The payment card offerings are quite wide and varied. The purpose of this article is not to provide an exhaustive list of all existing offerings (it is impossible), but to present the main types of cards and related services.
The payment card allows the cardholder to access to or benefit from services such as account inquiry, cash deposit, checkbooks order, funds transfers, etc. The services listed are provided by Banks through Automated Banking Machines (ABM) and they are not linked to the card itself. Funds transfer or checkbooks order can be accessed via other channels (Branch or Internet for example). We see that the customer can use a card to authenticate himself and access bank services. But the card is not made solely to be used as a mean of authentication. In this article, we will look at services that are linked to the card. Unless the cardholder subscribe to the card, he cannot benefit from them. As you will see that is where the differences between payment cards lie.
The cards can be broadly classified according to the following categories:
- Cash Withdrawal cards
- Debit cards
- immediate debit cards
- deferred debit cards
- debit cards without systematic authorization
- debit cards with systematic authorization
- Credit cards
- Debit and credit cards
- Private cards
- Prepaid cards
In the rest of this article, the different types of cards will be presented with examples taken from known card networks.
Cash Withdrawal cards
A cash withdrawal card is only used to withdraw money from ATMs (Automated Teller Machines) or ABMs (Automated Banking Machines). The objective is therefore to allow the cardholder not to run out of cash. But that does not mean he can withdraw as much money as he wants. He must remain within the limit of cash withdrawal amounts agreed with his bank even if there is a lot of money on his account. International withdrawal cards provide the added benefit of insurance. The cardholder and/or his family members can benefit from medical assistance abroad when needed. The use of a withdrawal card may be limited to the bank network of the issuer.
An example of this type of card is the visa plus card. It can be used to withdraw cash at all ATMs accepting visa cards (In the Eurozone, generally € 300 per 7-day period and a capacity of € 200 extra per day at ATMs of the card issuer). The visa plus card also allows the cardholder to receive medical assistance abroad, regardless of whether the trip was paid with the card or not.
Important note on withdrawals (valid for all card categories) : Withdrawal amounts limits sometimes vary depending on whether the withdrawal is made at ATMs of the issuer or those of other banks. The difference is usually quite substantial. In addition, fees are sometimes charged when withdrawals are made at other ATMs of other banks than the issuing bank.
Debit cards
In addition to the cash withdrawals, a debit card is used to make card not present payments (the merchant does not see the cardholder) or card present payments (the merchant sees the cardholder who swipes or inserts it into the POS Terminal). The amounts corresponding to the payments are debited from the cardholder’s account according to the conditions agreed with the issuer. For risk management and practical reasons, there are limits to the amounts of payments and withdrawals that can be made with a debit card. When traveling abroad, a debit card provides medical assistance and accident insurance when needed. Depending on the agreement between the cardholder and the issuer, the cardholder’s account may be debited either immediately or in deferred way.
The immediate debit card
When a purchase is made with an immediate debit card, the amount is debited immediately from the cardholder’s account. Generally the account is debited between one to three days after the transaction.
The deferred debit card
The deferred debit card allows the cardholder to buy goods or services today and really pay them late in several weeks later when his account is debited. The total amount of all transactions made in the month is withdrawn at one time and on a fixed date. So funds may not be available on the cardholder’s account at the time of purchase. It is therefore a cash advance. The issuer verifies that the cardholder has not exceeded the authorized limits and pays the merchant after the purchase. However, cash withdrawals made with a deferred debit card are debited immediately from the cardholder’s account.
Examples include the most popular debit cards: Visa Classic, Visa Premier, MasterCard and Gold MasterCard. They can be used as debit or debit cards depending on the choice of the bearer and the offer of the issuing bank. They also provide support services, insurance and many other benefits. Withdrawal and payment caps are more important for Visa Premier and Gold MasterCard which are better.
Debit card with systematic authorization
This card triggers an authorization request for each payment, regardless of the amount of the transaction. The POS terminal must always forward the authorization requests for payments initiated with this type of card. It may not contain embossed information (card number, customer name, expiry date, etc.) since the knuckle-busters or zip-zap machines that make the physical impression of the card, do not allow to make online authorization requests.
Examples of this type of card are the Visa Electron card and some Maestro (MasterCard) cards.
Debit card without systematic authorization
This card does not systematically trigger an online authorization request during a payment. It should be noted that this is a French specificity and that in other countries, a request for authorization is always sent to the issuer during the transaction. So why this French difference? The reasons are essentially historical. When the smart card did not exist yet, merchants often had to call an authorization center for authorization requests. Not only It took time and was costly to call a surcharged phone line, but also many transactions were abandoned resulting in revenue lost for the merchants. For these reasons, manual transactions without an application for authorization were guaranteed for amounts smaller than € 100. Beyond that amount only, authorization was compulsory. That process was maintained despite the adoption of the smart card. It must be said that the risk associated with offline authorization remains reasonable. Otherwise, the systematic online authorization would have been made mandatory long time ago.
Examples of this type of cards include Visa Classic, Visa Premier, Mastercard, Gold MasterCard and any other debit card that allows to make purchases without systematic online authorization.
Credit cards
A credit card works very similarly like a deferred debit card. Total purchase amounts are collected from cardholder’s account many days and weeks after the purchases, generally monthly on a given date. The main difference is that the debit card is linked to a checking account while the credit card is associated with a line of revolving credit. The credit cardholder may use or withdraw funds up to a pre-approved credit limit. The conditions and terms of use of a revolving credit and particularly its repayment differ from a deferred debit repayment which must be made in one go. A reporting is sent to the cardholder with the amounts already repaid, the remaining balance to be paid and the next scheduled repayments. Several repayment methods are generally offered:
- monthly deferred debit (sometimes free). In this case, all expenses of the current month are taken at one time, like for a deferred debit card.
- in small repayments (with interest).
The cardholder may change the repayment method if he wishes.
Debit and Credit cards
These are the types of cards that can be used as a debit card or as a credit card. While purchasing with the card, the cardholder chooses whether payments must be made from the current account (debit card usage) or from the revolving credit reserve (credit card usage).
Store cards
A store card is a payment card that can be used with an specific store or a limited number of stores. All stores where the card can be used is the card universe. There are many benefits and services attached to the card, which is usually associated to a revolving credit.
Examples of store cards are numerous. Nowadays, almost any big store has its own card. However, most of these cards can also be considered as bank credit cards because their use is not limited only to the issuing stores. These cards are issued with MasterCard or Visa and their holders can make withdrawals or payments almost everywhere. When used in issuing stores, the cardholder benefits from specific advantages such as reductions or credits.
Prepaid cards
A prepaid card is a card that contains electronic money to make purchases or access certain services.It can be rechargeable or not. The transfer of money on the card is done against payment in cash or in electronic form. There are prepaid non-bank cards and prepaid bank cards.
Prepaid non-bank cards
Prepaid non-bank cards have been around for a long time. They are used for access to certain services such as telephony services or gift cards. For telephony services, the operator issues the cards directly or a wholesaler buys him communication time to resell them. The use of a prepaid phone card does not require subscription to a subscription. The gift cards are convenient to offer money without delivering cash to the beneficiary.
Prepaid bank cards
Prepaid bank cards are issued by banks or card networks. It works like a debit card except that it is not linked to a bank account. Transactions made with a prepaid card are the same as those made with a debit card: cash withdrawals at ATM, Card Not Present and Card Present payments. For transaction authorizations, no need to contact the issuing bank, the balance check is done on the card itself. The cardholder must then transfer funds to the card before using it to make transactions.
The cardholder’s budget is therefore completely under control and there is no risk of spending overruns or any risk of having to pay interest charges. The card no longer works when the available amount have been spent. Funds must then be transferred again before carrying out other transactions. That is why these cards are called reloadable prepaid cards. At any time, it is easy to know how much money is left by accessing the account (not a bank account, but the card account) associated with the card via the Internet and / or SMS. Prepaid cards have a validity period between 6 months and 24 months. A minimum age (usually 12 years old) is required for the cardholder. And the fees can be free or paid.
Examples of prepaid bank cards: Mastercard prepaid card and Visa prepaid card
