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A credit card is a payment card issued to users (cardholders) as a method of payment. It allows the cardholder to pay for goods and services based on the holder’s promise to pay for them.[1] The issuer of the card (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.
A credit card is different from a charge card, where it requires the balance to be repaid in full each month.[2] 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. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.
se fees directly to credit card customers, or from setting a minimum transaction amount (no longer prohibited in the United States, United Kingdom or Australia).[45] The result is that merchants are induced to charge all customers (including those who do not use credit cards) higher prices to cover the fees on credit card transactions.[44] The inducement can be strong because the merchant’s fee is a percentage of the sale price, which has a disproportionate effect on the profitability of businesses that have predominantly credit card transactions, unless compensated for by raising prices generally. 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
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. Finally, credit cards reduce the back office expense of processing checks/cash and transporting them to the bank.
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).
Costs to merchants
Merchants are charged several fees for accepting credit cards. The merchant is usually charged a commission of around 1 to 4 percent of the value of each transaction paid for by credit card.[46] The merchant may also pay a variable charge, called a merchant discount rate, for each transaction.[43] 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 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” (or surcharge), either a fixed amount or a percentage, for payment by credit card.[47] This practice was prohibited by most credit card contracts in the United States until 2013, when a major settlement between merchants and credit card companies allowed merchants to levy surcharges. Most retailers have not started using credit card surcharges, however, for fear of losing customers.[48] Surcharging is actually illegal in 10 states.[46]
Merchants in the United States have been fighting what they consider to be unfairly high fees charged by credit card companies in a series of lawsuits that started in 2005. Merchants charged that the two main credit card processing companies, MasterCard and Visa, used their monopoly power to levy excessive fees in a class-action lawsuit involving the National Retail Federation and major retailers such as Wal-Mart. In December 2013, a federal judge approved a $5.7 billion settlement in the case that offered payouts to merchants who had paid credit card fees, the largest antitrust settlement in U.S. history. Some large retailers, such as Wal-Mart and Amazon, chose to not participate in this settlement, however, and have continued their legal fight against the credit card companies.[48]
Merchants are also required to lease or purchase processing equipment, in some cases this equipment is provided free of charge by the processor. Merchants must also satisfy data security compliance standards which are highly technical and complicated. In many cases, there is a delay of several days before funds are deposited into a merchant’s bank account. Because credit card fee structures are very complicated, smaller merchants are at a disadvantage to analyze and predict fees.
Finally, merchants assume the risk of chargebacks by consumers.
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.
The goal of the credit card companies is not to eliminate fraud, but to “reduce it to manageable levels”.[49] This implies that fraud prevention measures will be used only if their cost are lower than the potential gains from fraud reduction, whereas high-cost low-return measures will not be used – 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 (also known as virtual credit cards or disposable credit cards) are another option for protecting against credit card fraud where presentation of a physical card is not required, as in telephone and online purchasing. These are one-time use numbers that function as a payment card and are linked to the user’s real account, but do not reveal details, and cannot be used for subsequent unauthorised transactions. They can be valid for a relatively short time, and limited to the actual amount of the purchase or a 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 a second time.
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.[citation needed] Most major credit cards have a hologram. 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 United States Secret Service, Federal Bureau of Investigation, U.S. Immigration and Customs Enforcement, and U.S. Postal Inspection Service are responsible for prosecuting criminals who engage in credit card fraud in the United States.[citation needed] However, they do not have the resources to pursue all criminals, and in general they only prosecute cases exceeding $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 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. Second, 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.[50]
Code 10[edit]
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. The merchant may receive a reward for returning a confiscated card to the issuing bank, especially if an arrest is made.[51][52][53][54]
A credit card is a payment card issued to users (cardholders) as a method of payment. It allows the cardholder to pay for goods and services based on the holder’s promise to pay for them.[1] The issuer of the card (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.
A credit card is different from a charge card, where it requires the balance to be repaid in full each month.[2] 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. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.
se fees directly to credit card customers, or from setting a minimum transaction amount (no longer prohibited in the United States, United Kingdom or Australia).[45] The result is that merchants are induced to charge all customers (including those who do not use credit cards) higher prices to cover the fees on credit card transactions.[44] The inducement can be strong because the merchant’s fee is a percentage of the sale price, which has a disproportionate effect on the profitability of businesses that have predominantly credit card transactions, unless compensated for by raising prices generally. 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
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. Finally, credit cards reduce the back office expense of processing checks/cash and transporting them to the bank.
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).
Costs to merchants
Merchants are charged several fees for accepting credit cards. The merchant is usually charged a commission of around 1 to 4 percent of the value of each transaction paid for by credit card.[46] The merchant may also pay a variable charge, called a merchant discount rate, for each transaction.[43] 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 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” (or surcharge), either a fixed amount or a percentage, for payment by credit card.[47] This practice was prohibited by most credit card contracts in the United States until 2013, when a major settlement between merchants and credit card companies allowed merchants to levy surcharges. Most retailers have not started using credit card surcharges, however, for fear of losing customers.[48] Surcharging is actually illegal in 10 states.[46]
Merchants in the United States have been fighting what they consider to be unfairly high fees charged by credit card companies in a series of lawsuits that started in 2005. Merchants charged that the two main credit card processing companies, MasterCard and Visa, used their monopoly power to levy excessive fees in a class-action lawsuit involving the National Retail Federation and major retailers such as Wal-Mart. In December 2013, a federal judge approved a $5.7 billion settlement in the case that offered payouts to merchants who had paid credit card fees, the largest antitrust settlement in U.S. history. Some large retailers, such as Wal-Mart and Amazon, chose to not participate in this settlement, however, and have continued their legal fight against the credit card companies.[48]
Merchants are also required to lease or purchase processing equipment, in some cases this equipment is provided free of charge by the processor. Merchants must also satisfy data security compliance standards which are highly technical and complicated. In many cases, there is a delay of several days before funds are deposited into a merchant’s bank account. Because credit card fee structures are very complicated, smaller merchants are at a disadvantage to analyze and predict fees.
Finally, merchants assume the risk of chargebacks by consumers.
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.
The goal of the credit card companies is not to eliminate fraud, but to “reduce it to manageable levels”.[49] This implies that fraud prevention measures will be used only if their cost are lower than the potential gains from fraud reduction, whereas high-cost low-return measures will not be used – 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 (also known as virtual credit cards or disposable credit cards) are another option for protecting against credit card fraud where presentation of a physical card is not required, as in telephone and online purchasing. These are one-time use numbers that function as a payment card and are linked to the user’s real account, but do not reveal details, and cannot be used for subsequent unauthorised transactions. They can be valid for a relatively short time, and limited to the actual amount of the purchase or a 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 a second time.
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.[citation needed] Most major credit cards have a hologram. 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 United States Secret Service, Federal Bureau of Investigation, U.S. Immigration and Customs Enforcement, and U.S. Postal Inspection Service are responsible for prosecuting criminals who engage in credit card fraud in the United States.[citation needed] However, they do not have the resources to pursue all criminals, and in general they only prosecute cases exceeding $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 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. Second, 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.[50]
Code 10[edit]
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. The merchant may receive a reward for returning a confiscated card to the issuing bank, especially if an arrest is made.[51][52][53][54]
CREDIT CARD - EVERYTHING YOU NEED TO KNOW
![CREDIT CARD - EVERYTHING YOU NEED TO KNOW]()
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November 05, 2017
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