Banking News

How different are Credit cards, Debit cards and Prepaid cards?


Millions of people spread all over the world use cards issued by banks as they have many advantages compared to carrying cash for payments. Banks are currently issuing three types cards viz. Credit cards, debit cards and prepaid cards. These cards are made up of plastic either with magnetic strip or a chip embedded in them.

The list of major advantages of these cards are;

  1. The card holders need not worry about timings of his bank or bank holidays to withdraw the cash from ATM. ATMs provide round the clock services and card holders can draw money, at any time convenient to them.
  2. In emergencies like payment to be made at hospital or at such other exigencies, the card holders will have the same convenience of holding ready cash.
  3. The card payment is error free and suitable compared to cash payments. In cash payments, there is a possibility of short payment or excess payment or difficulties in tendering exact changes at payment counters.
  4. The card holders do not face the danger of inadvertently accepting counterfeit notes as it happens in cash transactions.
  5. Carrying credit cards or debit cards or prepaid cards while travelling is much safer compared to carrying cash. The cash if stolen, the chance of getting back is difficult, whereas if the card is stolen the thief cannot utilize the card, unless he knows the numeric password (PIN). Card holder can also immediately report to card issuing bank to stop the transactions of the lost card.
  6. Online booking of air tickets, railway and bus tickets, and cinema tickets or buying items under e-commerce  is possible through card payments. The pleasantest thing of card payment is that one can surprise his near and dear by arranging the delivery of a Pizza or a gift at their doorstep through online card payment, while he/she is physically not available with them.
  7. The payments of utility bills like electric bill, telephone bill, water bill etc. can be made through online card payment which saves time and money to visit bill collection offices for cash payment.
  8. Some merchant establishments or small vendors do not accept cards or they offer discount for cash payments. In such cases, where the customers have to make payment only in cash to the vendors, the card holders need not worry as they can withdraw the cash from ATM and make the payment in cash.
  9. Many a times card issuing banks offer reward points or 5% or 10% cash back offer to encourage their customers to use the cards issued by them. The card holders are thus benefited by such offers.

The features of Credit cards, debit cards and prepaid cards are distinguished below.

Credit cards Debit cards Prepaid cards
Banks are issuing credit cards to their customers as well as to general public. The bank on receipt of application from individuals for credit cards, process the same and decides about issuing the cards and fixing credit limit on the basis of credit worthiness of the customers.The credit cards are issued in the form of a revolving line of credit. That is the card holder will be allowed to operate the card to the extent of full credit limit sanctioned to him/her on clearing the previous bill outstanding.Usage of credit cards: Credit cards will have a separate sub-limit for cash withdrawal within the overall credit limit. Cash can be withdrawn from ATM by using numeric password (PIN).A credit card holder can use the card for the payment of purchase of goods and service at E-commerce (online purchase) and at merchant establishments like Malls, Shops, Hospitals, Petrol bunks and other service providers who maintain processing terminals called   ‘Point of Sale (POS) for card payments.Credit card can also be used for payment of utility bills, transferring funds to bank accounts, debit cards, and prepaid cards within the country.How to discharge credit card bills?The customers get the monthly bill from the bank for all the purchase of goods and service done by him through his credit card for a period. The customer has to pay the balance outstanding in the bill within the due date mentioned in the bill. The due date for payment will be generally fixed with grace period of around 45 days from the bill date. However, it depends upon the type of card and the card issuing bank. The card issuing bank waives interest on credit availed by the card holder, if the balance is paid in full, within the due date. On unpaid amount after due date, interest will be charged at a rate which will be normally hefty compared to interest charged on other loans. In addition to interest charged, penalty will be levied to the defaulters. The cash withdrawn through Credit Cards attracts interest on the amount withdrawn.Credit cards for international usage:

Credit cards can be used both domestically and internationally. The card holder has to specifically request the card issuer to enable his/her card for international use. RBI has mandated that banks may issue new debit and credit cards only for domestic usage unless international use is specifically sought by the customer. Such cards enabling international usage will have to be essentially EMV Chip and Pin enabled.

 

Debit cards are issued by banks by linking it to customer’s bank account. The debit cards are akin to credit cards; the only difference is that the debit card holders do not enjoy credit facility against their card.. The card transaction will be authorized for payment only after debit transaction takes place in the card holder’s bank account. Thus the debit card payment will not be approved at merchant establishment/ATM if the balance in the account is insufficient to cover the transaction. Therefore debit card holder needs to maintain required balance in his/her account for the operation of the cardUsage of debit cards:A debit card holder can use the card for the payment of purchase of goods and service at online purchases and at merchant establishments like Malls, Shops, Hospitals, Petrol bunks and other service providers.Debit cards can also be used for payment of utility bills, transferring funds to bank accounts, credit cards and prepaid cards within the country.SBI has introduced cash withdrawal by debit cards at POS. At present  SBI debit card holders can withdraw maximum of Rs.1000/-daily by using debit cards.For cash withdrawal at ATM, the card holders are permitted to withdraw cash per day up to a threshold limit fixed by the bank, either on its own discretion or by the option of the customer, which normally ranges between Rs.5000.00 to 50000.00.Who are eligible for debit cards?*SB/Current accounts in individuals’ name.

*Current Account in the name proprietary firms (card will be issued in the name of the proprietor.

*Cash Credit Account in the name of individuals.

 

Debit cards for international usage: Debit cards can be used both domestically and internationally subject to card is enabled for international use by the bank. RBI has mandated that banks may issue new debit and credit cards only for domestic usage unless international use is specifically sought by the customer. Such cards enabling international usage will have to be essentially EMV Chip and Pin enabled.

Debit cards for visually impaired customers:

Banks nowadays started issuing debit cards to visually impaired customers with certain additional safeguards due to the issues involved in their accounts through ATMs.

Prepaid cards also known as virtual cards. They are issued by the banks against the value paid in advance by the cardholder. These cards come with security features such as web and card PIN. As per extant instructions of RBI, the maximum value that can be loaded in any prepaid card at any point of time is Rs.50, 000/-.The validity period of the prepaid cards varies from six months to one year depending upon the card issuing bank and purpose of the card. The card holder will have to redeem any unused balance within this time period.Usage of prepaid cards:The prepaid instruments (PPI) are issued in the form of smart cards or chip cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers, etc.The prepaid cards issued by banks can be used to withdraw cash from an ATM, for the payment of purchase of goods and service at online purchases and at merchant establishments like Malls, Shops, Hospitals, Petrol bunks and other service providers.Prepaid cards can also be used for payment of utility bills and transferring funds to bank accounts, debit cards, credit cards within the country.Cards issued by non-bank entities:Prepaid cards are also issued by non-bank entities authorized by RBI like Airtel Money, ITZ cash e-wallet, Oxygen, Y Pay cash. But Cash withdrawals from such cards are not allowed. Prepaid card issued by non-bank entities can be used only for purchase of goods and services at Point of Sale (POS) or E-commerce (online purchase).

Formalities for issuing prepaid cards:

Prepaid cards are issued on carrying out due diligence under KYC norms of card holder.

Small amount card holder will be issued prepaid cards  Up to Rs.10,000/- by accepting minimum details of the customer provided the amount outstanding at any point of time does not exceed Rs 10,000/- and the total value of reloads during any given month also does not exceed Rs 10,000/-. These can be issued only in electronic form;

From Rs.10,001/- to Rs.50,000/- by accepting any ‘officially valid document’ defined under Rule 2(d) of the PML Rules 2005, as amended from time to time. Such PPIs can be issued only in electronic form.

Only on full compliance of KYC prepaid cards can be reloadable up to Rs.50,000/-. However the balance in the prepaid instrument should not exceed Rs.50,000/- at any point of time.

Prepaid cards can be used only domestically.

Latest amendment regarding issuance of semi closed pre-paid payment instruments:

1. The limit for issuance of PPI  has now been enhanced from Rs. 50,000 to Rs.1,00,000/- The balance in the PPI should not exceed Rs. 1,00,000/- at any point of time.

2.Gift Cards: The maximum validity of the gift cards has been enhanced from one year to three years. Other provisions of PPI guidelines with respect to Gift Cards will continue to be applicable.

3.The visiting NRIs and foreign nationals to India can be issued the open system rupee denominated non-reloadable ‘Pre-Paid Instruments’ in electronic form. The cards can be issued by overseas branches of banks in India directly or by cobranding with the exchange houses/money transmitters up to a maximum amount of Rs.2 lakhs by loading from a KYC compliant bank account. Such PPIs should be activated by the bank only after the traveller arrives in India.Cash withdrawal from such PPIs will be restricted to Rs 50,000/- per month.The cards should be issued strictly for use in India and transactions settled in INR.An individual can hold only one card at a time and the card should be non- transferable. These PPIs may be used only for transactions permissible under the extant foreign exchange regulations.

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