32. PI — Credit & Debit Cards

Plastic cards issued by banks and non-bank financial institutions. Here we will cover two important types of cards: Credit and debit.

Credit Card:

These are issued by banks along with card network. Customer receives credit line that can be used for purchases at merchant terminals (both offline and online) and for cash withdrawals. Few important things about credit cards.

• Credit limit: Customer gets credit limit which depends on customer’s profile (salary, profession, company, spending and own interest).
• Spending Rules: There will be limit on cash withdrawal amount using credit card, per day transaction limit or territory of usage (e.g. not allowed in Nepal and Bhutan)
• Credit Period: Customer is obliged to repay the spent amount on or before the due date (billing is done once a month). Delayed repayment or non-payment will attract charges (interest on credit) and affect customer’s credit score.

Debit Card:

These cards are issued by banks along with card network and card is linked to customer’s bank account. Customer’s spend (purchases and cash withdrawals) is limited to the balance in the account.

Even debit cards have few rules with respect to limit on daily cash withdrawal amount or spend on online purchase or usage territory

Know your card:

Here is how a standard card looks like… some of the standard features of the card

Card Issuer: Entity that issues card to the customer (e.g. ICICI Bank). Some of things involved w.r.t. issuer

a. Card: Plastic card is procured by card manufacturer (E.g. DZ, MCT)

b. Card management system: A platform that manages lifecycle of the card, risk, rules

• Lifecycle management: issuance, activation, hot listing & blocking of cards
• Risk Management: Velocity Checks (no. of transactions per day, spend per day etc.)
• Rules: Allowed for international transaction or only domestic, limit on cash withdrawal

c. Authentication or validation system: Mechanisms deployed to validate the transaction. In case of transaction of POS, it will be PIN and in case of online transaction OTP/password/ATM PIN. ACS companies provide this authentication service.

d. BIN: Card network that issues the BIN for the card

Card network: These entities that define the issuance and acceptance framework (E.g. Visa). Network plays three part role

• Gives the BIN to the issuer
• Sets up frame works for offline (CP: Card Present) and online (CNP: Card Not present) acceptance of those cards
• Defines and enforce dispute management and arbitration guidelines

Card Number: Unique number of the card account. Length of card number can vary from 13 to 19 digits. Visa Credit card that I have is of 16 digit but Amex has 15 digits.

• First digit is MII (Major Industry Identifier). Amex: 3, Visa: 4
• 1–6 digits are IIN (Issuer Identifier Number) or BIN (Bank Identification number) and number identify the issuing bank
• 7 to last but 1 digits are unique card account number
• Last digit is checksum digit that validates the correctness of card number. It is done by Luhn algorithm or Mod10 formula. (Quite interesting — for details refer this page)

Expiry date: Validity period of the card for usage. And beyond that period the plastic card will turn into ONLY PLASTIC.

Cardholder name: Name of the cardholder printed on the card. Sometimes there won’t be any name (E.g. Debit card that you receive as part of welcome kit when you open the account)

EMV Chip: Global standard to provide better security through chip based transaction. Card details are encoded on the chip (EMV stands for Europay, MasterCard, Visa)

Magnetic Stripe: Stripe behind the card that has encoded card details

CVV2/CVC2: Card verification code or card verification value is 3 or 4 digit (Depending on card network or card scheme) on back of the card which is used for additional information during transaction. CVV1/CVC1 is encoded on EMV Chip and validated during POS transaction.

I will cover the processing of cards and various types of flows in separate section… for now, we will move to ‘prepaid cards’