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The use of cash, or checks, has dropped off dramatically since technology in the financial sector has made it simple to use a card for most transactions. The problem used to be that each time a credit debit card was used there was a processing fee. Actually, two fees; the usage fee, and the processing service fee. The fees went to a service, to the bank and then what was left over went to the merchant. That made it difficult for small transactions to be worth processing through the credit card service.
All that has changed. Now the fees are a percentage of a total amount recorded over a period of time and calculated on every transaction based on the total amount of the transaction itself. If the transaction was $3.00 then 0.05 is the transaction fee at 1.5% and both the bank and processing service are paid from that amount.
Then all transaction fees from each day are tallied, and calculated weekly, or even monthly. That saves money, and everyone is happy when they are saving money. There are different types of cards being used to complete transactions today – they are Credit Cards, Debit Cards, and Prepaid Cards.
A credit card is a conveniently thin rectangular piece of plastic, metallic alloy, or some type of graphite. They can have a small chip embedded into the face of the card, and a thin magnetic strip on the back of the card. There are a number of different companies and banks that offer credit cards, like Discover and Chase Bank.
They pay the merchant where the card was used, and then the cardholder will pay off the bank or company for the amount used, over time. There is a fee in the form of interest for this convenience, but there is also something called a charge card, which is a different type of card.
A charge card is a type of credit card that is used for purchases where accepted, (not accepted everywhere) and those charges are to be paid at the end of the following month. The restrictions on charge cards have made them less popular than credit cards because most credit cards are accepted at the places where charge cards are accepted.
You don’t have to carry extra cards around when shopping at multiple places, all you need is one credit card. This is why they are so popular now.
A debit card is a card held by a bank, attached to a credit card service (Visa or Mastercard) and used to pay merchants and companies directly from a checking or savings account. There are two main ways to use a credit debit card, either debit directly from a checking or savings account, or as a credit card and the payment is drawn from the bank over several days.
The direct debit method of payment is when the money is requested it is taken straight from a checking or savings account and credited to the merchant or company requesting the payment. Because of that method of transfer, the checking account is exposed for a short period of time while the transaction is completed. To combat this exposure the account carries a Personal Identification Number (PIN) a four-digit number known only to the account holder.
The PIN must be entered to complete a debit purchase, while with the credit option, there is no pin needed because your account is not open to the merchant. The bank checks your account to make sure there is enough money (similar to a credit limit) and then approves the transaction if there are enough funds in the account to cover the transaction.
There is a movement among a growing cross-section of the nation that finds the paradigm of credit to be a destructive force in our country. Those that are in default of their credit card payments are alarming. Some 70 million people are in default on their credit card bills. There are 400 million people in the United States, 70 million is 17.5% of the population which is an enormous number.
The use of credit cards as a daily form of payment, instead of cash, or a debit card, is growing, and with it, the number of people unable to pay their growing balances. The truth is credit, in any form, is based on capitalism, which is at its heart based on the idea of free trade. Free trade is meant to be a profit-producing endeavor. Credit is meant to generate a profit for the company providing the service.
And the truth is if you pay off your total balance every month, the credit card company doesn’t make money. If you are late on your payments, there is a fee, plus interest. If you are late for more than 30 days the interest rate is almost doubled, and the late fee will generate its own fees, keeping the borrower in the cycle of minimum payments or paying off only what portion of the total balance is beyond the credit limit set by the credit card company. It is no surprise that these are the areas of credit card usage that make the most money — and why low credit limit cards are the most popular, while the higher balance credit cards are not as prevalent in recent years.
Studies have shown that people are more willing to spend more if using a credit debit card in place of cash. Cash, the buyer can only spend what they have, there is a physical limit. With a credit debit card, there is more freedom to spend, up to a balance that may be much higher than the cash the purchaser has in their wallet. And when the checking balance is reached, people, in general, are more likely to use a credit card to offset that limit, rather than wait for an opportunity to use cash, such as a payday influx of funds.
While it may be true that there is a downside to using a credit card, rather than a credit debit card, the positives are catching up fast. The fees for using a debit card are either very low, or non-existent. The card can be used for just about any purchase now, including small purchases. If you allow the card to be used as a credit card, without the need for a PIN to be inputted, and no need for a signature before any total single purchase of $50.00 or more is spent.
Then the transaction is quicker than using cash. Most places allow customers to self-serve the payment part of the transaction. Even small businesses can attach a card reader to their card processing company through a wireless connection to a smartphone. The transactions are smooth, seamless, and accurate, with all the payments and allocations being made at the time of the transaction.
Around the world credit and debit cards with a small chip embedded in their faces have replaced the raised-letter, magnetic strip card types. There are a number of reasons this was done, but the main one is that the chip card reduces fraud.
The EuroPay, MasterCard Visa (EMV) card looks the same as any other magnetic strip card but has a little square chip on one side of the card. The chip encrypts bank account information every time the card is used and that way combats fraud. The technology was developed in Europe by American Express, Discover, MasterCard, Visa, UnionPay, and JCB, and has been used in almost all countries around the world.
Interestingly enough, the USA was the last country to adopt technology but is now implementing the cards country-wide. There are a number of reasons the chip card is more secure than the old card technology.
The chip card was developed to fight the fraudulent use of a counterfeit card, which was the most common type of criminal activity that plagued the use of credit cards around the world.
Chips Are Really Hard to Duplicate
Old style credit debit cards had a strip of magnetic tape on the back, that carried a magnetic image of cardholder’s banking information. The information was always there, ready to be read the same every time the card was used. That information could be easily read, especially with today’s high-tech card readers.
The EMV chip encrypts the cardholder’s information uniquely, every time the card is used, effectively changing what is being read into indecipherable garble, at the terminal. In order for a criminal to duplicate that, they would need to manipulate the function of the chip, breaking down the encryption into its original banking information.
Something that would be very difficult to perform, as well as costing millions for the equipment needed to accomplish that feat. The chip circuit would need to be physically breached, and the information stored there deciphered and returned to its original state. That is something that takes years of training, millions of dollars, and a great deal of time. All the things the average criminal doesn’t have.
The Chip with PIN Combination Has Complex Encryption
The chip card carries fully-featured, complex encryption built into the chip circuit. That means when the credit debit card is dipped (not swiped) the terminal and the card exchange information in secret That tells the terminal you are really you, and that it’s okay to use the card. The PIN is the activator to that transaction, or when used in the credit mode, allows the terminal to tell if your information is accurate.
The risks associated with using the chip-enabled credit debit card in the US-based type of encryption is the strategy they use for authentication called Chip and signature. That type of authentication allows the card to be used without a PIN input step before the transaction is approved.
The PIN step in the transaction process is safer and adds a level of security that effectively doubles the card’s resistance to hacking. Most debit cards in the USA have PIN’s while those cards that are only credit cards are slower adding this feature, due to some banks and financial institutions wanting to push the credit cards first.
Another risk may be that the business where the transaction is being processed isn’t quite up to speed with the technology. They may use the old-style terminal that doesn’t carry a slot where a chip card can be dipped. In that instance, the card’s magnetic strip is used, and that allows the information to be open to being read by anyone with a reader.
Many of these risks will be avoided with the growth of Near Field Communication (NFC). NFC allows the purchaser to store their financial account information on a smartphone then, when close to another device, also equipped with the NFC technology, allows those two devices to make an encrypted exchange. The process is called tokenization, which allows a string of numbers to stand-in for account information, and then that string is recognized by the other device, usually a payment terminal. It is extremely secure, simple and safe. Most people know it as Apple Pay, Android Pay, or Samsung Pay.
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