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Payment Card

The term payment card covers a range of different cards that can be presented by a cardholder to make a payment.

Types of Payment Cards

Typically a payment card is backed by an account holding funds belonging to the cardholder, or offering credit to the cardholder. Payment cards can be classified into types depending on how this account is managed. Different types of payment cards include the following:

  • Credit Card: A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid later to the merchant. It is different from a charge card, which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or Credit Unions, and are the same shape and size, as specified by the ISO 7810 standard.
  • Debit Card: A Debit card is a plastic card which provides an alternative payment method to cash when making purchases. Its functionality is similar to writing a check since funds are withdrawn directly from either the bank account, or from the remaining balance on the card.
  • Charge Card: A charge card is a means of obtaining a very short term (usually around 1 month) loan for a purchase. It is similar to a credit card, except that the contract with the card issuer requires that the cardholder must pay charges each month made to it in full -- there is no "minimum payment" other than the full balance. Since there is no loan, there is no official interest. A partial payment (or no payment) results in a severe late fee (as much as 5% of the balance) and the possible restriction of future transactions and risk of potential cancellation of the card.
  • Stored Value Card: A stored value card represents money on deposit with the issuer, and is similar to a debit card. One major difference between stored value cards and debit cards is that debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous. Typical applications of stored-value cards include transit system farecards, gift cards, and telephone prepaid calling cards.
  • Fleet Card: A fleet card is used as a payment card most commonly for gasoline, diesel and other fuels at gas stations.
  • Gift Card: Gift Cards are a substitute for currency which is not legal tender and is usually in the form of credit.

Payment Card Technologies

Different technologies used by payment cards include:

  • Magnetic Stripe Card: A magnetic stripe card is a type of card capable of storing data by modifying the magnetism of tiny iron-based magnetic particles on a band of magnetic material on the card. The magnetic stripe, sometimes called a magstripe, is read by physical contact and swiping past a reading head. Magnetic stripe cards are commonly used in credit cards, identity cards, and transportation tickets.
  • Smart Card: A smart card is defined as any pocket-sized card with embedded integrated circuits which can process information.
  • Contactless Card: Contactless cards are a type of smart card in which the chip communicates with the card reader through RFID induction technology. These cards require only close proximity to an antenna to complete transaction. They are often used when transactions must be processed quickly or hands-free, such as on mass transit systems, where smart cards can be used without even removing them from a wallet.

Article written by Leanne E.