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Credit Card, Debit Card, Smart Card & Barter Card

Chapter 8 : Fee-Based Retail Financial Services. Credit Card, Debit Card, Smart Card & Barter Card. Credit Cards. The term credit originated about 3000 years ago The first credit card was the Charge Card launched by Diners Club in 1950 in USA

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Credit Card, Debit Card, Smart Card & Barter Card

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  1. Chapter 8 : Fee-Based Retail Financial Services Credit Card, Debit Card, Smart Card & Barter Card

  2. Credit Cards • The term credit originated about 3000 years ago • The first credit card was the Charge Card launched by Diners Club in 1950 in USA • In 1970, the magnetic strip was introduced on the credit cards • Credit cards have three functions: • A means of paying for goods and services; • A means of obtaining cash; • A source of revolving credit. • Today, Visa and Mastercard are the organizations issuing credit cards.

  3. Credit Cards • Types of cards: • Bank-issued cards • Charge cards • JCB Cards • Gold cards • Co-branded cards • Affinity cards • Store cards • Electronic Debit Cards • Telephone cards • Fuel cards • Add-on-cards

  4. Credit Cards • Credit card agreements: • Consensus of the parties (offer and acceptance) • Consideration • Capacity (the parties must be able legally to contract) • Formality (the document must be correct) • Legality (the purpose of the contract must be legal) • Intention to contract (the parties must share the same intention)

  5. Credit Cards • Clauses generally contained in bankcard contracts: • Signature of the cardholder • Agreement to debit the amount spent by the cardholder to his account and pay the amount to the paying bank within a specified period • Daily interest calculation and monthly debit • Agreement by the cardholder to pay a minimum payment each month • Card remains the property of the issuer • Loss of card should be immediately notified to the issuer • Issuer has no liability if the card is not accepted by the supplier

  6. Credit Cards • Credit Card Terms • Annual Percentage Rate • Periodic rate • Variable rate • Free period • Annual Fees • Transaction fees and other charges • Balance computation method for the finance charge • Average daily balance • Adjusted balance • Minimum payment • Previous balance • Two-cycle balances-Issuers

  7. Credit Cards • Other Features • Special delinquency rate • Prohibition to issue unsolicited credit cards • Prompt credit card payment • Refund of credit balances • Errors in the bill • Unauthorised charges • Disputes about merchandise or services • In India, banks like Allahabad Bank, American Express, Andhra Bank, SBI, Bank of India, Bank of Baroda, Citi Bank, HDFC, ICICI, Standard Charted Bank, Axis Bank etc. offer credit cards

  8. Credit Cards • RBI Guidelines on Credit Cards • Minimum net owned fund of Rs.100 crore • Net profit as per last two years audited balance sheet • CRAR of 10% for non-deposit taking NBFCs and 12 to 15% for deposit taking NBFCs • Role of NBFC should be only marketing of co-branded card • Compliance with KFC requirements • The risks of co-branded cards should be transferred to NBFCs • The co-branded credit card account should be maintained by the customer with the bank • NBFC should maintain the confidentiality of the customer’s account

  9. Credit Cards • RBI Guidelines on Credit Cards • Suitable mechanism for the redressal of customer grievances • Legal risk for banks • Fair practices code should be followed • KFC norms and provisions of Prevention of Money Laundering Act should be adhered • RBI guidelines regarding acceptance of public deposits and Prudential norms should be complied with. • NBFC should comply with the terms and conditions stipulated by the bank • RBI can withdraw the permission by giving three months’ notice.

  10. Debit Card • Debit cards are generally known as ATM cards • Unlike credit cards, the cardholder has to maintain sufficient balance in his savings/ current account in order to debit the amount as and when the bill is received • No credit is available in the case of debit cards • The withdrawals in the case of international debit cards will be in the currency of the country where it is put to use. • Debit cards enable the tracking of payment. • Debit cards also save the interest charges. • Debit cards also have daily limits

  11. Debit Card • RBI Guidelines: • Banks with minimum net worth of Rs.100 crore can issue debit cards • No RBI approval is necessary for online debit cards where Straight-through processing is done • RBI approval is necessary for off-line debit cards • The stipulation of minimum net worth of Rs.100 crore is applicable only in the case of off-line debit cards.

  12. Smart Cards • Plastic card embedded with microchip • Data can be stored • Unlike credit/debit cards, the credit balance is transferred to the card • The merchant establishment can debit the payment to the card using a chip reader • The balance will be reduced as and when payments are effected • Recharge is possible through card encoders

  13. Smart Cards • Petro cards/ Loyalty cards are smart cards • Multiple currencies carried in a smart card • Smart card enables multiple uses through a single card • Smart card is extensively used for payment of utilities • Smart cards offer confidentiality and security

  14. Smart Cards • E-cash and Smart Cards • E-cash is an alternative to physical cash • Dispenses with cash electronically • Can be used in out-lets where e-cash is accepted • Five separate currencies can be stored • Customer gets an instant statement • Safer and less expensive than conventional currencies • Benefits like revolving credit, interest-free period etc. are offered • Can spend only upto the value loaded in the card • An electronic wallet is a pocket-sized device with one or two card readers and its own electronic purse, a keyboard, and a screen • Electronic wallet enables transfer of value to and from electronic cash smart cards.

  15. Smart Cards • RBI Guidelines • The guidelines covers all smart card involving electronic payments, ATM cards and cards containing real value in the form of electronic money • No cash withdrawals at the point of sales • Issue of cards should be restricted to customers of good financial standing • Balance in the cards should be considered for calculating the reserve liability • No interest should be paid on card balance

  16. Smart Cards • RBI Guidelines • Security and other aspects • Banks should ensure full security • Issue of unsolicited card is prohibited except in the case of replacement of an existing card • Sufficient time should be provided for tracing operations and rectification of errors • Provide the cardholder with written record of transactions • Loss up to the time of notifying the loss should be born by the cardholder up to a specified limit. • 24 hour loss notification facility to be provided • Immediate deactivation of card on receipt of notification of loss

  17. Smart Cards • RBI Guidelines • Terms and Conditions for issue • Contractual terms for issuing cards should be given to the customer in writing • The terms and conditions should be expressed clearly • Basis of charges should be specified • Time taken for debit should be specified • Changes to be made only after giving sufficient notice to the cardholder

  18. Smart Cards • RBI Guidelines • Terms and Conditions for issue • Should stipulate the customers liability to preserve the card and the PIN code • Recording of PIN code in form is prohibited • Obligation to notify the bank in the event of • Loss, theft or copying of the card • Recording of any unauthorised transaction in the account • Any irregularity in maintaining the account by the bank • Specify the contact point to which the information should be passed • Cardholder should not countermand the order given through the card

  19. Smart Cards • RBI Guidelines • Terms and Conditions for issue • Extreme care should be taken in handling the PIN code and cardholder’s PIN code should be disclosed to him only • All losses to the cardholder due to a malfunction of the system are to the bank except technical failures which could be noted by the cardholder • The responsibility ofthe bank for the non-execution or defective execution of the transaction is limited tothe principal sum and the loss of interest subject to the provisions of the lawgoverning the terms

  20. Barter Cards • Cards issued for exchange of commodities • Barter Card International (BCI) is providing the Barter Card service • BCI was established in Australia in 1991 and in UK in 1996 • Medium of exchange is Trading Pound • Barter card acts as a clearing house • Barter card is operated through franchisees who get a commission • Barter card system is not common in India

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