Transaction steps

Authorization: When the cardholders pays for the purchase, the merchant performs some risk assessment

and may submit the transaction to the acquirer for authorization. The acquirer verifies with the

issuer—almost instantly—that the card number and transaction amount are both valid, and informs the

merchant on how to proceed. The issuer may provisionally debit the funds from the cardholder's credit

account at this stage.

Batching: After the transaction is authorized it is then stored in a batch, which the merchant sends to

the acquiring bank later to receive payment (usually at the end of the day). Clearing and settlement:

The acquiring bank sends the transactions in the batch through the card association, which debits the

card-issuing bank for the transaction amount, and credits the acquirer for the transaction amount minus

the interchange fee.

Funding: The acquiring bank pays the merchant. The amount the merchant receives is equal to the

transaction amount minus the discount rate charged by the acquiring bank to the merchant for the

service. The entire process, from authorization to funding, usually takes about 2-7 business days.

However, many merchant card processors offer next-day deposits to customers subject to type of banking

account. In the event of a chargeback (when there's an error in processing the transaction or the

cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution.

The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or

contest it.


Secured credit cards
A secured credit card is a type of credit card secured by a deposit account owned by the cardholder.

Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus

if the cardholder puts down $1000, he or she will be given credit in the range of $500–$1000. In some

cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases,

the deposit required may be significantly less than the required credit limit, and can be as low as 10%

of the desired credit limit. This deposit is held in a special savings account. Credit card issuers

offer this as they have noticed that delinquencies were notably reduced when the customer perceives he

has something to lose if he doesn't repay his balance. The cardholder of a secured credit card is still

expected to make regular payments, as he or she would with a regular credit card, but should he or she

default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the

merchants out of the deposit. The advantage of the secured card for an individual with negative or no

credit history is that most companies report regularly to the major credit bureaus. This allows for

rebuilding of positive credit history. Although the deposit is in the hands of the credit card issuer as

security in the event of default by the consumer, the deposit will not be debited simply for missing one

or two payments. Usually the deposit is only used as an offset when the account is closed, either at the

request of the customer or due to severe delinquency (150 to 180 days). This means that an account which

is less than 150 days delinquent will continue to accrue interest and fees, and could result in a

balance which is much higher than the actual credit limit on the card. In these cases the total debt may

far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an

additional debt. Most of these conditions are usually described in a cardholder agreement which the

cardholder signs when their account is opened. Secured credit cards are an option to allow a person with

a poor credit history or no credit history to have a credit card which might not otherwise be available.

They are often offered as a means of rebuilding one's credit. Secured credit cards are available with

both Visa and MasterCard logos on them. Fees and service charges for secured credit cards often exceed

those charged for ordinary non-secured credit cards, however, for people in certain situations, (for

example, after charging off on other credit cards, or people with a long history of delinquency on

various forms of debt), secured cards can often be less expensive in total cost than unsecured credit

cards, even including the security deposit. Sometimes a credit card will be secured by the equity in the

borrower's home.[3][4] This is called a home equity line of credit (HELOC).

Prepaid credit cards

A prepaid credit card is not really a credit card, as no credit is offered by the card issuer: the card

-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else,

such as a parent or employer. However, it carries a credit-card brand (Visa or MasterCard) and can be

used in similar ways. As more consumers require a suitable solution to rebuilding credit, recent changes

have allowed some credit card companies to offer pre-paid credit cards to help rebuild credit. They are

hard to find and have higher APR fees and higher interest costs. After purchasing the card, the

cardholder loads it with any amount of money and then uses the card to spend the money. Prepaid cards

can be issued to minors since there is no credit line involved. The main advantage over secured credit

cards is that you are not required to come up with $500 or more to open an account. Also most secured

credit cards still charge you interest even though you are not actually "borrowing" any money. With

prepaid credit cards you are not charged any interest but you are often charged monthly fees after an

arbitrary time period. Many other fees also usually apply to a prepaid card.[5] Prepaid credit cards are

often marketed to teenagers for shopping online without having their parents complete the transaction.

Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the

Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money". The

agency publishes a booklet, "Pre-paid cards", which explains the advantages and disadvantages of this

type of prepaid card.

Features

As well as convenient, accessible credit, credit cards offer consumers an easy way to track expenses,

which is necessary for both monitoring personal expenditures and the tracking of work-related expenses

for taxation and reimbursement purposes. Credit cards are accepted worldwide, and are available with a

large variety of credit limits, repayment arrangement, and other perks (such as rewards schemes in which

points earned by purchasing goods with the card can be redeemed for further goods and services or credit

card cashback). Some countries, such as the United States, the United Kingdom, and France, limit the

amount for which a consumer can be held liable due to fraudulent transactions as a result of a

consumer's credit card being lost or stolen.

Security

A smart card, combining credit card and debit card properties. The 3 by 5 mm security chip embedded in

the card is shown enlarged in the inset. The gold contact pads on the card enable electronic access to

the chip.The low security of the credit card system presents countless opportunities for fraud. This

opportunity has created a huge black market in stolen credit card numbers, which are generally used

quickly before the cards are reported stolen. The goal of the credit card companies is not to eliminate

fraud, but to "reduce it to manageable levels", such that the total cost of both fraud and fraud

prevention is minimized[citation needed]. This implies that high-cost low-return fraud prevention

measures will not be used if their cost exceeds the potential gains from fraud reduction. Most internet

fraud is done through the use of stolen credit card information which is obtained in many ways, the

simplest being copying information from retailers, either online or offline. Despite efforts to improve

security for remote purchases using credit cards, systems with security holes are usually the result of

poor implementations of card acquisition by merchants. For example, a website that uses SSL to encrypt

card numbers from a client may simply email the number from the webserver to someone who manually

processes the card details at a card terminal. Naturally, anywhere card details become human-readable

before being processed at the acquiring bank, a security risk is created. However, many banks offer

systems such as ClearCommerce, where encrypted card details captured on a merchant's webserver can be

sent directly to the payment processor. Controlled Payment Numbers are another option for protecting

one's credit card number: they are "alias" numbers linked to one's actual card number, generated as

needed, valid for a relatively short time, with a very low limit, and typically only valid with a single

merchant. The Federal Bureau of Investigation and U.S. Postal Inspection Service are responsible for

prosecuting criminals who engage in credit card fraud in the United States, but they do not have the

resources to pursue all criminals. In general, federal officials only prosecute cases exceeding US $5000

in value. Three improvements to card security have been introduced to the more common credit card

networks but none has proven to help reduce credit card fraud so far. First, the on-line verification

system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN)

known only to the card holder. Second, the cards themselves are being replaced with similar-looking

tamper-resistant smart cards which are intended to make forgery more difficult. The majority of

smartcard (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Third, an

additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present"

transactions. See CVV2 for more information. The way credit card owners pay off their balances has a

tremendous effect on their credit history. All the information is collected by credit bureaus. The

credit information stays on the credit report, depending on the jurisdiction and the situation, for 1,

2, 5, 7 or even 10 years after the debt is repaid.

Profits and losses

In recent times, credit card portfolios have been very profitable for banks, largely due to the booming

economy of the late nineties. However, in the case of credit cards, such high returns go hand in hand

with risk, since the business is essentially one of making unsecured (uncollateralized) loans, and thus

dependent on borrowers not to default in large numbers.

Costs

Credit card issuers (banks) have several types of costs:

Interest expenses

Banks generally borrow the money they then lend to their customers. As they receive very low-interest

loans from other firms, they may borrow as much as their customers require, while lending their capital

to other borrowers at higher rates. If the card issuer charges 15% on money lent to users, and it costs

5% to borrow the money to lend, and the balance sits with the cardholder for a year, the issuer earns

10% on the loan. This 5% difference is the "interest expense" and the 10% is the "net interest margin".
Operating costs

This is the cost of running the credit card portfolio, including everything from paying the executives

who run the company to printing the plastics, to mailing the statements, to running the computers that

keep track of every cardholder's balance, to taking the many phone calls which cardholders place to

their issuer, to protecting the customers from fraud rings. Depending on the issuer, marketing programs

are also a significant portion of expenses.


Charge offs

When a consumer becomes severely delinquent on a debt (often at the point of six months without

payment), the creditor may declare the debt to be a charge-off. It will then be listed as such on the

debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a

charge-off.) It is one of the worst possible items to have on your file. [citation needed] The item will

include relevant dates, and the amount of the bad debt.[9] A charge-off is considered to be "written off

as uncollectable." To banks, bad debts and even fraud are simply part of the cost of doing business.

However, the debt is still legally valid, and the creditor can attempt to collect the full amount. This

includes contacts from internal collections staff, or more likely, an outside collection agency. If the

amount is large (generally over $1500 - $2000), there is the possibility of a lawsuit or arbitration. In

the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a

close look at the finances of the bank and may impose various operating strictures on the bank, and in

the most extreme cases, may close the bank entirely.


Rewards

Qantas Frequent Flyer co-branded credit cardsMany credit card customers receive rewards, such as

frequent flier points, gift certificates, or cash back as an incentive to use the card. Rewards are

generally tied to purchasing an item or service on the card, which may or may not include balance

transfers, cash advances, or other special uses. Depending on the type of card, rewards will generally

cost the issuer between 0.25% and 2.0% of the spend. Networks like Visa or MasterCard have increased

their fees to allow issuers to fund their rewards system. However, most rewards points are accrued as a

liability on a company's balance sheet and expensed at the time of reward redemption. As a result, some

issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their

servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. Others

encourage redemption for lower cost merchandise; instead of an airline ticket, which is very expensive

to an issuer, the cardholder may be encouraged to redeem for a gift certificate instead. With a

fractured and competitive environment, rewards points cut dramatically into an issuer's bottom line, and

rewards points and related incentives must be carefully managed to ensure a profitable portfolio. There

is a case to be made that rewards not redeemed should follow the same path as gift cards that are not

used: in certain states the gift card breakage goes to the state's treasury. The same could happen to

the value of points or cash not redeemed.


Fraud

Where a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of

the charges that the customer has received for things they did not buy. These refunds will, in some

cases, be at the expense of the merchant, especially in mail order cases where the merchant cannot claim

sight of the card. In several countries, merchants will lose the money if no ID card was asked for,

therefore merchants usually require ID card in these countries. The cost of fraud is high; in the UK in

2004 it was over £500 million.[10] Credit card companies generally guarantee the merchant will be paid

on legitimate transactions regardless of whether the consumer pays their credit card bill. "Soft fraud"

is fraud committed by the customer himself: getting a card and using it with no intention ever to repay

the balance. Such customers are called "diabolicals" by the credit card companies, that try to avoid

them at all cost.

Security

An additional feature to secure the creditcard transaction and prohibit the use of a lost creditcard is

the MobiClear solution. Each transaction is authenticated through a call to the user mobile phone. The

transaction is released once the transaction has been confirmed by the cardholder pushing his/her

pincode during the call.
Revenues

Offsetting costs are the following revenues:

Interchange fees

Interchange fees are charged by the merchant's acquirer to a card-accepting merchant as component of the

so-called merchant discount rate (also referred to as "merchant service fee"). The merchant pays a

merchant discount fee that is typically 2 to 3 percent (this is negotiated, but will vary not only from

merchant to merchant, but also from card to card, with business cards and rewards cards generally

costing the merchants more to process), which is why some merchants prefer cash, debit cards, or even

cheques. The majority of this fee, called the interchange fee, goes to the issuing bank, but parts of it

go to the processing network, the card association (American Express, Visa, MasterCard, etc.), and the

merchant's acquirer. With a corporate card, the interchange is also often shared by the company in whose

name the card is issued as an incentive to use that issuer's card instead of someone else's.

The interchange fee that applies to a particular merchant is a function of many variables including the

type of merchant, the merchant's average transaction amount, whether the cards are physically present,

if the card's magnetic stripe is read or if the transaction is hand-keyed or entered on a website, the

specific type of card, when the transaction is settled, the authorized and settled transaction amounts,

etc. For a typical credit card issuer, interchange fee revenues may represent about fifteen percent of

total revenues, but this will vary greatly with the type of customers represented in their portfolio.

Customers who carry high balances may generate low interchange revenue due to credit line limitations,

while customers who use their cards for business and spend hundreds of thousands of dollars a year on

their cards while paying off balances every month will have very healthy interchange revenues.

Industry jargon for customer categories
Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due

date (that is, at the end of the "grace period") and are not in a promotional period owe interest

("finance charges") are known in the industry as "revolvers." Those who pay in full (pay the entire

balance) are known in the industry as "transactors," "convenience users," or "deadbeats." Those that

shift usage of their credit cards or transfer balances frequently are known in the industry as "rate

surfers", "rate tarts" or "gamers."

Interest on outstanding balances
Interest charges vary widely from card issuer to card issuer. Often, there are "teaser" rates in effect

for initial periods of time (as low as zero percent for, say, six months), whereas regular rates can be

as high as 40 percent. In the U.S. there's no federal limit on the interest or late fees credit card

issuers can charge; the interest rates are set by the states, with some states, like South Dakota,

having no ceiling on interest rates and fees, inviting some banks to establish their credit card

operations there. Other states, like Delaware, have very weak usury laws. The teaser rate no longer

applies if the customer doesn't pay his bills on time, and is replaced by a penalty interest rate (for

example, 24.99%) that applies retroactively. So customers should be wary of these offers, that usually

contain some traps. Cash withdrawals will never carry the teaser rate, for example. Note that for some

banks, even if you had paid it off an outstanding balance along with interest fees, for the next two

months, they will also charge you interest rates for anything you had purchased.[citation needed]

Fees charged to customers The major fees are for:

Late payments

Charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake),

called overlimit fees Returned cheque fees or payment processing fees (eg phone payment fee) Cash

advances and convenience cheques (often 3% of the amount)[11]. Transactions in a foreign currency (as

much as 3% of the amount). A few financial institutions do not charge a fee for this. Membership fees

(annual or monthly), sometimes a percentage of the credit limit. Issuers love monthly fees as it allows

them to charge substantial amounts without the customer realizing how expensive the charge really is (a

monthly amount is perceived as half the price of the equivalent annual fee)[citation needed] Foreign

Exchange Premium

Neutral consumer resources

Canada

The Government of Canada maintains a database of the fees, features, interest rates and reward programs

of nearly 200 credit cards available in Canada. This database is updated on a quarterly basis with

information supplied by the credit card issuing companies. Information in the database is published

every quarter on the website of the Financial Consumer Agency of Canada (FCAC).

Information in the database is published in two formats. It is available in PDF comparison tables that

break down the information according to type of credit card, allowing the reader to compare the features

of, for example, all the student credit cards in the database. The database also feeds into an

interactive tool on the FCAC website.[1] The interactive tool uses several interview-type questions to

build a profile of the user's credit card usage habits and needs, eliminating unsuitable choices based

on the profile, so that the user is presented with a small number of credit cards and the ability to

carry out detailed comparisons of features, reward programs, interest rates, etc.
History

The credit card was the successor of a variety of merchant credit schemes. It was first used in the

1920s, in the United States, specifically to sell fuel to a growing number of automobile owners. In 1938

several companies started to accept each other's cards. The concept of using a card for purchases was

invented in 1887 by Edward Bellamy[citation needed] and described in his utopian novel Looking Backward.

Bellamy uses the explicit term "Credit Card" eleven times in his novel (Chapters 9, 10, 11, 13, 25 and

26) and 3 times (Chapters 4, 8 and 19) in its sequel, Equality. The concept of paying merchants using a

card was invented in 1950 by Ralph Schneider and Frank X. McNamara in order to consolidate multiple

cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the

first "general purpose" charge card, which is similar but required the entire bill to be paid with each

statement; it was followed shortly thereafter by American Express and Carte Blanche. Western Union had

begun issuing charge cards to its frequent customers in 1914. Bank of America created the BankAmericard

in 1958, a product which eventually evolved into the Visa system ("Chargex" also became Visa).

MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge. The

fractured nature of the US banking system meant that credit cards became an effective way for those who

were travelling around the country to move their credit to places where they could not directly use

their banking facilities. In 1966 Barclaycard in the UK launched the first credit card outside of the

US. There are now countless variations on the basic concept of revolving credit for individuals (as

issued by banks and honored by a network of financial institutions), including organization-branded

credit cards, corporate-user credit cards, store cards and so on. In contrast, although having reached

very high adoption levels in the US, Canada and the UK, it is important to note that many cultures were

much more cash-oriented in the latter half of the twentieth century, or had developed alternative forms

of cash-less payments, like Carte bleue, or the EC-card (Germany, France, Switzerland, among many

others). In these places, the take-up of credit cards was initially much slower. It took until the 1990s

to reach anything like the percentage market-penetration levels achieved in the US, Canada or UK. In

many countries acceptance still remains poor as the use of a credit card system depends on the banking

system being perceived as reliable. In contrast, because of the legislative framework surrounding

banking system overdrafts, some countries, France in particular, were much faster to develop and adopt

chip-based credit cards which are now seen as major anti-fraud credit devices. The design of the credit

card itself has become a major selling point in recent years. The value of the card to the issuer being

related to the Customer's usage of the card. This has led to the rise of Co-Brand and Affinity cards -

where the card design is related to the "affinity" (a university, for example) leading to higher card

usage. In most cases a percentage of the value of the card is returned to the affinity group.

Controversy

There is some controversy about credit card usage in recent years. Credit card debt has soared,

particularly among young people. Since the late 1990s, lawmakers, consumer advocacy groups, college

officials and other higher education affiliates have become increasingly concerned about the rising use

of credit cards among college students. The major credit card companies have been accused of targeting a

younger audience, in particular college students, many of whom are already in debt with college tuition

fees and college loans and who typically are less experienced at managing their own finances. A recent

study by United College Marketing Services has shown that student credit lines have increased to over

$6,000. Credit card usage has tripled since 2001 amongst teenagers as well. Since eighteen year olds in

many countries and most U.S. states are eligible for a card without parental consent or employment, the

likelihood of increased balances, unwise use of credit and damaged credit scores increases. A 2006

documentary film titled Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders deals with

this subject in detail.[12] According to Larry Chiang of United College Marketing Services, an example

of a credit card class action was where issuers were "rolling back" posting times to extract more late

fees.[citation needed] The due dates were "rolled back" from 1pm to 10am because mail was delivered in

the afternoon so due dates were actually rolled back to charge more late fees. The following banks are

listed (with the amounts penalized) in this one particular class action.
Providian: US$405 million
Bank One: US$40 million
Chase: US$22.2 million
Citibank: US$15.5 million

Another controversial area is the universal default feature of many North American credit card

contracts. When a cardholder is late paying a particular credit card issuer, that card's interest rate

can be raised, often considerably. Universal default allows creditors to periodically check cardholders'

credit portfolios to view trade, thus allowing the institution to decrease the credit limit or increase

rates on cardholders who may be late with another credit card issuer. Being late on one credit card will

potentially affect all the cardholder's credit cards. Citibank has changed and does not practice this

anymore, while others do still. Another controversial area is the trailing interest issue. Trailing

interest is the practice of charging interest on the entire bill no matter what percentage of it is

paid. U.S Senator Carl Levin raised the issue at a U.S Senate Hearing of the woes of millions of

Americans who are slaves to hidden fees, compounding interest and cryptic terms. Their woes were heard

in a Senate Permanent Subcommittee on Investigations hearing which was chaired by Senator Levin who said

that he intends to keep the spotlight on credit card companies and that legislative action may be

necessary to purge the industry.[13] In the United States, some have called for Congress to enact

additional regulations on the industry; to expand the disclosure box clearly disclosing rate hikes, use

plain language, incorporate balance payoff disclosures, and also to outlaw universal default. At a

congress hearing around March 1, 2007 Citibank announced it would no longer practice this, effective

immediately. Opponents of such regulation argue that customers must become more proactive and self-

responsible in evaluating and neogotiating terms with credit offerers. Some of the nation's influential

top credit card issuers, who are among the top fifty corporate contributors to political campaigns,

successfully opposed it.

Minimum payments

In the UK, there has recently been increasing concern about the minimum payments required on outstanding

credit card balances. Until the mid-1990s the required minimum monthly payment was generally 5% of the

outstanding balance, but competition in the last 15 years to attract customers has led to this figure

being eroded on the premise that the minimum monthly payment to service a debt will be lower. Typically,

credit card companies now only require a monthly minimum payment of between 2% and 3% of the outstanding

balance, or a fixed cash fee, whichever is the greater. For example, on a debt of £1,000, the card

holder can expect to pay back only £20 - £30 per month. Unfortunately, some people are not aware of how

long it can take to repay a debt when only paying the minimum each month. An example of this: by paying

2.5% of the debt each month, while accruing interest at 14% (in line with modern credit card interest

rates), it can take over 14 years to pay back an original debt of £1,000, and roughly £10,500 will have

been paid back. It has recently been suggested that credit card companies include a warning on their

statements discouraging customers from paying only the minimum, however few companies have so far acted

upon this. Companies which do include a warning tend not to inform customers how long full repayment

will take, i.e., they discourage users from making just minimum payments but do not explain why. Less

financially savvy customers may ignore these empty warnings as a result. Starting in 2006, most U.S.

credit card companies regulated by the Office of the Comptroller of the Currency have been required to

increase customers' minimum payments to cover at least the interest and late fees from the prior

statement plus 1% of the outstanding balance. The reason is to avoid a negative amortization situation

which may result when the previous 3% minimum was enforced. Negative amortization is when the payment to

the creditor fails to cover the amount of interest charged during that period. This causes the

consumer's credit card balance to continually increase.

Trailing interest

Trailing interest is an innovative method used to tack on hidden interest fees to a paid balance as

consequence for late payment(s). For instance, regardless of whether a cardholder has paid off his or

her balance in full (one whole payment rather than smaller, incremental payments), if the entire balance

(with or without interest) was not paid by a specific date, interest will be applied to that particular

paid balance beginning on the day after the cardholder's accounting period ended, and will continue to

be applied (and thus rapidly accumulated, for interest is compounded upon the previous day's balance-

plus-interest fee) until the payment is received.

Hidden costs

Merchants pay a negotiated fee -- typically 1-3% for larger merchants and 3-6% for smaller merchants --

to process credit payments. They must also bear the cost of providing a point-of-sale solution to enable

the acceptance of card transactions and other card services related expenses. Credit card issuers

understand full well that if card holders were aware of and made to pay these additional costs with

their purchases it would tend to discourage credit card usage. As a consequence, businesses who accept

credit cards often must sign a "merchant agreement" or contract with the acquirer that stipulates that

they are not allowed to offer different prices for card and non-card transactions (sometimes referred to

as surcharging) despite the additional costs to the business for accepting the cards. The prohibition on

surcharging or cash discounts is enforced by law in some countries, although some governments are

beginning to lift this restriction (see below).[citations needed] Some critics have observed that this

results in what is effectively a hidden expense on all transactions conducted by merchants who accept

credit cards since they must build the cost of transaction fees into their overall business expense.

Furthermore, cash and other non-credit card using customers are in effect made to subsidize credit card

user purchases. The cost of the convenience and protections enjoyed by card holders and the profits

taken from transaction fees by the card industry (which has come to rely increasingly on this revenue

stream over the years) is in part borne by the non-card purchaser. Critics further note that the

customers most likely to pay in cash are probably the least able to afford the additional expense, the

argument going that card holders are more likely to be affluent and non-card holders less so.[citations

needed] A counterargument is that there are also costs to the merchant in other forms of payment. For

cash payments these include frequent trips to the bank or use of an armored delivery service, theft, and

employee error, such that cash is actually not cheaper for the merchant than credit cards. This argument

is probably specious under most circumstances, however, considering that many merchants would offer a

discount for cash-paying customers were they allowed, and indeed, do so where it is legal. The fact that

laws exist or have existed that prohibit such practices and that the major card issuers strongly

discourage such practices can be taken as an indicator that cash transactions do not have as much cost

associated with them as credit card transactions.[citations needed]

To illustrate, some companies offer incentives or bonus coupons for using cash, such as Canadian Tire

Money. Australia is currently acting to reduce this by allowing merchants to apply surcharges for credit

card users. In the United Kingdom, merchants won the right through The Credit Cards (Price

Discrimination) Order 1990[14] to charge customers different prices according to the payment method, but

few merchants do so (the most notable exceptions being budget airlines and travel agents). The United

Kingdom is the world's most credit-card-intensive country, with 67 million credit cards for a population

of 59 million people.[15] In the United States, until 1984 federal law prohibited surcharges on card

transactions. Although the federal Truth in Lending Act provisions that prohibited surcharges expired

that year, a number of states have since enacted laws that continue to outlaw the practice; California,

Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, New York, Oklahoma, and Texas have laws

against surcharges. Regardless of what state one resides in or purchases a product, however, both Visa

and MasterCard have publicly stated that surcharges on credit card transactions are against the rules.

[16]
There also exists an economic argument that credit card use increases the "velocity" of money in an

economy. The result, according to the quantity theory of money, is an effective increase in the money

supply, as more money is flowing through the economy at a given time.
Credit card numbering

The numbers found on credit cards have a certain amount of internal structure, and share a common

numbering scheme. The card number's prefix, called the Bank Identification Number, is the sequence of

digits at the beginning of the number that determine the bank to which a credit card number belongs.

This is the first six digits for Mastercard and Visa cards. The next nine digits are the individual

account number, and the final digit is a validity check code. In addition to the main credit card

number, credit cards also carry issue and expiration dates (given to the nearest month), as well as

extra codes such as issue numbers and security codes. Not all credit cards have the same sets of extra

codes nor do they use the same number of digits.
Credit cards in ATMs

Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the

card but many card issuers charge interest on cash advances before they do so on purchases. The interest

on cash advances is commonly charged from the date the withdrawal is made, rather than the monthly

billing date. Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the

same bank as the card issuer. Merchants do not offer cashback on credit card transactions because they

would pay a percentage commission of the additional cash amount to their bank or merchant services

provider, thereby making it uneconomical. Many credit card companies will also, when applying payments

to a card, do so at the end of a billing cycle, and apply those payments to everything before cash

advances. For this reason, many consumers have large cash balances, which have no grace period and incur

interest at a rate that is (usually) higher than the purchase rate, and will carry those Credit cards as

funding for entrepreneurs Credit cards are a creative, yet often risky way for entrepreneurs to acquire

capital for their start ups when more conventional financing is unavailable. It is rumoured that Larry

Page and Sergey Brin's start up of Google was financed by credit cards to buy the necessary computers

and office equipment, more specifically "a terabyte of memory". [17] Similarly, filmmaker Robert

Townsend financed part of Hollywood Shuffle using credit cards.[18] Director Kevin Smith funded Clerks.

in part by maxing out several credit cards. Richard Hatch also financed his production of Battlestar

Galactica: The Second Coming partly through his credit cards. Famed hedge fund manager Bruce Kovner

began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his

credit card.

Collectible credit cards

Visa's "Happy Shoppers" credit card designA growing field of numismatics (study of money), or more

specifically Exonumia (study of money-like objects), credit card collectors seek to collect various

embodiments of credit from the now familiar plastic cards to older paper merchant cards, and even metal

tokens that were accepted as merchant credit cards. Early credit cards were made of celluloid, then

metal and fiber, then paper and are now mostly plastic.
Charga-Plate

The Charga-Plate is an early predecessor to the credit card. They were issued by large-scale merchants,

much like department store credit cards of today. In some cases, they were kept in the store. When an

authorized user made a purchase, the clerk retrieved the plate from the store's files and then processed

the purchase. This made it possible for stores to allow more specialized employees of their customers to

use the cards, in addition to corporate officers and executives, who would normally have expense

accounts and corporate credit cards. For example, an art-supply store that opened an account with a

research institute might allow graphic artists employed by the institute to buy art supplies for ongoing

projects. It would not be necessary for the research firm to issue a credit card to the artist: instead,

a supervisor would simply say, "Go to Universal Art Supply and buy those supplies." The employee would

go to the store and choose the appropriate supplies, and they would be charged to Central Institute for

Research's account.