2. 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
3. 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)
4. 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.
5. 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
