Payment Cards

Using a credit card can be confusing. There are so many fees to pay and policies and regulations to keep up with, it’s hard to care about what goes on behind the scenes. As long as your credit card works and you can pay all your bills in time, everything’s good. But, sometimes, knowing how your credit card works in the background can make the rules put in place make more sense. Most banks offer a credit card and debit card when you open a checking account and, when they don’t, you can separately apply for one. These banks are called issuing banks, aka credit card issuers: financial institutions that provide credit cards to customers, set the credit limit, and create terms and benefits unique to the cardholder depending on their payment history and reliability. Although credit card issuers aren’t limited to banks, banks are the most common medium, giving way to the name issuing banks, but include any lending institution, like a credit union. Once you’ve paid for something by your card, the money is borrowed from the issuing bank and deposited into an acquiring bank, the bank of the merchant’s account. But how does this happen? It starts with you, the cardholder.

Differences between debit and credit card When making an in-store or online purchase, it can be confusing to decide what card to use. Not only do they look similar, they almost perform the same function, providing a way to make payments. It definitely doesn’t help that Visa and Mastercard, two of the most popular payment networks, issue credit cards and debit cards. Their logos, plastered on the front of both, make it quite difficult to distinguish between the two among other physical similarities like a 16-digit card number on the front and a magnetic stripe on the back, and any more. However, despite similar appearances, credit cards and debit cards differ in many ways. Debit cards account for real-time transactions: The amount available in the user’s checking account or saving account, to which the card is linked, is the amount available for the user to spend. Accordingly, for every payment completed via debit card, the amount of money spent is the same amount deducted from the user’s bank account. Credit cards, on the other hand, make use of a credit line: The credit card company that administered the user their credit card is the same financial institution users temporarily borrow

Basic Understanding of Debit Card Debit cards provide a secure form of payment through which money, or the amount of a purchase, is withdrawn straight from the user’s checking account. These payments can be made in-person at cash registers and ATM machines or online and through mobile payment and transfer platforms. Due to its convenience, debit cards are one of the most popular methods of payment, useful for teens, adults, and the elderly. For every payment done via debit card, a real-time transaction from the user’s checking account is performed, where the amount spent is the amount deducted from the said account. Since the card is directly linked to and has access to the user’s account, the spending limit is tied to the amount available in that account. Accordingly, the spending limit will vary along with fluctuations in the account balance. However, there are daily purchase limits that the user must comply with, and, as such, cannot spend more than a certain amount within 24 hours. Such policies make it almost impossible to accrue debt, making the debit card the ideal method of payment for many. Using a debit card is almost free. Most banks give users a free card

Basic Understanding of Credit Card A form of cashless payment, credit cards are issued by financial institutions that allow the user to borrow capital in order to pay for goods and services. Credit cards can be used to make online or in-person payments and purchases. When using a credit card to pay for in-store purchases, the user’s details are sent to their bank to process the transaction after receiving approval from the credit card company. This institution then has to confirm the cardholder’s information and either approve or reject the purchase. Credit cards differ from debit cards by completing transactions using the credit card company’s money instead of the user’s own. And at the end of every month, a billing statement with a record of all the transactions made that month, along with the minimum payment required and its due date, is provided to the cardholder. The minimum payment is the amount required to be paid back during the grace period (the amount of time between the transaction recorded and the due date to pay it back) for credibility. Although, it is recommended that the user pay the bill in whole to avoid the requirement of having to pay interest.