Friday, December 14, 2007



A Finnish smart card. 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.

A debit card is a plastic card which provides an alternative payment method
to cash when making purchases. Physically the card is an ISO 7810 card like a
credit card; however, its functionality is more similar to writing a cheque as
the funds are withdrawn directly from either the cardholder's bank account
(often referred to as a cheque card), or from the remaining balance on a gift

Depending on the store or merchant, the customer may swipe or insert their card
into the terminal, or they may hand it to the merchant who will do so. The
transaction is authorized and processed and the customer verifies the
transaction either by entering a PIN or, occasionally, by signing a sales

In some countries the debit card is multipurpose, acting as the ATM card for
withdrawing cash and as a cheque guarantee card. Merchants can also offer "cashback"/"cashout"
facilities to customers, where a customer can withdraw cash along with their

The use of debit cards has become wide-spread in many countries and has
overtaken the cheque, and in some instances cash transactions by volume. Like
credit cards, debit cards are used widely for telephone and Internet purchases.
This [citation needed] may cause inconvenient delays at peak shopping times
(e.g. the last shopping day before Christmas), caused when the volume of
transactions overloads the bank networks.

Types of debit card

Although many debit cards are of the Visa or MasterCard brand, there are many
other types of debit card, each accepted only within a particular country or
region, for example Switch (now: Maestro) and Solo in the United Kingdom, Carte
Bleue in France, Laser in Ireland, "EC electronic cash" (formerly Eurocheque) in
Germany and EFTPOS cards in Australia and New Zealand. The need for cross-border
compatibility and the advent of the euro recently led to many of these card
networks (such as Switzerland's "EC direkt", Austria's "Bankomatkasse" and
Switch in the United Kingdom) being rebranded with the internationally
recognised Maestro logo, which is part of the MasterCard brand. Some debit cards
are dual branded with the logo of the (former) national card as well as Maestro
(e.g. EC cards in Germany, Laser cards in Ireland, Switch and Solo in the UK,
Pinpas cards in the Netherlands, Bancontact cards in Belgium, etc.). Debit card
systems have become popular in video arcades, bowling centers and theme parks.
The use of a debit card system allows operators to package their product more
effectively while monitoring customer spend. An Example of one of these systems
is ECS by Embed International.


Banks in France charge annual fees for debit cards (despite card payments being
very cost efficient for the banks), yet they do not charge personal customers
for chequebooks or processing cheques (despite cheques being very costly for the
banks). This imbalance most probably dates from the unilateral introduction in
France of Chip and PIN debit cards in the early 1990s, when the cost of this
technology was much higher than it is now. Credit cards of the type found in the
United Kingdom and United States are unusual in France and the closest
equivalent is the deferred debit card, which operates like a normal debit card,
except that all purchase transactions are postponed until the end of the month,
thereby giving the customer between 1 and 31 days of interest-free credit. The
annual fee for a deferred debit card is around €10 more than for one with
immediate debit. Most France debit cards are branded with the Carte Bleue logo,
which assures acceptance throughout France. Most card holders choose to pay
around €5 more in their annual fee to additionally have a Visa or a MasterCard
logo on their Carte Bleue, so that the card is accepted internationally. A Carte
Bleue without a Visa or a MasterCard logo is often known as a "Carte Bleue
Nationale" and a Carte Bleue with a Visa or a MasterCard logo is often known as
a "Carte Bleue Internationale". Many smaller merchants in France refuse to
accept debit cards for transactions under €15.25 (equivalent to 100 French
Francs) because of the minimum fee charged by merchants' banks per transaction.
Merchants in France do not differentiate between debit and credit cards, and so
both have equal acceptance. However Visa's and MasterCard's regulations prohibit
merchants from setting minimum charge amounts. American Express's policy is to
discourage any merchant practices that create a "barrier to acceptance" and
setting minimium charge limits is such a barrier. Amex does prohibit
"discrimination" against the Amex card, which means they cannot have minimum
charge for Amex but not for Visa and Mastercard but they cannot have a minimum
charge for Visa and MasterCard because Visa and Mastercard prohibit this.

United Kingdom

In the United Kingdom, banks started to issue debit cards in the late 1980s in a
bid to reduce the number of cheques being used at the point of sale, which are
costly for the banks to process. As in most countries, fees paid by merchants in
the United Kingdom to accept credit cards are a percentage of the transaction
amount[citation needed], which funds card holders' interest-free credit periods
as well as incentive schemes such as points, airmiles or cashback. On the
contrary, debit cards do not usually have these characteristics, and so the fee
for merchants to accept debit cards is a low fixed amount, regardless of
transaction amount[citation needed]. For very small amounts, this means it is
cheaper for a merchant to accept a debit card than a credit card[citation
needed]. Although merchants won the right through The Credit Cards (Price
Discrimination) Order 1990 to charge customers different prices according to the
payment method, few merchants in the UK charge less for payment by debit card
than by credit card, the most notable exceptions being budget airlines, travel
agents and IKEA[citation needed]. Debit cards in the UK lack the advantages
offered to holders of UK-issued credit cards, such as free incentives (points,
airmiles, cashback etc), interest-free credit and protection against defaulting
merchants under Section 75 of the Consumer Credit Act 1974. Almost all
establishments in the United Kingdom that accept credit cards also accept debit
cards (although not always Solo and Visa Electron), but a minority of merchants,
for cost reasons, accept debit cards and not credit cards[citation needed] (for
example the Post Office and, until 1999, John Lewis).

Rest of Europe

In Germany and Belgium, many merchants, including most supermarkets, do not
accept credit cards[citation needed] because of the higher fees charged by their
banks. However, most merchants usually accept debit cards[citation needed],
because the fees for accepting them are much lower, for example in Germany 0.3%
with a minimum of €0.08 [1] .

In Poland, local debit cards, such as PolCard, have become largely substituted
with international ones, such as Visa, MasterCard, or the unembossed Visa
Electron or Maestro. Most banks in Poland block Internet and MOTO transactions
with unembossed cards, requiring the customer to buy an embossed card or a card
for Internet/MOTO transactions only[citation needed]. Recently however the
number of banks which do not block MOTOIO transactions on unembossed cards is

Online and offline debit transactions

Typical debit card transaction machine, branded to McDonalds.

There are currently two ways that debit card transactions are processed:
online debit (also known as PIN debit) and offline debit (also known as
signature debit). In some countries including the United States and Australia,
they are often referred to as point of sale as "debit" and "credit"
respectively, even though in either case the user's bank account is debited and
no credit is involved.

Online debit ("PIN debit" or "debit"[citation

Online debit cards require electronic authorization of every transaction and the
debits are reflected in the user’s account immediately. The transaction may be
additionally secured with the personal identification number (PIN)
authentication system and some online cards require such authentication for
every transaction, essentially becoming enhanced automatic teller machine (ATM)
cards. One difficulty in using online debit cards is the necessity of an
electronic authorization device at the point of sale (POS) and sometimes also a
separate pinpad to enter the PIN, although this is becoming commonplace for all
card transactions in many countries. Overall, the online debit card is generally
viewed as superior to the offline debit card because of its more secure
authentication system and live status, which alleviates problems with processing
lag on transactions that may have been forgotten or not authorized by the owner
of the card. Banks in some countries, such as Canada and Brazil, only issue
online debit cards.

In the United States, most online debit transactions are handled by regional ATM
networks, though VISA and MasterCard each own online debit networks (Interlink
and Maestro, respectively). Online debit is usually provided as a secondary
feature on an offline debit card (Visa Check Card or Debit MasterCard); those
customers that do not qualify for offline debit cards are often issued ATM cards
with online debit capability through the regional ATM, Interlink and/or Maestro

In the United Kingdom, Solo and Visa Electron are examples of online debit
cards, which are typically issued by banks to customers whom the bank does not
want to go overdrawn under any circumstances, for example under-18s.

Offline debit ("signature debit" or "credit"[citation

Offline debit cards have the logos of major credit cards (e.g. Visa or
MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and other
countries, but not the United States) and are used at point of sale like a
credit card. This type of debit card may be subject to a daily limit, as well as
a maximum limit equal to the amount currently deposited in the current/chequing
account from which it draws funds. Offline debit cards in the United States and
some other countries are not compatible with the PIN system, in which case they
can be used with a forged signature, since users are rarely required to present
identification. Transactions conducted with offline debit cards usually require
2-3 days to be reflected on users’ account balances.

In the United States and Australia, offline debit transactions are usually
referred to at point of sale as "credit" transactions even though no credit is
actually involved. This is because they are processed through the Visa or
MasterCard networks in the exact same manner as actual credit card transactions.
Since they are handled like any other Visa or MasterCard, U.S. and Australian
offline debit cards are also accepted worldwide at virtually all merchants that
accept U.S. or Australian credit cards of the corresponding brand, even if they
do not accept their own country's debit cards.

In the U.S., Visa calls its debit card Visa Check Card; MasterCard calls its
debit card Debit MasterCard. The majority of U.S. debit cards are Check Cards .
Discover Card has announced an offline debit card through its regional ATM
network Pulse; however, few if any banks offer this card. A fourth major U.S.
credit card network, American Express, does not offer debit cards.

Some merchants in the U.S. have recently been allowed to bypass the signature
requirement for "credit" sales (including offline debit) if the total sale is
under a certain dollar amount.This is based on the assumption that customers
want a fast and simple point-of-sale process, and low-value transactions are not
the activity of a fraudulent user. Some Japanese stores also allow people to pay
using a card without signing or entering a PIN code. When using this feature,
Sunkus will read the magnetic tape, reserve the money immediately, and settle
the transactions in batches up to a month later, while Lawson will read the
chip, reserve the money immediately, and settle the transactions individually
just a few days later. Some other Japanese convenience store chains also accept
card purchases with neither PIN codes nor signatures, as do some Swedish vending
machines (payphones, parking meters, bus/train ticket vending machines), either
by reading the magnetic tape (ticket vending machines) or by reading the chip
(payphones/parking meters).

In the United Kingdom, Maestro (formerly Switch) and Visa Debit (formerly Delta)
are examples of offline debit cards.This is in contrast to the U.S. where
Maestro is an online debit brand.[citation needed]

In some countries and with some banks and merchant service organisations (as of
this writing), a "credit" or offline debit transaction is without cost to the
purchaser beyond the face value of the transaction, while a small fee may be
charged for a "debit" or online debit transaction (although it is often absorbed
by the retailer). Other differences are that online debit purchasers may opt to
withdraw cash in addition to the amount of the debit purchase (if the merchant
supports that functionality); also, from the merchant's standpoint, the merchant
pays lower fees on online debit transaction as compared to "credit" or offline
debit transactions.

The fees charged to merchants on offline debit purchases -- and the lack of fees
charged merchants for processing online debit purchases and paper cheques --
have prompted some major merchants in the U.S. to file lawsuits against
debit-card transaction processors such as Visa and MasterCard. In 2003, Visa and
MasterCard agreed to settle the largest of these lawsuits and agreed to
settlements of billions of dollars.

Many consumers[Please name specific person or group] prefer "credit"
transactions because of the lack of a fee charged to the consumer/purchaser;
also, a few debit cards in the U.S. offer rewards for using "credit".[citation
needed] However, since "credit" costs more for merchants, many terminals at
PIN-accepting merchant locations now make the "credit" function more difficult
to access. For example, if you swipe a debit card at Wal-Mart in the U.S., you
are immediately presented with the PIN screen for online debit; to use offline
debit you must press "cancel" to exit the PIN screen, then press "credit" on the
next screen.

One additional problem surrounding the use of debit cards is their use at a
self-service gas pump like those common in the U.S. The customer might want to
purchase fuel on their debit card, but the pump's computer does not know how
much fuel the customer wants. The pump is activated by the customer presenting
their card to a card reader (see methods described above) and possibly entering
a PIN. At this point the pump will dispense fuel, though no sales transaction
has completed. The pump has no way of knowing how much fuel will be sold, or
more importantly, how much money is available in the customer’s debit account.
In a typical sale transaction, trying to spend more money than is available in
your account (credit or debit) will result in a "no-sale" alert to the merchant,
and the sale does not occur. At a self-serve fuel pump, the fuel is already in
the customer's tank by the time the bank knows the final sale price. Several
solutions to this problem are in place, such as denying $1 pre-authorizations
when an account holds less than $10 while still allowing transactions for
specific amounts, but the concept of delivering the merchandise before the sales
transaction plagues the debit card system.

Issues with deferred posting of
offline debit

To the consumer, a debit transaction is perceived as occurring in real-time;
i.e. the money is withdrawn from their account immediately following the
authorization request from the merchant, which in many countries, is the case
when making an online debit purchase. However, when a purchase is made using the
"credit" (offline debit) option, the transaction merely places an authorization
hold on the customer's account; funds are not actually withdrawn until the
transaction is reconciled and hard-posted to the customer's account, usually a
few days later. This is in contrast to a typical credit card transaction; though
it can also have a lag time of a few days before the transaction is posted to
the account, it can be many days to a month or more before the consumer makes
repayment with actual money.

Because of this, in the case of a benign or malicious error by the merchant or
bank, a debit transaction may cause more serious problems (e.g. money not
accessible; overdrawn account) than in the case of a credit card transaction
(e.g. credit not accessible; over credit limit). This is especially true in the
United States, where writing "hot checks" is a crime in every state, but
exceeding your credit limit is not.

Chip and PIN

In many countries, the use of PIN validated transactions with smartcard chip
readers is being strongly encouraged by the banks as a method of reducing
cloned-card fraud; to the extent that cardholder-present transactions will soon
not be possible in these countries without knowledge of a PIN, and the POS
terminal reading the smart card chip on the card.

Cards for mail, telephone and Internet use

Special pre-paid Visa cards for mail, telephone (MOTO) and Internet use only are
made available by a small number of banks. They are sometimes called "virtual
Visa cards", although they usually do exist in the form of plastic. An example
is 3V. Recently, these virtual cards have been increasingly issued by
non-financial institutions such as grocery and convenience stores to consumers
as a replacement for money orders (such as PaidByCash in the United States).
Such cards can be used whenever the remote store accepts Visa cards. Before
making the transaction, the customer transfers the required amount of money from
his main account to the card's sub-account using the bank's website or the
telephone. Next, the customer gives the card number and the CVV2 code to the
merchant, who authorizes the transaction electronically, as with a regular Visa
card. If there is enough money on the sub-account, the bank grants the
authorization and locks the adequate amount on the sub-account.

Such a card prevents fraud by a card number thief even if the card is not
blocked, because the customer normally does not store any money on the
sub-account and fraudulent transactions do not get authorized by the bank. For
extra security, the CVV2 code is not printed on the card but rather sent
separately to the customer in a secured envelope.

The bank also rejects local transactions, that is ones that are not made over
the Internet, mail or telephone. However, some merchants use software
incompatible with Visa regulations and send authorization requests that wrongly
tell the bank that the transaction is not a MOTO/Internet one, in which case the
bank rejects the request. Additionally, some merchants do not use electronic
authorization at all, in which case the transaction cannot be completed as well.
For these two reasons the card is unusable with a small minority of Internet,
telephone and postal stores.

No comments:


blogging resource open tips of web and link

blogger templates | Make Money Online