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Credit Cards
Credit is a method of selling goods or services without the buyer having cash in hand A credit card is only an automatic way of offering credit to a consumer Today, every credit card is a plastic one and carries an identifying number that speeds shopping transactions There have been credit tokens made 3/17/12

How it all Started

In 1730, Christopher Thompson, a furniture merchant, offered Furniture that could be paid off weekly in parts In 1914, Western Union introduced for its prominent customer, a metal card to be used in deferring payments interest free on services used. This system became known as Metal Money
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How it all Started

In 1924, General Petroleum Corporation issued the first metal money specifically for gasoline and automotive services In the late 1930s, AT&T introduced the Bell System Credit Card During the Prohibition period of World War II, the use of all Credits and Charge cards was stopped
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First Bank Credit Card

In 1946, John Biggins of the Flatbush National Bank of Brooklyn in New York invented the "Charge-It" program between bank customers and local merchants Merchants could deposit sales slips into the bank and the bank billed the customer who used the card
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Diners Club Credit Card

In 1950, The Diners Club credit card was invented by Diners' Club founder Frank McNamara and it was intended to pay restaurant bills Pay with Diners Club Card at restaurants, Pay entire amount later when billed by Diners Club

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Credit Cards

In 1958 , American Express introduced a purple charge card made of cardboard or celluloid for travel and entertainment expenses (Dont leave home without it) Also Bank of America issued the BankAmericard (now Visa) bank credit card; with flexible payment option
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Credit Cards
The general-purpose credit card was born in 1966, when the Bank of America franchised the BankAmericard brand to banks nationwide In 1966, a national credit card system was formed when a group of credit-issuing banks joined together and created the InterBank Card Association, known as Master 3/17/12 Charge (now Master Card)

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Evolution
As the bank card industry grew, banks interested in issuing cards became members of either the Visa association or MasterCard association The Members shared the program cost Later, changes to the association bylaws allowed banks to belong to both associations and issue both 3/17/12

Evolution

In 1985, Discover Card was introduced In 1987, American Express Credit card was introduced, although they were present in the form of Charge card In 1977, BankAmericard became VISA In 1979, MasterCharge followed suit and changed its name to MasterCard In 1979, electronic terminals and magnetic stripes on the back of credit cards allowed retailers to swipe the 3/17/12 customers credit card, which accessed

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How Credit Card Works

Issued by a credit card issuer- bank or credit union Merchants often advertise which cards they accept by displaying acceptance marks When a purchase is made, the credit card user agrees to pay the card issuer Sometimes Card not present transaction (CNP) also takes place Electronic verification systems allow merchants to verify in a few seconds that the card is valid The verification is performed using a credit card payment terminal or point-of-sale (POS) system with a communications link to the merchant's acquiring bank. 3/17/12

Contd..

Data from the card is obtained from a magnetic stripe or chip on the card For CNP transactions, merchants additionally verify that the customer is in physical possession of the card and is the authorized user by asking for additional information such as the security code Each month, the credit card user is sent a statement The cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount The credit issuer charges interest on the amount owed if the balance is not paid in full amounts 3/17/12

Have you ever wondered what exactly happens after your card is swiped?

Authorization Batching Clearing and Settlement Funding Chargebacks

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Transaction Steps

Authorization:

Acquirer completes the verification & reserves that amount of the cardholder's credit limit for the merchant Authorization will generate an approval code, which the merchant stores with the transaction
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Batching

Authorized transactions are stored in "batches", which are sent to the acquirer

Batches - once per day at the end of the business day

If a transaction is not submitted in the batch, the authorization will stay valid for a period determined by the issuer

Some transactions may be submitted in batch

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without prior authorisation

Contd

Clearing and Settlement:

Acquirer sends the batch transactions through the credit card association This debits the issuer for payment & credits the acquirer

Funding:
The acquirer then pays the merchant Merchant receives the amount totalling the funds in the batch minus either the "discount rate," "midqualified rate", or "non-qualified rate"
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Chargeback

Event in which money in a merchant account is held due to a dispute relating to the transaction

Initiated by the cardholder In the event of a chargeback, the issuer returns the transaction to the acquirer for resolution

Acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.
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