Fintech Series: Payment Cards
I’m Back!! I know, I know, took too long. I had a few off days where I felt mentally overwhelmed. I’m better now and ready for you. Let’s dive into cards!
Introduction
We all know Payment cards, don’t we?
Payment cards are tools that allow users, holders, owners to move funds from one account, wallet etc to another. We have various types of payment cards and I’ll touch on the most popular; Debit, Credit and Prepaid cards. These cards can also be physical or virtual. There are also open loop and closed loop cards.
A closed loop card is a card that a cardholder can only use to make purchases from a single company/group of companies. A closed loop card, also called a single purpose card. Eg. gift cards.
History
Let’s do a brief history on cards.
The first payment cards were issued by Barclays in London in 1967, and by Chemical Bank in Long Island, New York, in 1969. And although cards were available from the late 1960s, it wasn’t until 1994 that EMV standard was created and 1999 that EMVCo was formed.
EMVCO, is a company that was formed by the card scheme “big boys”; (Europay, Mastercard and Visa). And it was formed to manage the payment card standard (EMV Standard), so that cards can be used globally and securely. So they created specs that they also manage and this is the standard adopted by card schemes, POS and ATM devices, PGSs etc. worldwide. Here is a link to the various spec documents FYA.
The specification range from for card chip, magstripe, contactless, to payment acceptance devices, and this is to ensure that all these entities behave the same way globally, regardless of country or region specific payment flows or requirement. EMVCO also monitors certification testing on these various devices to ensure the standards are met (This is independent of the card scheme specific certification).
Who “makes” and manages Cards?
These guys are called the card schemes and there are more of them than you can imagine. These are the MasterCard, Visa, American Express, Discover, Verve, GH-Link, EuroPay, UnionPay, JCB ETC.
A Card scheme is a payment network that manages payment transactions, using cards to process payments. The card scheme sends the card and transaction information between the acquiring bank and the issuing bank (We touched on this in the POS article).
Each Card scheme, although EMV complaint, also have scheme specific specifications and require acquirers to certify their payment systems to accept their cards. The process includes testing the payment system; From device to Scheme and ensuring all test cases generated by the scheme are passed. The test cases are generated against the specifications of the individual scheme. Testing houses like UL help facilitate the certification testing. It is important to note that certifications are Device, acquirer, Host, switch and scheme specific. I.e. If an acquirer has three types of POS devices passing through the same systems, three different card scheme certifications would need to be done by the acquirer (Should do an article on certification).
Who Gives out the Cards?
These guys are the issuers. Issuers can be banks or Fintechs or other private company(eg. credit Unions). The type of card issued determines who the issuer is allowed to be. For instance, Debit cards can only be issued by Banks, as the cards need to be tied to an account number whereas credit and prepaid cards can be issued by other entities that are not necessarily banks.
The issuers work with the card schemes to issue/give cards, tie them to the user’s account or wallet, and set rules (Max. pin tries, spending limits, CVM limit, Max no of transaction below CVM limit etc.)
A contactless payment limit — also referred to as a cardholder verification method (CVM) limit — is the maximum amount a customer can pay with a contactless card before they are prompted for a signature or PIN verification.
The parts of the Card
Cards typically have certain details on them. Let’s look at these quickly.
The front of the Card
Chip- The chip is a metal processor that provides an additional layer of security to the card holder. There are two types of chip verification; Chip-and-PIN and chip-and-signature. A future use for the chip on cards might be location. Think about it, we are able to track your card location via the chip.
The PAN (Primary account number) — This is a 14 to 19-digit number generated as a unique identifier. The first digit of the PAN is called the major industry identifier, the card scheme. The next 4 or 5 is the BIN (Bank Identification Number), The last number is the checksum (To prevent fraud) and the numbers in between is an identifier for the user’s account.
Cardholder name — Well, Name of the cardholder
Expiration Date — One of the major reasons why cards expire, apart from possible “shelf life” of chip and mag stripe, is to enable cardholders receive smarter cards periodically. For instance, any new card you are issued in Nigeria would most likely be contactless enabled.
Logos — Typically, the bank/issuer and card scheme logo is on the front of the card and if the card is contactless enabled, the NFC logo.
The back of the card
Magnetic Stripe- This carries some information required to complete your transactions. “Swipe” payment is not allowed in certain regions due to the high fraud rate on them. Infact, Mastercard plans to phase it out completely.
Hologram — Some cards have a hologram. These help merchants identify valid cards (Not like we really check in Naij). Holograms are hard to fake.
CVV — Card Verification Value also called CVV2, CSC (Card Security Code), CVC (Card Verification Code) or CIN (Card Identification number). It is the 3 or 4 digit number at the back of your card (sometimes in front). It is also used for security. It is not a random generated number (I do not know the exact algorithm used in generating it) and the first part of it is encoded on the magnetic stripe.
Signature- Some cards require signature before they can be used.
Bank/Issuer Contact Information — Pretty self explanatory.
Differences between, Debit, Credit and Prepaid Cards
Here are just some of the most popular differences between the three card types discussed.
Spending Limit
Debit Card: Up to amount in account
Credit Card: More than amount in account as permitted by the issuer
Prepaid card: Up to amount in account
Issuer
Debit Card: Banks Only
Credit Card: Banks/Non-banks
Prepaid card: Banks/Non-banks
Usage
Debit Card: Domestic and International
Credit Card: Domestic and International
Prepaid card: Domestic
Lastly,
There’s a whole lot more information on cards, but I hope I have explained a few misconceptions as well as piqued your interest enough to learn more.
From your fav baby girl.