular in Italy. There are both classic and prepaid cards. The main classic debit card in Italy is PagoBancomat: this kind of card is issued by Italian banks, often with a credit card (so you get a dual mode card). It allows access to the owner's bank account funds and it is widely accepted in most shops, although on the Internet it is allowed only the credit card mode. The major debit prepaid card is issued by Poste Italiane S.p.A., is called Postepay and runs on the Visa Electron circuit. It can be used on Poste Italiane's ATMs (Postamat) and on Visa Electron-compatible bank ATMs all over the world. It has no fees when used on the Internet and in POS-based transactions. Other cards are issued by other companies, such as Vodafone CashCard, Banca di Milano's Carta Jeans and Carta Moneta Online.

[edit] Japan

In Japan people usually use their cash cards (キャッシュカード kyasshu kādo?), originally intended only for use with cash machines, as debit cards. The debit functionality of these cards is usually referred to as J-Debit (ジェイデビット Jeidebitto?), and only cash cards from certain banks can be used. A cash card has the same size as a VISA/MasterCard. As identification, the user will have to enter his or her four-digit PIN when paying. J-Debit was started in Japan on March 6, 2000.

Suruga Bank began service of Japan's first Visa Debit in 2006. Ebank will start service of Visa Debit by the end of 2007.[24]

[edit] Kuwait

In Kuwait, all banks provide a debit card to their account holders. This card is branded as KNET, which is the central switch in Kuwait. KNET card transactions are free for both customer and the merchant and therefore KNET debit cards are used for low valued transactions as well. KNET cards are mostly co-branded as Maestro or Visa Electron which makes it possible to use the same card outside Kuwait on any terminal supporting these payment schemes.

[edit] The Netherlands

In the Netherlands using EFTPOS is known as pinnen (pinning), a term derived from the use of a Personal Identification Number. PINs are also used for ATM transactions, and the term is used interchangeably by many people, although it was introduced as a marketing brand for EFTPOS. The system was launched in 1987, and in 2006 there were 166,375 terminals throughout the country, including mobile terminals used by delivery services and on markets. All banks offer a debit card suitable for EFTPOS with current accounts.

PIN transactions are usually free to the customer, but the retailer is charged per-transaction and monthly fees. Equens, an association with all major banks as its members, runs the system, and until August 2005 also charged for it. Responding to allegations of monopoly abuse, it has handed over contractual responsibilities to its member banks, who now offer competing contracts. Interpay, a legal predecessor of Equens, was fined €47 million in 2004, but the fine was later dropped, and a related fine for banks was lowered from €17 million to €14 million. Per-transaction fees are between 5-10 eurocents, depending on volume.

Credit cards use in the Netherlands is very low, and most credit cards cannot be used with EFTPOS, or charge very high fees to the customer. Debit cards can often, though not always, be used in the entire EU for EFTPOS. Most debit cards are Maestro cards.

Electronic Purse Cards (called Chipknip) were introduced in 1996, but have never become very popular.

[edit] New Zealand

The EFTPOS (electronic fund transfer at point of sale) in New Zealand is highly popular. In 2006, 70 percent of all retail transactions were made by eftpos, with an average of 306 EFTPOS transaction being made per person. At the same time, there were 125,000 EFTPOS terminals in operation (one for every 30 people), and 5.1 million EFTPOS cards in circulation (1.27 per capita).[25]

The system involves the merchant swiping (or inserting) the customer's card and entering the purchase amount. Point of sale systems with integrated EFTPOS often sent the purchase total to the terminal and the customer swipes their own card. The customer then selects the account they

wish to use: Current/Cheque (CHQ), Savings (SAV), or Credit Card (CRD), before entering in their PIN. After a short processing time in which the terminal contacts the EFTPOS network and the bank, the transaction is accepted (or declined) and a receipt is printed. The EFTPOS system is used for credit cards as well, with a customer selecting Credit Card and entering their PIN, or for older credit cards without loaded PIN, pressing OK and signing their receipt with identification through matching signatures. Larger businesses connect to the EFTPOS network by dedicated phone lines or more recently internet protocol connections. Most smaller businesses however have their EFTPOS terminals communicate through their regular voice line, often resulting in shouts for people to get off the phone or "Declined Transmission Error" transactions when the merchant forgets someone is on the phone.

Virtually all retail outlets have EFTPOS facilities, so much that retailers without EFTPOS have to advertise so. In addition, an increasing number of mobile operator, such as taxis, stall holders and pizza deliverers have mobile EFTPOS systems. The system is made up of two primary networks: EFTPOS NZ, which is owned by ANZ National Bank and Paymark Limited (formerly Electronic Transaction Services Limited), which is owned by ASB Bank, Westpac, and the Bank of New Zealand. The two networks are intertwined and highly sophisticated and secure, able to handle huge volumes of transactions during busy periods such as the lead-up to Christmas. Network failures are rare, but when they occur they cause massive disruption, resulting in major delays and loss of income for businesses. Most businesses have to resort to manual "zip-zap" swipe machines in such case.[26] Newer POS-based terminals have the ability to "capture" transactions in the event of a communications break-down - instead of entering a PIN, the customer signs their receipt and the transaction is accepted on a matching signature, and the transaction is stored until the network is restored. A notable example of this occurs on the Cook Strait ferries, where in the middle of Cook Strait there is no mobile phone reception to connect to the EFTPOS network.

EFTPOS is used for transactions large and small, from 50c up to thousands of dollars (or the daily limit of the EFTPOS card). Depending on the user's bank, a fee maybe charged for use of EFTPOS. Most youth accounts do not attract fees for electronic transactions, meaning the use of EFTPOS by the younger generations has become virtually ubiquitous. Typically merchants don't pay fees for transactions, most only having to pay for the equipment rental.

ATM cards and EFTPOS cards were once separate, but today EFTPOS and ATM cards are combined into a single EFTPOS-ATM card. The cards are issued by banks to customers, and often come in multiple designs, with some banks allowing customers to place a picture of their choice on their EFTPOS card. One of the disadvantages of New Zealand's well-established EFTPOS system is that it is incompatible with overseas systems and non-face-to-face purchases. In response to this, many banks have adopted international debit card systems such as Maestro and Visa Debit in addition to the New Zealand EFTPOS system.

[edit] Philippines

In the Philippines, all three national ATM network consortia offer proprietary PIN debit. This was first offered by Express Payment System in 1987, followed by Megalink with Paylink in 1993 then BancNet with the Point-of-Sale in 1994.

Express Payment System or EPS was the pioneer provider, having launched the service in 1987 on behalf of the Bank of the Philippine Islands. The EPS service has subsequently been extended in late 2005 to include the other Expressnet members: Banco de Oro and Land Bank of the Philippines. They currently operate 10,000 terminals for their cardholders.

Megalink launched Paylink EFTPOS system in 1993. Terminal services are provided by Equitable Card Network on behalf of the consortium. Service is available in 2,000 terminals, mostly in Metro Manila.

BancNet introduced their Point of sale System in 1994 as the first consortium-operated EFTPOS service in the country. The service is available in over 1,400 locations throughout the Philippines, including second and third-class municipalities. In 2005, BancNet signed a Memorandum of Agreement to serve as the local gateway for China UnionPay, the sole ATM switch in the People's Republic of China. This will allow the estimated 1.0 billion Chinese ATM cardholders to use the BancNet ATMs and the EFTPOS in all SM Supermalls.

Visa debit cards are issued by Union Bank of the Philippines (e-Wallet & eon), Chinatrust, Equicom Savings Bank (Key Card & Cash Card), Banco De Oro, HSBC, HSBC Savings Bank & Sterling Bank of Asia (VISA ShopNPay prepaid and debit cards). Union Bank of the Philippines cards, Equicom Savings Bank & Sterling Bank of Asia EMV cards which can also be used for internet purchases. Sterling Bank of Asia has released its first line of prepaid and debit Visa cards with EMV chip. MasterCard debit cards are issued by Banco de Oro, Security Bank (Cashlink & Cash Card) & Smart Communications (Smart Money) tied up with Banco De Oro. MasterCard Electronic cards are issued by BPI (Express Cash) and Security Bank (CashLink Plus). All VISA and MasterCard based debit cards in the Philippines are non-embossed and are marked either for "Electronic Use Only" (VISA/MasterCard) or "Valid only where MasterCard Electronic is Accepted" (MasterCard Electronic).

[edit] Poland

In Poland, local debit cards, such as PolCard, have become largely substituted with international ones, such as Visa, MasterCard, or the unembossed Visa Electron or Maestro. Most banks in Poland block Internet and MOTO transactions with unembossed cards, requiring the customer to buy an embossed card or a card for Internet/MOTO transactions only[citation needed]. The number of banks which do not block MOTO transactions on unembossed cards has recently started to increase.

[edit] Portugal

In Portugal, debit cards are accepted almost everywhere: ATMs, stores, etc. The most commonly accepted are Visa and MasterCard, or the unembossed Visa Electron or Maestro. Regarding Internet payments debit cards can't be used for transfers, due to its unsafeness, so banks recommend the use of 'MBnet', a pre-registered safe system that creates a virtual card with a pre-selected credit limit. All the card system is regulated by SIBS, the institution created by Portuguese banks to manage all the regulations and communication processes proply. SIBS' shareholders are all the 27 banks operating in Portugal.

[edit] Russia

In addition to VISA and Master Card, there are some local payment system based in general on Smart Card technology.

Sbercard . This payment system was created by Sberbank around 1995–1996. It uses BGS Smartcard Systems AG smart card technology i.e. DUET. Sberbank was a single retail bank in USSR before 1990. De facto this is a payment system of the SberBank.

Zolotaya Korona . This card brand was created in 1994. Zolotaya Korona is based on CFT technology.

STB Card . This card uses the classic magnetic stripe technology. It almost fully collapsed after 1998 (GKO crisis) with STB bank failure.

Union Card . The card also uses the classic magnetic stripe technology. This card brand is on the decline. These accounts are being reissued as Visa or MasterCard accounts.

Nearly every transaction, regardless of brand or system, is processed as an immediate debit transaction. Non-debit transactions within these systems have spending limits that are strictly limited when compared with typical Visa or MasterCard accounts.

[edit] Saudi Arabia

In Saudi Arabia, all debit card transactions are routed trough Saudi Payments Network (SPAN), the only electronic payment system in the Kingdom and all banks are required by the Saudi Arabian Monetary Agency (SAMA) to issue cards fully compatible with the network. It connects all point of sale (POS) terminals throughout the country to a central payment switch which in turn re-routes the financial transactions to the card issuer, local bank, VISA, AMEX or MasterCard.

As well as its use for debit cards, the network is also used for ATM and credit card transactions.

[edit] Singapore

Singapore's debit service is managed by Network for Electronic Transfers (NETS), founded by Singapore’s leading banks (and shareholders) namely DBS, Keppel Bank, OCBC (and it's associates), OUB, IBS, POSB, Tat Lee Bank and UOB in 1985 as a result of a need for a centralised e-Payment operator.It will deduct money from your bank directly when you buy things using debit cards.

However,due to the banking restructuring and mergers, the local banks became UOB, OCBC, DBS-POSB as the shareholders of NETS with Standard Chartered Bank to offer NETS to their customers. However, DBS and POSB customers can use their network atms on their own and not be shared with UOB, OCBC or SCB (StanChart). The mega failure of 5 July 2010 of POSB-DBS ATM Networks (97,000 machines!) made the government to rethink the shared ATM system again as it affected the NETS system too.

In 2010, in line with the mandatory EMV system, Local Singapore Banks starts to reissue their Debit Visa/Mastercard branded debit cards with the EMV Chip compliant ones compared to the magnetic stripe system in place. Banks involved includes the NETS Members of POSB-DBS, UOB-OCBC-SCB along with the SharedATM alliance (NON-NETS) of HSBC, Citibank, State Bank of India, Malayan Banking Berhad or Maybank. Standard Chartered Bank (SCB) is also a SharedATM alliance member.Non branded cards of POSB and MAYBANK local ATM Cards are kept without a chip but has a Plus or Maestro sign so that they can use it only to draw cash locally or overseas.

Maybank Debit Mastercard are also available to use in Malaysia just as a normal ATM or DEBIT MEPS card.

Singapore also uses the e-purse systems of NETS CASHCARD and the CEPAS wave system by EZ-Link and NETS.

[edit] United Kingdom

In the UK debit cards (an integrated EFTPOS system) are an established part of the retail market and are widely accepted both by bricks and mortar stores and by internet stores. The term EFTPOS is not widely used by the public; debit card is the generic term used. Cards commonly in circulation include Maestro (previously Switch), Debit MasterCard, Visa Debit (previously Visa Delta) and Visa Electron. Banks do not charge customers for EFTPOS transactions in the UK, but some retailers make small charges, particularly where the transaction amount in question is small. The UK has converted all debit cards in circulation to Chip and PIN (except for Chip and Signature cards issued to people with certain disabilities), based on the EMV standard, to increase transaction security; however, PINs are not required for internet transactions.

In the United Kingdom, banks started to issue debit cards in the mid 1980s in a bid to reduce the number of cheques being used at the point of sale, which are costly for the banks to process; the first bank to do so was Barclays with the Barclays Connect card. As in most countries, fees paid by merchants in the United Kingdom to accept credit cards are a percentage of the transaction amount,[27] which funds card holders' interest-free credit periods as well as incentive schemes such as points, airmiles or cashback. Debit cards do not usually have these characteristics, and so the fee for merchants to accept debit cards is a low fixed amount, regardless of transaction amount.[27] For very small amounts, this means it is cheaper for a merchant to accept a credit card than a debit card. Although merchants won the right through The Credit Cards (Price Discrimination) Order 1990 to charge customers different prices according to the payment method, few merchants in the UK charge less for payment by debit card than by credit card, the most notable exceptions being budget airlines, travel agents and IKEA.[28] Debit cards in the UK lack the advantages offered to holders of UK-issued credit cards, such as free incentives (points, airmiles, cashback etc.), interest-free credit and protection against defaulting merchants under Section 75 of the Consumer Credit Act 1974. Almost all establishments in the United Kingdom that accept credit cards also accept debit cards (although not always Solo and Visa Electron), but a minority of merchants, for cost reasons, accept debit cards and not credit cards.

[edit] United States

In the U.S., EFTPOS is universally referred to simply as debit. The same interbank networks that operate the ATM network also operate the POS network. Most interbank networks, such as Pulse, NYCE, MAC, Tyme, SHAZAM, STAR, etc. are regional and do not overlap, however, most ATM/POS networks have agreements to accept each other's cards. This means that cards issued by one network will typically work anywhere they accept ATM/POS cards for payment. For example, a NYCE card will work at a Pulse POS terminal or ATM, and vice versa. Many debit cards in the United States are issued with a Visa or MasterCard logo allowing use of their signature-based networks.

The liability of a U.S. debit card user in case of loss or theft is up to $50 USD if the loss or theft is reported to the issuing bank in two business days after the customer notices the loss.[29]

The fees charged to merchants on offline debit purchases—and the lack of fees charged merchants for processing online debit purchases and paper checks—have prompted some major merchants in the U.S. to file lawsuits against debit-card transaction processors such as Visa and MasterCard. In 2003, Visa and MasterCard agreed to settle the largest of these lawsuits and agreed to settlements of billions of dollars[citation needed]. However, the many comparisons between signature debit and other forms of payment are moot, since there are costs associated with cash that are not factored in, and there is an underlying presumption that the EFT network will remain free, when, in fact, banks could choose to levy fees on both consumers and merchants if they choose.

Some consumers prefer "credit" transactions because of the lack of a fee charged to the consumer/purchaser; also, a few debit cards in the U.S. offer rewards for using "credit" (e.g. S&T Bank's "Preferred Debit Rewards Card" [30]). However, since "credit" costs more for merchants, many terminals at PIN-accepting merchant locations now make the "credit" function more difficult to access. For example, if you swipe a debit card at Wal-Mart in the U.S., you are immediately presented with the PIN screen for online debit; to use offline debit you must press "cancel" to exit the PIN screen, then press "credit" on the next screen.

2009-07-08: Minimum and Maximum Charges for Visa in USA

The Merchants Agreement for Visa states (page 9, or 14/141 in PDF):

Always honor valid Visa cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing minimum or maximum purchase amounts in order to accept a Visa card transaction is a violation of the Visa rules.[31]

Thanks to the Dodd-Frank Act, U.S. merchants can now set a minimum purchase amount on credit cards (but not debit cards), not to exceed $10. [32] [33]

[edit] FSA, HRA, and HSA debit cards

In the U.S.A, a FSA debit card only allows medical expenses. It is used by some banks for withdrawals from their FSAs, MSAs, and HSAs as well. They have Visa or MasterCard logos, but cannot be used as "debit cards", only as "credit cards"", and they are not accepted by all merchants that accept debit and credit cards, but only by those that accept FSA debit cards. Merchant codes and product codes are used at the point of sale (required by law by certain merchants by certain dates in the USA) to restrict sales if they do not qualify. Because of the extra checking and documenting that goes on, later, the statement can be used to substantiate these purchases for tax deductions. In the occasional instance that a qualifying purchase is rejected, another form of payment must be used (a check or payment from another account and a claim for reimbursement later). In the more likely case that non-qualifying items are accepted, the consumer is technically still responsible, and the discrepancy could be revealed during an audit. A small but growing segment of the debit card business in the U.S. involves access to tax-favored spending accounts such as flexible spending accounts (FSA), health reimbursement accounts (HRA), and health savings accounts (HSA). Most of these debit cards are for medical expenses, though a few are also issued for dependent care and transportation expenses.

Traditionally, FSAs (the oldest of these accounts) were accessed only through claims for reimbursement after incurring, and often paying, an out-of-pocket expense; this often happens after the funds have already been deducted from the employee's paycheck. (FSAs are usually funded by payroll deduction.) The only method permitted by the Internal Revenue Service (IRS) to avoid this "double-dipping" for medical FSAs and HRAs is through accurate and auditable reporting on the tax return. Statements on the debit card that say "for medical uses only" are invalid for several reasons: (1) The merchant and issuing banks have no way of quickly determining whether the entire purchase qualifies for the customer's type of tax benefit; (2) the customer also has no quick way of knowing; often has mixed purchases by necessity or convenience; and can easily make mistakes; (3) extra contractual clauses between the customer and issuing bank would cross-over into the payment processing standards, creating additional confusion (for example if a customer was penalized for accidentally purchasing a non-qualifying item, it would undercut the potential savings advantages of the account). Therefore, using the card exclusively for qualifying purchases may be convenient for the customer, but it has nothing to do with how the card can actually be used. If the bank rejects a transaction, for instance, because it is not at a recognized drug store, then it would be causing harm and confusion to the cardholder. In the United States, not all medical service or supply stores are capable of providing the correct information so an FSA debit card issuer can honor every transaction-if rejected or documentation is not deemed enough to satisfy regulations, cardholders may have to send in forms manually