| Credit Cards
A credit card is the only form of payment card that offers a revolving line of credit in addition to its function as a means of electronic payment. In contrast, charge cards as offered by American Express must be paid off monthly. How does a credit card work in practice?
Suppose you buy a TV and present a Visa card, bearing the logo of the issuer, say Citibank, in payment. You swipe your card through a card reader, which reads the data on the magnetic stripe and adds information that identifies the merchant and the dollar value of the purchase. This electronic message automatically goes via telephone line to a computer maintained by the merchant’s acquirer, also a member of the Visa association. That computer reads the message and determines that you used a Visa card. It calls up Visa’s computer, which checks with Citibank’s computer to verify that you have a credit balance sufficient to cover the purchase. If you have enough credit, the Citibank computer will send back a message to the Visa computer authorizing the transaction. Visa relays the message back to the terminal at the store. The entire process takes just seconds, and finishes by printing out the credit charge receipt that you must sign. Since the transaction is captured and stored electronically, the receipt is used only to settle disputes that might arise for example due to a stolen card with a forged signature, The merchant submits a request for payment to its acquirer, which in turn sends it to Visa’s computer. The Visa computer passes on the request to Citibank’s computer, which posts the transaction to your account with Citibank. Visa’s computer consolidates this transaction with all other Visa transactions that day and settles the accounts among banks. The merchant receives about 2 percent less than the amount you paid for the TV. That 2 percent is called themerchant discount, and is paid to the acquirer. The acquirer keeps a portion for his services, and pays...
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