The credit card is nothing other than the new age plastic money. It’s a thin plastic card which contains the identification information like name, photo and signature of the card member. It allows the member to purchase the goods or services without paying instant money. The interesting part of the card is that allowed to repay the amount after a month or 40 days without any interest.
The credit card concept was originated by United States in1920. Oil companies and hotel chains were issued for their regular customer to transact conveniently. After that, the Diners Club Inc. brings universal credit card in 1950 and the American Express also launched a card under the name of “Don’t leave home without it” in 1958. In 1959, the Bank of America brings this concept to Banking domain, the card name was “Bank Americard”. It was turned as VISA in 1976. Visa and MasterCard are the leading network of banks.
Here, I want to explain how the credit card works:
In the credit card industry, the bank is performing in two ways as an issuer and an acquirer. The Issuer defines the card issuing bank and the acquirer defines the card accepting bank. If the card member decides to purchase the goods/service through card then he provides the card information / card to the merchant for the purchase. The merchant try to get the authorization from the card issuing bank through their payment processor / merchant bank. Once the authorization validated the purchase has been done*.
End of the day, the merchant provide all the purchasing details to their merchant bank and getting credit for those purchase, it means the selling amount immediately (day or two) comes to merchant’s bank account. After that, the merchant bank processing the end of the day report and sent it to issuer bank for getting the transaction amount. Here, the Master card / Visa are doing the inter-mediator role. All the transactions between issuer bank and acquiring bank are happening through this hub (MC / Visa) only. The issuer bank charges the transaction amount to their card member. This amount reflects on card member’s monthly statement.
The benefits of the Credit Card:
Don’t want to carry the wallet with ourselves.
Easy purchasing on internet (modern tech savvy)
Time consuming (avoid the queues)
30 to 40 days interest free credit.
Big purchase made easy.
Easy repayment option.
The problems on the Credit Card:
Online fraud
High interest rate
No control on purchase
Unwanted charges (late fee, finance charges)
Less knowledge
* There is no need card member presence on online transaction.
Coming article................
How to use Credit Card safely
