A barometer of the maturity of an economy with a few exceptions is the stage of development reached by its payment systems. Cash in the form of notes and coins makes up just one form of payment system. The development in banking brought about a second phase in payment system, through paper instruments namely cheques and credit transfers.
The requirement for greater flexibility and convenience and development of technology has given rise to electronic payments and this is where plastic cards have been provided with.
During 1914, a number of oil companies in United States issued the first credit card to their customers for the purchase of gasoline, oil and accessories at the companies’ stations. Thereafter, local departmental stores, air travel companies and railway companies also started issuing credit cards.
In 1950, the Diners’ Club Inc, was the first company to issue an all purpose card. The Franklin National Bank of New York was, in 1951, the first bank in the United States to adopt a credit card plan. Around 1958, the American Express Company and two large banks, the Bank of America and Chase Manhattan entered the credit card field.
Some of these companies introduced their cards into United Kingdom, and in 1966 Barclays Bank was the first British Bank to introduce credit cards, known as ‘Barclays Cards’. In 1972 “Access” cards were introduced by Lloyds Bank. Credit Cards by Indian Banks is a recent history.
The Credit Card can be defined as “a small plastic card that allows its holder to buy goods and services on credit and to pay at fixed intervals through the card issuing agency”.
The other types of cards are as follows:
1. Cash Cards:
A special plastic card used for getting currency notes from a machine installed generally near a bank. The Machine is known as Automated Teller Machine.
2. Debit Cards:
Debit cards allow for direct withdrawal of funds from a customer’s bank account. The spending limit is determined by the user’s bank depending upon available balance in the account of user. It is a special plastic card connected with electromagnetic identification that one can use to pay for things purchased directly from his bank account.
Under the system, card holders’ accounts are immediately debited against purchase or services through the computer network. Hence, under debit card the card holder must have adequate balance in his account. This system is intended to replace cheque system of payment.
Issue of debit card and smart card by banks in India should be approved by the respective bank’s Board as well as by RBI. These can be issued only for customers maintaining satisfactory accounts and for a minimum period of six months.
3. Cheque Cards:
It is a card given to the customer by the bank that he must show when he writes a cheque which promises that the bank will pay out the money written on the cheque. Under’ Cheque cards’ system, the card-holder is given a card and a cheque book.
He has to use the cheques, while purchases are made and the trader gets guaranteed payment. The customer does not get free credit, he has to keep sufficient balance in his account or the bank will provide overdraft up to a specified limit, of course on interest payment basis.
4. Charge Card:
A small usually plastic card provided by an organization with which one may buy goods from various shops, etc. The full amount owed must then be paid on demand. In credit cards, the card holders get credit or loan for payment of periodical bills when sufficient balance is not available in their accounts.
In a charge card such credit facility is not available. The periodical bill amount should be paid off by charging it to customers’ account. A fee is also payable by the card holder to the card issuing institution.
5. Smart Card:
With the use of credit cards, we may avail of credit facility on our purchase of goods/services from approved sales outlets. A smart card however, enables the card holder to perform various other banking functions apart from credit purchases.
For example, with smart cards, we can draw cash from ATMs, we can verify entries in our accounts, seek information pertaining to our accounts, etc. This is possible because the card has an integrated circuit with microprocessor chip embedded in the card for identification purposes. The card can also perform calculations and maintain records.
We can see that under credit card customers are extended an unsecured credit at least usually up to 30 days. Beyond the period, the bank charges interest on outstanding bills. However, some card holders may prefer to pay off their full dues before the free credit period. Such card holders are called Convenience Users.