A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in which, during every transaction, the money from the users's account is removed. But in case of credit card, issuer lends money to the consumer (or the user). It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), that require the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard.
Contents [hide]
1 How they work
1.1 The merchant's side
1.2 Secured credit cards
2 Features
3 Security
4 Profits and losses
4.1 Costs
4.1.1 Interest Expenses
4.1.2 Operating Costs
4.1.3 Charge Offs
4.1.4 Rewards
4.1.5 Fraud
4.2 Revenues
4.2.1 Interchange fees
4.2.2 Interest on outstanding balances
4.2.3 Fees charged to customers
5 Neutral Consumer Resources
5.1 Canada
6 History
7 Controversy
7.1 Minimum payments
7.2 Trailing Interest
8 Credit card numbering
9 Credit cards in ATMs
10 Credit card networks
11 Collectible credit cards
12 Credit Card scams in popular culture
13 Credit Cards as funding for entrepreneurs
14 References
15 See also
16 External links
16.1 Consumer advice
16.2 Technical
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How they work
Numismatics
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A user is issued a credit card after an account has been approved by the credit provider (often a general bank, but sometimes a captive bank created to issue a particular brand of credit card, such as American Express Centurion Bank), with which he or she will be able to make purchases from merchants accepting that credit card up to a preestablished credit limit.
When a purchase is made, the credit card user agrees to pay the card issuer. Originally the user would indicate his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid, but many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet.
Electronic verification systems allow merchants (using a strip of magnetized material on the card holding information in a similar manner to magnetic tape or a floppy disk) to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge.
Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, and the total amount owed. The cardholder must then pay a minimum proportion of the bill by a due date, and may choose to pay the entire amount owed or more. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's accounts.
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 outstanding balance and pays it in full, there would be no interest charged. If, however, even $1.00 of the total balance remained unpaid, interest would be charged on the full $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. (See The TD Gold Travel Visa Cardholder Agreement Retrieved January 3, 2006)
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 possibly with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, either to incent balance transfers from cards of other issuers, or to incent more spending on the part of the customer. 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. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance (see external links for some on-line services).
Because of intense competition in the credit card industry, credit providers often offer incentives such as frequent flier miles, gift certificates, or cash back (typically 1 percent) to try to attract customers to their program.
Low interest credit cards or even 0% interest credit cards are available. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months. However, services are available which alert credit card holders when their low interest period is due to expire. Most such services charge a monthly or annual fee.
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The merchant's side
Even some street market stands now take credit cards.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 verified. The bank charges a commission (discount fee), to the merchant for this service and there may be a certain delay before the agreed payment is received by the merchant. 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.
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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, he or she 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.
The cardholder of a secured credit card is still expected to make regular payments, as he or she would with a regular credit card, but should he or she 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.
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 credited 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. Secured credit cards are available with both Visa and MasterCard logos on them. 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 can often be less expensive in total cost than unsecured credit cards, even including the security deposit.
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Features
As well as convenient, accessible credit, the cards offer consumers an easy way to track expenses, which is necessary both for monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. They have now spread worldwide, and are offered in a huge variety of permutations with differing credit limits, repayment arrangements such as automatic payment from a personal bank account (some cards offer interest-free periods, while others do not but compensate with much lower interest rates), 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 and the United Kingdom 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.
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Security
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 gold contact pads on the card enable electronic access to the chip.The low security of the credit card system presents countless opportunities for fraud. This opportunity has created a huge black market in stolen credit card numbers, which are generally used quickly before the cards are reported stolen.
The goal of the credit card companies, as they say, is not to eliminate fraud, but to "reduce it to manageable levels", such that the total cost of both fraud and fraud prevention is minimized. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction.
Most Internet fraud is done through the use of stolen credit card information which is obtained in many ways, the simplest being copying information from retailers, either online or offline. There have been many cases of crackers obtaining huge quantities of credit card information from company databases. It is not unusual for employees of companies that deal with millions of customers to sell credit card information to criminals[citation needed].
Despite efforts to improve security for remote purchases using credit cards, systems with security holes are usually the result of poor implementations of card acquisition by merchants. For example, a website that uses SSL to encrypt card numbers from a client may simply email the number from the webserver to someone who manually processes the card details at a card terminal. Naturally, anywhere card details become human-readable before being processed at the acquiring bank is a security risk. However, many banks offer systems such as ClearCommerce, where encrypted card details captured on a merchant's webserver can be sent directly to the payment processor.
The Federal Bureau of Investigation is the agency 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, they only prosecute in cases exceeding $5,000 in value. Even though the FBI usually does not investigate, most common credit card networks have not implemented procedures to prevent credit card fraud. [citation needed] 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 smartcard (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Third, an additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present" transactions. See CVV2 for more information.
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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.
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Costs
Credit card issuers (banks) have several types of costs:
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Interest Expenses
Banks generally borrow the money that 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 5% difference is the "interest expense" and the 10% is the "net interest margin".
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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 tracking down fraud rings to protect the customers. Depending on the issuer, marketing programs are also a significant portion of expenses.
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Charge Offs
Some customers never pay their credit card bill. In any given year, a significant portion of the money that a bank lends to its credit card customers will never be repaid. Some credit card issuers have had various troubles and have seen this number rise to over 20%. In general, the percentage of people who charge off will usually correlate to the FICO score of the applicant; the higher the FICO score, the lower the actual and theoretical risk of charge off.
As the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.
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Rewards
Many credit card customers receive rewards, such as airline miles 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 spend. However, most rewards points are accrued as a liability on a company's balance sheet and expensed at the time of reward redemption. As a result, some issuers discourage redemption by forcing the cardholder to call customer service for rewards. Others encourage redemption for lower cost merchandise; instead of an airline ticket, which is very expensive to an issuer, the cardholder may be encouraged to redeem for a gift certificate instead. 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.
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Fraud
Where a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of the charges that the customer would have otherwise received, for things they didn't 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, but in other cases, these costs must be borne by the card issuer. In several countries merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries. The cost of fraud is high; in the UK in 2004 it was over £500 million [1]. Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill.
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Revenues
Offsetting costs are the following revenues:
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Interchange fees
Interchange fees are charged by the merchant's acquirer to a card-accepting merchant as component of the so-called merchant discount fee. The merchant pays a merchant discount fee that is typically 2 to 3 percent (this is negotiated, but will vary not only from merchant to merchant, but also from card to card, with business cards and rewards cards generally costing the merchants more to process), which is why some merchants prefer cash, debit cards, or even checks. The majority of this fee, called the interchange fee, goes to the issuing bank, but parts of it go to the processing network, the card association (American Express, Visa, MasterCard, etc.), and the merchant's acquirer. With a corporate card, the interchange is also often shared by the company in whose name the card is issued as an incentive to use that issuer's card instead of someone else's.
The interchange fee that applies to a particular merchant is a function of many variables including the type of merchant, the merchant's average ticket dollar amount, whether the cards are physically present, if the card's magnetic stripe is read or if the transaction is hand-keyed, the specific type of card, when the transaction is settled, the authorized and settled transaction amounts, etc. For a typical credit card issuer, interchange fee revenues may represent about fifteen percent of total revenues, but this will vary greatly with the type of customers represented in their portfolio. Customers who carry high balances may generate low interchange revenue due to credit line limitations, while customers who use their cards for business and spend hundreds of thousands of dollars a year on their cards while paying off balances every month will have very healthy interchange revenues.
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Interest on outstanding balances
Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due date (that is, at the end of the "grace period") and are not in a promotional period owe interest ("finance charges"). These customers are known in the industry as "revolvers". Those who pay in full (pay the entire balance) do not. These customers are known in the industry as "transactors" or "convenience users". 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 rates for those with poor credit can be as high as 30 percent (annualized) or occasionally more. In the U.S., rules governing interest rates are set at the state level; some banks have chosen to establish their credit card operations in states such as South Dakota that have less restrictive limits on interest rates. See Usury laws.
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Fees charged to customers
The major fees are for (1) late payments; (2) charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake); (3) Returned check fees or payment processing fees (eg phone payment fee); (4) cash advances and convenience checks (often 3 percent of the amount); (5) transactions in a foreign currency (as much as 3 percent of the amount; a few financial institutions charge no fee for this -- it is worth noting as an aside that the credit card issuer charges a fee on top of the international bank rate when converting currency, which in most circumstances is a better rate than is available elsewhere, even with the fee added on); and (6) membership fees (annual or monthly), sometimes a percentage of the credit limit.
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Neutral Consumer Resources
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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-file 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. 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.
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History
The 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. It has been widely regarded that rampant use of credit cards contributed greatly to the Great Depression in the United States that began in the latter 1920s. [2] In 1938 several companies started to accept each other's cards.
The concept of using a card for purchases was invented in 1887 by Edward Bellamy and described in his utopian novel Looking Backward. Bellamy uses the explicit term "Credit Card" eleven times in his novel (Chapters 9, 10, 11, 13, 25 and 26) and 3 times (Chapters 4, 8 and 19) in its sequel, Equality.
The concept of paying merchants using a card was invented in 1950 by Ralph Schneider and Frank X. McNamara in order to consolidate multiple cards. The Diners Club produced the first "general purpose" charge card, which is similar but required the entire bill to be paid with each statement; it was followed shortly thereafter by American Express. Western Union had begun issuing charge cards to its frequent customers in 1914.
Bank of America created the BankAmericard in 1958, a product which eventually evolved into the Visa system ("Chargex" also became Visa). MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge. The fractured nature of the US banking system meant that credit cards became an effective way for those who were travelling around the country to, in effect, move their credit to places where they could not directly use their banking facilities.
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.
In contrast, although having reached very high adoption levels in the US, Canada and the UK, it is important to note that many cultures were much more cash-oriented in the latter half of the twentieth century (Germany, France, Switzerland, among many others). In these places, the take-up 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 many countries acceptance still remains poor as the use of a credit card system depends on the banking system being perceived as reliable.
In contrast, because of the legislative framework surrounding 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.
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Controversy
Credit card companies do not want merchants to charge credit card users more than they charge other customers, even though the merchant pays a fee of 2 to 3 percent (merchants negotiate an exact percentage with their banks) to process credit payments. In some countries this fee may be significantly more. If customers were responsible for this fee, it would often discourage credit card usage. Some critics have observed that this results in what is effectively a hidden tax on all transactions conducted by merchants who accept credit cards since they must build the cost of transaction fees into their overall business expense. The end result is that cash consumers are essentially subsidizing credit card holder purchases. The cost of the convenience enjoyed by card holders and the profits taken from transaction fees by the card industry (which has come to rely increasingly on this revenue stream over the years) is partially offloaded onto the backs of the cash consumer. Critics go on to say that further compounding the issue is the fact that the consumers most likely to pay in cash are the least able to afford the additional expense (card holders are more likely to be affluent, non-card holders less so).
A counter argument is that there are also costs to the merchant in accepting cash, including frequent trips to the bank or use of an armored delivery service, theft, and employee error, such that cash is actually not cheaper for the merchant than credit cards. While businesses are allowed to offer a discount for cash-paying customers, this has become virtually non-existent.
In many places, governments have passed laws (at the urging of the credit card industry) to make this illegal. Despite this, some retailing sectors flout this regulation, especially in areas of very competitive, commodity products such as personal computers, where the fine print of an advertisement states "prices already cash discounted -- surcharge for credit card". Other retailers offer incentives or bonus coupons for using cash, such as Canadian Tire Money. Australia is currently acting to reduce this by allowing merchants to apply surcharges for credit card users. In the United Kingdom, merchants won the right through The Credit Cards (Price Discrimination) Order 1990 to charge customers different prices according to the payment method, but few merchants do so (the most notable exceptions being budget airlines and travel agents). The United Kingdom is the world's most credit-card-intensive country, with 67 million credit cards for a population of 59 million people.[1]
However, there also exists an economic argument that credit card use increases the "velocity" of money in an economy, the result, higher consumer spending rates and higher GDP. Although there is many a sad story of credit card abuse, the trend is increasing use, with some predicting a cashless society in the not so distant future.
There is some controversy about credit card usage in recent years. Credit card debt has soared, particularly among young people. 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. A recent study by United College Marketing Services has shown that student credit lines have increased to over $6,000. Credit card usage has tripled since 2001 amongst teenagers as well. Since eighteen year-olds in many countries and most U.S. states are eligible for a card without parental consent or employment, the likelihood of increased balances, unwise use of credit and damaged credit scores increases.
According to Larry Chiang of United College Marketing Services, an example of a credit card class action was where issuers were "rolling back" posting times to extract more late fees. The due dates were "rolled back" from 1pm to 10am because mail was delivered in the afternoon so due dates were actually rolled back to charge more late fees. The following banks are listed (with the amounts penalized) in this one particular class action.
Providian: $405m
Citibank: $15.5m
Chase: $22.2m
Bank One: $40m
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. Given this circumstance with one credit card, universal default allows other card issuers to raise the cardholder's interest rates on other accounts, even if those other accounts are not in default.
In the USA, Congress has been slow to introduce credit card reform legislation. A push toward expanding the disclosure box and incorporating balance payoff disclosures on credit card statements could help clarify credit card debt's ramifications.
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Minimum payments
In the UK, there has recently been increasing concern about the minimum payments required on outstanding credit card balances. Until the mid-1990s the required minimum monthly payment was generally 5% of the outstanding balance, but competition in the last 15 years to attract customers has led to this figure being eroded on the premise that the minimum monthly payment to service a debt will be lower. Typically, credit card companies now only require a monthly minimum payment of between 2% and 3% of the outstanding balance, or a fixed cash fee, whichever is the greater. For example, on a debt of £1,000, the card holder can expect to only have to pay back between £20 and £30 per month.
Unfortunately, some people are not aware of how long it can take to repay a debt when only paying the minimum each month. An example of this: by paying 2.5% of the debt each month, while accruing interest at 14% (in line with modern credit card interest rates), it can take over 14 years to pay back a debt of £1,000.
It has recently been suggested that credit card companies include a warning on their statements discouraging customers from paying only the minimum, however few companies have so far acted upon this. Companies which do include a warning tend not to inform customers how long full repayment will take, i.e. they discourage users from making just minimum payments but do not explain why. Less financially savvy customers may ignore these empty warnings as a result.
Starting in 2006, most US credit card companies regulated by the Office of the Comptroller of the Currency have been required to increase customers' minimum payments to cover at least the interest and late fees from the prior statement plus 1% of the outstanding balance. The reason is to avoid a negative amortization situation which may result when the previous 3% minimum was enforced.
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Trailing Interest
Trailing interest, sometimes called final or residual interest, is a method of calculation whereby interest is charged right up until the day of a full payment. Cardholders of banks that use this method receive a bill with the balance owing and interest accrued and pay it off in full. On the next statement they are billed a "final" amount of interest even if no purchases or cash advances have been debited since. The reason for this is that interest continues to accrue from the time of the close of the previous statement until the day the payment for that statement is actually received.
In comparison to the normal method of interest calculation, this method is judged by many to be a hidden and thus unfair cost. Uninformed cardholders often inquire as to what amount they need to pay by their due date in order to have paid off their credit card in full and to stop interest from accumulating. They then proceed to pay off this amount under the belief that they are finished paying interest charges, only to find trailing interest on their next statement which was posted to their account on the day of the statement billing (so even if they check their balance a day before that next billing date, it would still show a zero balance).
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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 last ten digits are the individual account number.
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.
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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.
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Credit card networks
American Express
Bankcard
China UnionPay
Diners Club
Discover
JCB
MasterCard
VISA
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Collectible credit cards
Visa's "Happy Shoppers" credit card designA 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, then metal and fiber, then paper and are now mostly plastic.
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Credit Card scams in popular culture
A credit card scam was also the subject of several episodes of the popular HBO series, The Sopranos, pulled off by Benny Fazio.
[edit]
Credit Cards as funding for entrepreneurs
Credit cards are a creative and risky way for entrepreneurs to acquire capital for their start ups when more conventional financing are unavailable. 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. Also Joe Liemandt founder of Trilogy funded the startup entirely on credit cards; Trilogy is now a industry leader. Similarly, filmmaker Robert Townsend financed part of Hollywood Shuffle using credit cards[3]. Director Kevin Smith funded Clerks. in part by maxing out several credit cards. Richard Hatch also financed his production of Battlestar Galactica: The Second Coming partly through his credit cards.
[edit]
References
^ Plastic fraud loss on UK-issued cards 2004/2005 site retrieved 7 July, 2006
^ Jenkinson, Leroy A. Academic class discussion. 28 August, 2006
^ Hollywood Shuffle trivia at IMDB page retrieved 7 July, 2006
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See also
Card Security Code
Credit card debt
Credit card fraud
Credit card hijacking
Credit card interest
Credit history
Adverse Credit History
Credit score
Debit card
Electronic money
Loan
Stored-value card
Credit rating agency
Credit reference agency
Fair Credit Reporting Act
Identity theft
Secure Electronic Payment System
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External links
[edit]
Consumer advice
(Canada) Credit Cards and You Consumer credit card advice from the Financial Consumer Agency of Canada
(UK) APACS (UK Payments Trade Association) Guide to Choosing and Using a Credit Card
(USA) Talk Your Way Out of Credit Card Debt NPR Story on how to negotiate with creditors
(USA) Choosing and Using Credit Cards Consumer credit card advice from the Federal Trade Commission
(USA) Avoiding Credit and Charge Card Fraud From the Federal Trade Commission
(USA) Choosing a Credit Card Consumer credit card information from the Federal Reserve Board
(USA) Steer Clear in College NPR Story on college credit card debt
(USA) Secret History of the Credit Card (PBS/Frontline/New York Times documentary on Credit Cards)
[edit]
Technical
Article from Evolt Validating a Credit Card Number with JavaScript
Magnetic Stripe Technology and Beyond
Retrieved from "http://en.wikipedia.org/wiki/Credit_card"
Categories: Articles with unsourced statements | Payment systems | Electronic commerce | Credit cards | Numismatics
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This page was last modified 18:56, 1 September 2006. All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.)
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Visa is a brand of credit card and debit card operated by the Visa International Service Association of San Francisco, California, USA, an economic joint venture of 21,000 financial institutions that issue and market Visa products.
Contents [hide]
1 Background
2 Corporate structure
3 Features of the standard product
4 Controversy
4.1 Fraud detection
5 Logo
6 Issuers
7 Olympic sponsorship
8 Other sponsorships
9 Legal proceedings
10 Board of directors
11 See also
12 External links
[edit]
Background
The Visa card was launched in 1976 and the card was derived from the earlier BankAmericard issued by the Bank of America. Internationally, BankAmericard was known by other names prior to the introduction of the Visa brand for the network. The blue-white-gold motif used by BankAmericard was also used for these cards.
In Canada, an alliance of banks (including Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Royal Bank of Canada, and Bank of Nova Scotia) issued credit cards under the Chargex name.
In France, it was known as Carte Bleue (Blue Card). The logo still appears on many French-issued VISA cards today.
In the UK, the only BankAmericard issuer for some years was Barclaycard.
The term Visa was conceived by the company's founder, Dee Hock. He believed that the word was instantly recognizable in many languages in many countries, and that it also denoted universal acceptance. Nowadays, the term VISA has become a recursive backronym for Visa International Service Association.
[edit]
Corporate structure
Sample Visa credit cardVisa offers through its issuing members the following types of cards:
Debit (debit) cards (pay from a checking / savings account)
Credit (credit) cards (pay monthly payments with interest)
prepaid cards (pay from a cash account that has no checkwriting priviledges)
Visa operates the PLUS ATM network and the Interlink EFTPOS network, which facilitate the "debit" protocol used with debit cards and prepaid cards.
Visa's corporate structure is regionally de-centralised, which is unique in the payment scheme industry.
Legally, Visa comprises four non-stock, separately incorporated companies that employ 6000 people worldwide: Visa International Service Association ("VISA"), the worldwide parent entity; Visa U.S.A. Inc.; Visa Canada Association; and Visa Europe Ltd. The latter three separately incorporated regions have the status of group members of Visa International Service Association, whereas the unincorporated regions (Visa Latin America [LAC], Visa Asia Pacific and Visa Central and Eastern Europe, Middle East and Africa [CEMEA]) are divisions within VISA.
The de-centralised nature of Visa allows it to respond to member needs and adapt the Visa International rules and products to suit the individual needs of their regional members. Regional banks therefore have a strong stake in the governance of their region.
The Visa International Board has the dual responsibilities of:
Oversight of the worldwide interests of the Association
Strategic direction and supervision of the three unincorporated divisions and the central staff of Visa Worldwide services.
The Visa Association is not a profit- driven organisation and the four companies that make up Visa issue no cards and make no loans. Members (about 21,000 worldwide) fund day to day management and make the investments needed to maintain and develop the Visa payment system. Fees are levied according to the following formula:
Operating and Marketing costs
+ Investments in new products, platforms and systems
+ Increase in Reserves
= Members annual fees
[edit]
Features of the standard product
Even though the service is offered by thousands of banks, the end result is standardized for consumers by the Visa International Association. Two protocols are used, depending upon the type of card marketed, often called "credit" and "debit".
The debit protocol involves using the card at a point-of-sale terminal (POS) or ATM where the PLUS or Interlink logo is shown, with a Visa card that has the PLUS or Interlink logo on the back of the card. A PIN (personal identification number, known by its acronym) is used to identify the cardholder. The money is deducted from the attached checking account or prepaid account (which is similar with no paper check-writing capability).
The credit protocol involves using the card at a POS or a banking center where the Visa logo is shown. The cardholder's signature is generally used for identification. Holders of any Visa card may use the credit protocol even if the card is marketed as a debit card or prepaid card (basically since it has the Visa logo on the front of the card). One source of confusion is the merchant may ask "debit or credit?" even though the words are not defined that way in most dictionaries and even though the card may say "debit card" right on it, and still be available for "credit" transactions. In this way it is a misnomer that the credit cards are only for loans or that the debit protocol is only for checking accounts. Banks actually choose various backend methods of handling the accounts, making "debit" a generic synonym for "Plus/Interlink" (and the equivalent competitive networks), and "credit" a generic synonym for "Visa" (and MasterCard, American Express, Discover Card, which have similar systems).
The names of the two protocols use the arbitrary "debit" and "credit" from accounting meaning left and right, and they originally had the meanings (and still do to many people) that with credit the cardholder pays later for the purchase, and with debit the cardholder pays immediately. The truth today is that they are merely two different protocols, with which there is still considerable confusion, and even lawsuits over the definitions of products for purposes of antitrust law. Banks can use independent methods to actually recover the money paid for purchases, regardless of which protocol is used. For example, the debit protocol can be used to incur a debt to the bank, and the credit protocol can be used to take money from a checking account.
Some outstanding rules of the association include rules about how a cardholder must be identified for security, how transactions may be denied by the bank and how banks may cooperate for fraud prevention, and how to keep that identification and fraud protection standard and non-discriminatory. One notable rule is that no merchant accepting Visa, whether a mom-and-pop store or a government body like a university, may estabish any minimum purchase, maximum purchase, or surcharge for any Visa (credit) transaction(Except for Australian markets where recent changes by the Reserve Bank have allowed retailers to apply a surcharge on any credit card transaction, VISA or otherwise.) They can establish surcharges for debit. Enforcement of the rules, however, is by individual banks, and they may or may not know the rules well. So, a restaurant may charge a surcharge or minimum, which may at first be upheld by the bank in many cases, unless the consumer knows the association rules well. Other rules govern what creates an enforcable proof of authorization by the cardholder (starting from a signature or PIN), and continuing to lower levels of proof such as a shipment accepted or a statement by the consumer.
Recent complications include the addition of exceptions for non-signed purchases by telephone or on the internet, and an additional security system called "Verified by Visa" for purchases on the internet.
[edit]
Controversy
Some merchants, primarily small businesses, still systematically establish minimum purchases or surcharges and get away with it because individual consumers often do not care enough about the small amount or know the rules. In some countries this is backed by legislation, eg. in the UK and AU a retailer is perfectly within his/her rights to impose a surcharge for paying by credit card and the bank/payment system cannot demand that a retailer does not do this. Others deny use of the system to cardholders with foreign banks. If these are non-signed transactions, the discretion may be allowed by the merchant (for example, the merchant may say they only accept phone orders on Visa cards from domestic banks); however, if it is signed or PIN-based transaction, then it is probably against the rules. A large and growing problem exists with account balance ownership - the cardholder's right to be able to keep track of his balance. Automatic charges based on complex if-then statements and contingencies, such as deep contract clauses that say a merchant may collect any due amounts through a Visa transaction without any signature, the association's hertofore refusal to grant future prices on foreign exchange rates (they could be published on the internet from a newspaper standard of the previous business day, or they could be ultimately calculated on the receipt itself) and merchant charges for "any denial" of a transaction contribute to this lack of ownership. Innovations to solve this problem include the dropping of over-the-limit fees (such as with Citibank), and a standard system of requiring check-type information for every transaction: name of payee, amount, date, permission of cardholder. A similar system is needed for automatic charges by merchants.
[edit]
Fraud detection
The VISA system has been known to decline legitimate charges if it believes that the transactions may be fraudulent. In particular, repeated overseas transactions may be denied.
This section is a stub. You can help by adding to it.
[edit]
Logo
The blue and gold in Visa's logo were originally chosen to represent the blue sky and golden-colored hills of California, where Bank of America was founded.
The Visa Flag Symbol is used by merchants to denote the acceptance of Visa credit cards.
[edit]
Issuers
JPMorgan Chase is the world's largest issuer of the Visa card after acquiring Bank One which was the largest Visa card issuer.
[edit]
Olympic sponsorship
Since the 1988 Calgary Winter Olympic Games, as a worldwide Olympic partner, Visa is the only form of electronic payment accepted at all venues and Olympic-related transactions. Its current contract with the IOC as the exclusive payment card will continue through 2012.
[edit]
Other sponsorships
VISA is currently the shirt sponsor for the Argentina national rugby union team.
[edit]
Legal proceedings
The neutrality of this article or section may be compromised by "weasel words".
Please see the relevant discussion on the talk page.
Visa settled a lawsuit to Wal-Mart for billions of dollars. According to a website associated with the suit (link), Visa and MasterCard settled their claims for a total of $3.05 billion, and Visa's share of this settlement is reported to have been the larger. As of the spring of 2005, it is expected to have raised its interchange rate from 1.634% to 1.99%, which can be expected to affect the discount rates paid by retail locations to the banks with which they deal.
It has been rumored for years that Visa and MasterCard have been working in tandem for a long time; some believe they are really the same company.[citation needed] In fact, while most card-issuing banks in the United States are members of both Visa and MasterCard, the associations are distinct, and have some key differences. The United States Department of Justice unsuccessfully sued the two associations over allegations that their common ownership was detrimental to competition. The United States Department of Justice was successful with claims brought at the same time against both companies under the Sherman Antitrust Act for preventing banks from issuing American Express cards. In late 2004, the Supreme Court declined to reconsider a lower court's ruling and thereby cleared the way for MasterCard- and Visa-issuing banks to begin issuing American Express and Discover cards. Subsequently, several major issuers like MBNA and Citibank have begun issuing American Express cards, in addition to Visa and MasterCard.
In 1999, a Malaysian company called Sheimer tried to register "visa" as a trade mark for condoms (being a pun on "permit to enter"), which, despite being in a different business, was rejected because, among other reasons, Visa had a "strong distinctive character and reputation in the United Kingdom" and "the use of Visa for condoms would be detrimental to the distinctive character of Visa International's earlier trade mark for financial services."[1]
[edit]
Board of directors
As of August 2005, the following banks are represented on Visa's U.S.A. board of directors:
JPMorgan Chase (2 seats)
Bank of America
Wachovia
US Bancorp
Wells Fargo
Providian Financial Corporation
First National Bank of Nebraska
Texas First Bank
National City Corporation
SunTrust Bank
[edit]
See also
Visa Debit
Visa Electron
MasterCard
American Express
Discover
China UnionPay
JCB
[edit]
External links
Official VISA corporate profile
Official VISA International profile
Yahoo! — VISA U.S.A. Inc. Company Profile
Yahoo! — VISA International Company Profile
PCI Data Security Blog
Retrieved from "http://en.wikipedia.org/wiki/VISA_%28credit_card%29"
Categories: Articles with sections needing expansion | Articles with weasel words | Articles with unsourced statements | Credit cards | 1976 establishments | Cooperatives
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This page was last modified 15:01, 30 August 2006. All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.)
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MasterCard Worldwide NYSE: MA is a membership organization owned by the 25,000+ financial institutions that issue its card. MasterCard is also the company's brand of credit cards. It was originally created by United California Bank, Wells Fargo, Crocker Bank, and the Bank of California as a competitor to the BankAmericard issued by Bank of America. BankAmericard is now the VISA credit card, issued by Visa International.
Contents [hide]
1 History
2 Shareholders
3 IPO
4 Litigation
5 Advertising
6 MasterCard board of directors
7 MasterMoney
8 PayPass
9 See also
10 References
11 External links
[edit]
History
The name Master Charge was licensed by the above mentioned California banks from the First National Bank of Louisville, Kentucky in 1967. With the help of New York's Marine Midland Bank, now HSBC Bank USA, these banks joined with the Interbank Card Association (ICA) to create "Master Charge: The Interbank Card".
In 1979, "Master Charge: The Interbank Card" was renamed to simply "MasterCard". In 2002, MasterCard Worldwide absorbed Europay International SA, another large credit-card issuer association, which for many years issued cards under the name Eurocard.
In 2006, MasterCard International underwent another name change to MasterCard Worldwide. This was done in order to suggest a more global scale of their operations. In addition, the company introduced a new corporate logo made up of an additional circle to the traditional two that had been used in the past. A new corporate tagline was introduced at the same time. The tagline is "The Heart of Commerce". [1]
[edit]
Shareholders
Based on an SEC filing in early 2005, MasterCard's largest current shareholders are:
11.8% - JPMorgan Chase
6.2% - Citigroup
6.0% - Bank of America
5.2% - Euro Kartensysteme
5.0% - Europay France
[edit]
IPO
The company, which had been organized as a cooperative of banks, offered an inital public offering IPO on May 25th 2006 and trades on the NYSE under the symbol MA.
[edit]
Litigation
Both MasterCard and Visa have paid approximately $3 billion in damages resulting from a class-action lawsuit filed by Hagens Berman in January, 1996. [2] The litigation cites several retail giants as plaintiffs, including Wal-Mart, Sears Roebuck & Company, and Safeway. [3]
[edit]
Advertising
The "old" MasterCard logo; remains in use (for the moment) as a consumer logoMasterCard's current advertising campaign follow this pattern:
tangible item: price, tangible item: price, tangible item: price, intangible item/concept: priceless.
There are some things money can't buy. For everything else, there's MasterCard.
This series of ads started in 1998 and there are numerous different ads. [4] It was created by McCann-Erickson. MasterCard actually registered Priceless as a trademark. [5] Actor Billy Crudup has been the voice of the ads since 1997.
This campaign attempts to position MasterCard as the credit card company with a sense of humor. They are designed to respond to the public's worry that everything is being commodified, and that people are becoming too materialistic. [6]
During Super Bowl XXXIX on February 6, 2005, a MasterCard commercial was introduced featuring 10 legendary advertising characters from various foods and household products. The characters included Chef Boyardee, Charlie the Tuna, the Pillsbury Doughboy, Count Chocula, the Vlasic pickle stork, the Morton Salt girl, the Jolly Green Giant, Mr. Peanut from Planters, the Gorton's fisherman, and Mr. Clean.
Many parodies have been made using this same pattern, though MasterCard has threatened legal action,[7] contending that MasterCard views such parodies as a violation of its rights under the federal and state trademark and unfair competition laws, under the federal and state anti-dilution laws, and under the Copyright Act. Despite these claims, however, noted US consumer advocate Ralph Nader emerged victorious (after a four-year battle) in the suit MasterCard brought against him after he produced his own "Priceless" political commercials. [8]
[edit]
MasterCard board of directors
As of December 2004, the following banks are represented on MasterCard's board of directors:
Europay España, S.A.
HSBC
Clarima Banca
Capital One
Banamex (Citigroup's Mexican division)
Citigroup
The Royal Bank Of Scotland
MBNA America (now Bank of America)
Westpac Banking Corporation
Southern Bank Berhad
Bank of Montreal
Banque Fédérative du Crédit Mutuel
Deutscher Sparkassen-und Giroverband
Orient Corporation
In January, 2005, Washington Mutual Bank, the third largest issuer of debit cards in the United States, announced that it was changing its debit-card branding from VISA to MasterCard. The change will make Washington Mutual MasterCard's largest bank customer.
[edit]
MasterMoney
MasterMoney is the branding of a MasterCard debit card distributed in North America. Like many debit cards, the brand has capabilities of being used as an ATM card as well as a credit card, providing sufficient funds are in one's bank account (usually a checking account) in order to complete a transaction.
[edit]
PayPass
MasterCard PayPass is a new "contactless" payment feature based on the ISO 14443 standard that provides cardholders with a simpler way to pay by tapping a payment card or other payment device, such as a phone or key fob, on a point-of-sale terminal reader rather than swiping or inserting a card.
In 2003, MasterCard concluded a nine-month PayPass market trial in Orlando, Florida, with JPMorgan Chase, Citibank, and MBNA. More than 16,000 cardholders and more than 60 retailer locations participated in the market trial. In addition, MasterCard worked with Nokia, AT&T Wireless, and JPMorgan Chase to incorporate MasterCard PayPass into mobile phones in Dallas, Texas.
In 2005, MasterCard began to roll out PayPass in certain markets. As of April 2006, the following financial institutions have issued the MasterCard PayPass:
Bank of America
JPMorgan Chase (available through its "blink" contactless feature)
Citibank (both MasterCard credit and debit cards)
HSBC Bank USA (debit card only)
Key Bank (debit card only)
Citizens Bank and Charter One Bank (both MasterCard credit and debit cards)
Commonwealth Bank (Australia)
[edit]
See also
VISA
American Express
Diners Club
Discover
Maestro
Octopus card
China UnionPay
JCB
Cirrus
Cashplus
[edit]
References
^ MasterCard changing name, Jay Loomis, The Journal News, June 28, 2006
^ Visa/MasterCard Litigation, January 1st 1996
^ VISA CHECK/MASTERMONEY ANTITRUST LITIGATION WEBSITE
^ Pricess Film Festival
^ Priceless, Trademark Electronic Search System, Retreieved July 5th 2006
^ Priceless, Jim Farrell, New American Dream, Retreieved July 5th 2006
^ Threats of legal action: MasterCard International (April 9, 2001). Re: MasterCard/Infringement by NETFUNNY.COM web site. Retrieved on July 30, 2006.
^ George B. Daniels, District Judge (March 9, 2004). Decision of the US District Court in the case of MasterCard International Incorporated v. Ralph Nader (PDF). US District Court, Southern District of New York. Retrieved on July 30, 2006.
[edit]
External links
Official website
Corporate website
Merchant website
Business website
PCI Data Security Blog
The Lessons of Mastercard
Retrieved from "http://en.wikipedia.org/wiki/MasterCard"
Categories: Cleanup from June 2006 | Companies listed on the New York Stock Exchange | Credit cards | Former cooperatives | Fortune 1000
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This page was last modified 11:52, 1 September 2006. All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.)
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hope this helps