Modules for Beginners
All about credit cards
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Credit cards today
The earliest forms of credit cards were just that; they offered credit and nothing else. Once you made a purchase on credit using one of those cards, you had to pay it back in full after the stipulated period. Then came the revolving credit facility, where you didn’t have to pay your borrowings in full each month, but rather carry it forward for the next month for a small fee.
As more and more banks and financial institutions jumped onto the credit card bandwagon, they began to lose their edge over their other competitors. This was probably due to the fact that the credit card issuers had nothing new to offer. All of their cards were virtually identical and provided almost the same set of services. This led to issuers coming up with new technology and features in a bid to gain back the edge over their competitors.
As a result, the credit cards of today have undergone so many changes that they no longer resemble their earliest versions. And that’s what we’re going to look at in this chapter.
How have today’s credit cards changed?
As you saw in the previous chapter, credit cards were first made either using cardboard, celluloid, or paper-like materials. The practice continued until American Express entered the scene and started the trend of using plastic to make credit cards. And then, credit cards underwent a major change once again when they gained a magnetic strip.
In addition to the above, credit cards of today have gained a couple more features; one is the EMV chip and the other is NFC capability. Let’s take a more in depth look at what these are and how they’ve changed credit cards physically and functionally.
- EMV chip: The EMV chip is probably the first thing that you would see when you pick up a credit card. Credit cards in India now feature this chip in addition to the magnetic strip. Remember the SIM card that we put in our phones? The EMV chip looks a lot like that and features on the front of the card. The chip was designed to provide an additional layer of security to credit cards. Thanks to this EMV chip, cloning, skimming, and other card frauds have been rendered ineffective.
- NFC capability: If you thought that today’s cards had only the EMV chip in them, you’re in for a surprise. As a matter of fact, many new credit cards also come with another nifty little chip that enables Near-Field Communication (NFC). However, unlike the EMV chip, which is clearly visible, the NFC chip is embedded inside the plastic card itself. What this essentially does is that it enables you to conduct transactions without having to swipe or insert the card into the point-of-sale (POS) machine. To make payments, all that you need to do is bring your NFC-enabled credit card near to an NFC-enabled terminal. Cool, right?
The rise of reward programs
Diners Club launched its ‘Club Rewards’ programme in 1984, while Citibank partnered with American Airlines to launch a credit card reward programme in 1987, enabling consumers to earn free or discounted tickets by using their card.
Throughout the 1990s, reward programmes grew in popularity, and card issuers started luring clients with sign-up bonuses, cash back incentives, and co-branded discounts, increasing the popularity of credit cards even more.
Today, all leading credit card providers have extensive reward programs linked to their credit cards, so users can benefit each time they use the card to pay for products or services. The best credit cards offer reward points that can be easily redeemed for various benefits. Broadly speaking, credit cards in India offer three kinds of reward programs today, as outlined below.
Here, a specific percentage of the transaction amount is returned to you in the form of cash back rewards. For example, if your credit card offers a 2% cashback on international spending, and you spend Rs. 1 lakh on an international transaction, you will receive Rs. 2,000 back.
In these reward programs, you accumulate reward points on specified transactions. You can then redeem your reward points for special benefits, based on the terms and conditions of your credit card.
Miles are also accumulated like reward points. The key difference is that you can redeem the miles from your credit cards online to book your flight tickets.
Other ways in which today’s credit cards have changed
While these two are some of the most noteworthy changes that credit cards of today carry, they’re far from the only ones. Another major feature that today’s cards come with has to be the near-universal usage. Earlier, credit cards carried several restrictions regarding their usage. For starters, they could only be used locally or within select locations. And secondly, you could purchase items through a credit card only from a select few merchants.
This is no longer the case with credit cards of today. You can use it almost everywhere; even internationally. That’s not all. You can use your credit card to purchase almost any item at any merchant seller with a POS terminal.
Another major feature that’s present in current credit cards has to definitely be the rewards and returns that they offer for using them. Yes, you read that right! In a bid to attract more consumers, many credit card issuers are now offering cards that give you rewards for every rupee you spend, which is something that the erstwhile credit cards didn’t possess. That said, we’re not going to go into that here. Instead, we’ll take a look at this in detail in the forthcoming chapters of this module.
A quick recap
- Credit cards of today have gained features like the EMV chip and the other is NFC capability.
- The EMV chip was designed to provide an additional layer of security to credit cards. Thanks to this EMV chip, cloning, skimming, and other card frauds have been rendered ineffective.
- The NFC chip is embedded inside the plastic card itself. What this essentially does is that it enables you to conduct transactions without having to swipe or insert the card into the point-of-sale (POS) machine.
- There has also been an increase in the number of credit card reward programs.
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