Payment Cards in Digital Banking
A payment card is normally a plastic card that allows the holder to make an electronic payment. It has played a crucial role in the advancement of digital banking. Debit card, credit card, ATM card, prepaid card, stored value card, charge card and virtual card are the most popular types of payment cards. All these cards are normally linked to an account at the back end. Payments cards are usually of the size 85.60 x53.98 mm and fits comfortably into the user’s wallet.
Evolution of Payment cards
Cashless transactions have been in existence for more than 5000 years. Bill of exchange, credit sales, barter system etc were the first stages of cashless transactions. Charge-It, introduced by banker John Biggins can be considered as the first form of payment card. When a transaction was done using Charge-it, the amount was forwarded to Biggin’s bank which was settled among merchants. The next turn was that of magnetic stripe cards and first such card was used by riders of London Tube in 1960. In 1970s, the card got standardized. POS sale transactions, based on ATM card, Personal Identification Number (PIN) and POS machine became popular in 1980s which later on moved towards debit transactions authorized by signatures. Along with usage of cards, customer disputes and frauds also began to increase. EMV chip cards were introduced with the intention of reducing frauds.
Advanced EMV chip based cards and NFC based Tap and Go cards are the latest trends in payment cards.
Advantages of payment cards
The biggest advantage of payment card is that the card holder need not carry physical cash for carrying out the transactions. Hence, plastic card has a crucial role in cashless economy and digital banking transactions. The advantage that the card holder need not carry physical cash. offers security and this aspect has made payment cards popular.
Simple, safe and hassle free payment modes aid customer convenience in payment transactions. Various types of cards offer flexibility in deciding payment modes and payment times. Usage of cards for transactions enables the card holder to exercise control over the transactions. The digital banking transactions, leaves digital foot prints of the card holder and enables to create credit history.
Different types of payment cards
An overview of different types of payment cards is provided below:
A Debit Card allows a user to debit the linked account and withdraw money using an ATM or swipe at a Point of Sale (POS) device at a merchant location to effect payment. Debit cards also facilitate e-commerce transactions through “Card Not Present” mode by providing card number, date of expiry and Card Verification Value (CVV). The card can be used so long as there is sufficient fund in the linked account. An ATM card can be considered as a sub category of debit card. An ATM card can be used only for withdrawal of cash from ATMs. It cannot be used for e-com transactions or POS transactions.
In the case of a Credit Card, card issuer approves a credit limit upto which the card holder can use to withdraw cash, make payments for e-com transactions or for POS transactions. The bills against credit card usage are raised once in a month and the users repay the amount and the limits get restored. However, cash withdrawals, delay in repayment etc carry higher rates of interest as the facility is basically equivalent to an unsecured personal/ business loan. Due to the unsecular nature of credit facility associated with credit cards, such cards are issued only after assessing the creditworthiness of applicants. Charge card has features similar to credit card. The user of a credit card can repay the used amount in full or part. But, a user of charge card has to repay the full amount at one go at the end of the grace period.
A payment card pre-loaded with a definite amount of money, which can be used for various transactions, is termed Prepaid Card. Gift card also comes under the prepaid card. Prepaid cards can be designed for usage for a particular purpose or for multiple purposes. They are known as single-purpose cards and multipurpose cards respectively. Single purpose cards are also called closed-loop cards as they can be used only at a single merchant location or single purpose. Metro cards, prepaid telephone cards etc fall under this category. Multipurpose card or open-loop cards can be used for multiple purposes like ATM withdrawal, POS transactions etc. These cards carry the logo of issuer and card association (VISA, Master Card, Rupay etc). In prepaid card, the monetary value is stored in the linked account.
Stored value card is a variant of prepaid card. In the stored value card, the value is stored in the card itself, instead of storing in a linked account. Here, the card issuer is the service provider. Metro rail cards falls under this category and for each travel, the charge gets reduced from the balance in the card.
Virtual card varies from the above plastic cards. It is a random generated card number associated with the underlying Debit/ Credit/ Prepaid card and there is no associated physical card. This prevents skimming, phishing, theft etc. A virtual card issuer, notifies the purchaser about the card details in a secured manner. The details thus furnished include card holder’s name, card number, expiry date and card verification data number (CVD2).Under the virtual card process, card holder can carve out a portion of his entire limit for creation of virtual card.
Digital Channels for Payments & Settlements
