Plastic Payment

Payment Cards

• Payment card refers to a card that can be used as a medium of exchange. It includes the:• credit cards (Visa, MasterCard, and Discover), • travel & entertainment cards (American Express,

Diner’s Club, and Carte Blanche), and • debit cards (bank ATM cards) that are in common

use.• Credit Cards –borrows the money from the bank that

issued the card and uses the proceeds to make a purchase

Payment Cards

• Travel & Entertainment Cards – work like credit cards, but the balance is paid off at the end of each month and interest is rarely charged.

• Debit Cards – the amount of the purchase is deducted directly from the customer’s bank account (equivalent to writing a check)

• Common confusion can occur when a card has a Visa or MasterCard logo because it could be used as a credit card or debit card. If it’s a debit card, then a PIN (personal identification number) must be entered in to make a purchase)

Economics of Payment Cards

• Less bulky than a checkbook• Potential loss from theft is less than carrying a large

amount of cash• Can obtain a simple loan either until the bill comes or for

an extended period• Provides rewards such as frequent flier miles• Payment is guaranteed by the issuing bank regardless of

the customer’s credit standing• Merchants prefer credit cards rather than checks

because checks can be uncollectable and the costs of trying to follow up problems with the check.

Economics of Payment Cards

• More convenient to pay over the phone and/or Internet with a credit card than with a check

• Faster to process a credit card than a check through a computer system

• Credit card industry is highly competitive