Genz ©Created by JThemes.com
Understanding Your Cards in Payments
Every payment card comes with key components that define its function and issuer. By understanding these components, you can better navigate the world of payments and choose the card that best fits your needs. Let’s dive into the basics of payment cards.
Key Components of Your Payment Card
► Card Type (Issuing): Defines the category of the card (e.g., cashback, rewards).
► Bank Identification Number (BIN): Identifies the issuing institution and card type.
► Issuing Bank: The bank that issued the card to the cardholder (e.g., Citi, Chase).
► Card Network: The organization that connects issuers and acquirers for card payments (e.g., Visa, Mastercard).
► Card Type (Acquiring): Indicates how the card will be processed on the acquiring side, outlining the merchant’s role in the transaction.
The Types of Cards
In today’s financial landscape, there are several types of cards, each designed to cater to different needs. Understanding each type can help you choose the right one for your payment preferences.
1️⃣ Charge Cards
Pay Later in Full
Example: American Express Green
Charge cards allow you to make purchases, but they require you to pay off the entire balance by the end of the billing cycle. There’s no option for partial payments, so you must pay in full when the bill is due.
2️⃣ Credit Cards
Pay Later in Full or Partial
Examples: Visa Signature, Mastercard World
Credit cards offer flexibility: you can pay your balance in full or make partial payments. If you choose the latter, interest will be charged on the remaining balance. These cards are often associated with various rewards and benefits.
3️⃣ Debit Cards
Pay Now
Examples: Mastercard Debit, Visa Electron
Debit cards directly withdraw funds from your bank account at the time of purchase. Since there is no borrowing involved, you can’t carry a balance over, making them ideal for those who prefer not to manage credit.
4️⃣ Prepaid Cards
Pay Before
Examples: Visa Prepaid, Travel Forex Cards
Prepaid cards are loaded with a specific amount of money before use. You can only spend what’s loaded onto the card, making it an excellent choice for budgeting, travel, or gifting.
Additional Classifications
Beyond the basic categories, payment cards are further classified based on their intended use and specific features. Here’s a breakdown of these additional classifications:
► General Purpose Payment Cards (GPPC): These cards are used for everyday purchases, including credit, debit, and prepaid cards.
► Local Payment Cards: Designed specifically for use in certain countries or regions.
► Virtual or One-Time Use Cards: Typically used for online purchases to reduce fraud risks.
► Corporate & Purchasing Cards: Issued for business purposes, helping companies manage employee expenses.
► Co-Branded & Affinity Cards: These cards are issued by a bank in partnership with a retailer or organization and often offer specialized rewards.
► Prepaid & Stored Value Cards: Cards preloaded with a set amount of funds, often used for specific purposes like travel or gifting.
► Private Label Credit Cards: Issued by retailers, these cards are often used for specific store purchases and may offer loyalty benefits.
Open Loop vs. Closed Loop Card Networks
Card networks play a crucial role in how transactions are processed. Understanding the difference between open loop and closed loop networks is key to knowing how your card works.
4️⃣ Open Loop Networks (4-Party Model)
✔ Most common in global card payments
✔ Involves multiple participants: Cardholder → Issuing Bank → Card Network → Acquiring Bank → Merchant
✔ Facilitated by major networks like Visa, Mastercard
✔ Scalable and ideal for widespread adoption
✔ Examples: Visa, Mastercard, UnionPay International, GIE Cartes Bancaires
Open-loop networks are the backbone of most global card payments. With multiple intermediaries, these systems can handle large-scale transactions across borders.
3️⃣ Closed Loop Networks (3-Party Model)
✔ Fewer intermediaries, simplifying the payment process
✔ Issuer and acquirer are often the same entity
✔ Direct relationships with both cardholders and merchants
✔ Easier to manage but harder to scale globally
✔ Examples: American Express, JCB, Diners Club International
Closed-loop networks are typically used by more niche card systems. These networks are better for users seeking direct connections between the issuer and merchant but may face limitations when it comes to global scalability.
Next Up: The Key Players in Card Payments
Stay tuned for the next edition of our blog series, where we will take a closer look at the key players involved in card payments. Understanding the roles of card issuers, acquirers, and networks will give you a clearer picture of how payments are processed and who is responsible at each stage of the transaction.
