Did you know that India has approximately 40 million credit cards and with that figure I’m sure you that any working professional or a businessman at least has a minimum of 3 credit cards on his name. But did you ever wonder what actually goes behind the scenes when you apply that credit card or swipe it in a shopping mall? This thought might not be as interesting as the cashback offer, but when you learn about it…it does make you realize the intricacies involved. I’ve been involved in this industry for almost a decade and today I’d like to share some insights I’ve penned down in this blog post.
The Genesis
The first universal credit card was introduced by the Diners’ Club Inc way back in 1950 in the form of paper. The idea behind it was that no businessman should be embarrassed of being short of cash when they are having a meal with their clients. The businessman could show the card to the waiter and he would be discretely charged against the Diner’s Club account. With paper being susceptible to wearing out, a plastic card was designed to replace it. Looking at the popularity, another major card type was introduced, specifically for travel and entertainment by the American Express Company in 1958.
Credit Card for the Consumers
But which was the first consumer credit card program? Americard, which was launched by the Bank of America in 1958 was made available to middle-class consumers and small- to medium-sized merchants in the United States. Now that Americard was widely accepted and used by the common man, several banks from California jumped in to give some competition through their Interbank/Master Charge card, which later went on to be known as MasterCard. Soon Americard followed the rebranding footsteps and presented themselves as Visa.
In Love with the Shape of You
The standard size of a modern-day credit card is 85.60 mm x 53.98 mm, which is the size of a business card. The card has rounded corners because it’s easier for the user to slide in and out of the sleeve of a wallet that also holds business cards. Their dimensions are governed by the ISO 7810 standard, an international standard for identification cards. Though the size remains the same, many banks give the option of customizing the appearance of your credit card. You can have your favorite holiday picture printed on the card or select from the available themes.
Each American household receives approximately 6 credit card offers a month.
Debit Card vs. Credit Card
When you use a debit card at ATMs to withdraw money or at merchant stores for any purchase, the amount is deducted from your checking (savings) account. Whereas, with a credit card, you’re borrowing money to be repaid later, which is based on the Buy Now Pay Later (BNPL) model.
A credit card company set limits on how much you can charge on your card. This limit is based on your ability to handle debt.
What’s the Fuss About Credit Score?
To obtain a credit card one should have a good credit score, which determines your eligibility to uphold a credit card. The FICO score system was first introduced in 1989 then called Fair, Isaac, and Company. The FICO model is used by most banks/credit grantors and is based on consumer credit files of the three national credit bureaus: Experian, Equifax, and TransUnion.
These are the factors that go into your FICO score:
- Payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- Types of accounts in use (10%)
- New credit (10%)
The most important of the above is the Payment History and you can positively influence the credit score factor by making your payments on time, all the time. The later payments occur, the more it will be reported to the bureaus and in turn affect your score.
The rest four factors are also critical when you apply for a new credit card. If you feel any of these are not in good books then don’t apply for a new credit card, especially if you haven’t been building your credit for very long.
The Backend Processing System
The application software that works round the clock to service our needs on usage of our shadow income was first released by PaySys In Corp in 1983 as CardPac and later upgraded to Visionplus in 1991. The credit application software will run only on Mainframes – ES9000 or S/390 system due to the high-volume customer database, multiple accounts and transaction processing. Let’s take an Insight into Visionplus processing system:
Before any customer is on-boarded to the system, the credit score of the customer will be evaluated. The customer details will be managed by CMS (Credit Management system) and upon approval the embossing details will be generated along with the COU’s (Conditions-of-use), rewards and redemptions on the usage of credit card will be sent. Based on the credit score the customer’s credit limit will be ascertained and based on the retail purchases his/her open-to-buy will be adjusted accordingly. This process will be done by CDM (Credit Decision Management). Customer will be also provided with cash transaction purchase but the interest on cash transactions will be levied from the date of the transaction as opposed to the retail purchases.
All merchant (stores) related information will be handled by MBS, comprising of the store details, store address, Merchant payments and Settlements
How Does it Work in Real Time?
When you make a purchase at any store and use the card for payment, the basic details that would be present either on the chip or magnetic stripe would be the Credit limit, Open-to-buy which get validated during the swipe or insertion of the card. The details will hit the Mastercard or Visa processing servers and the details will be verified with the Issuing Bank.
After the initial verification and the transaction amount meeting the criteria the FAS (Financial Authorization system) process begins. The Auth Matching process will be performed to verify whether the credit transaction is genuine and valid. Once FAS has given approval, the variables in CMS will get updated and Auth response will be sent back to POS device. When the Auth response is successful, the details of the transaction will be printed on Charge Slip with 2 copies 1 to the Merchant and 1 to the customer. The Charge Slip is the key element that must be held for any disputes in the transaction processing.
Well there’s a lot more left to cover, and just like your payment reminder I’ll be back soon with the second installment.
giridhar sitaraman
November 28, 2018Rocking article