Before we proceed to
understand comprehensively what is a credit card? First let’s clarify the
simple meaning and/or glossary of some basic terms.
16 important basic terms
and/or points related to credit card are as follows:
Credit means to borrow
something from someone, for example, to borrow money from
a bank.
Card is a small flat object
made of a laminated plastic sheet and other materials.
Cardholder is someone to
whom a card is issued and who has an obligation to remit all
necessary financial borrowings made on his card. The cardholder may
be an individual or organisation. Here, issued means authorized to make use of
card. The word ‘obligation’ means a moral or legal liability to do something.
Remit implies to pay back the money.
ISO is an abbreviation of
International Organization for Standardization.
IEC is an abbreviation of
International Electrotechnical Commission.
NBFC is a short-form of
Non-Banking Financial Company.
ISO/IEC 7810 is an
international standard that specifies (sets or defines) physical
characteristics like size, thickness, etc. for identification cards.
ISO/IEC 7811 is a set of
nine standards ranging from 7811-1 to 7811-9. It specifies traditional data
recording techniques to be used on the magnetic stripe of ID-1 format
identification cards.
ISO/IEC 7812-1 is an
international standard that specifies a card numbering system for
identification cards. It is used to identify a card issuing entity like a bank
or NBFC.
ISO/IEC 7813 is also an
international standard that specifies the data structure and data content of
Track 1 and Track 2. These tracks are located on the magnetic stripe of an
identification card and are used to start (begin or initiate) financial
transactions.
Embossing is a process in
which raised numbers, letters, figures, etc., are embossed (i.e. molded or
craved) on an identification card.
Checksum is a single-digit
generally added at the end of a credit card number to check (validate) the
authenticity (genuineness) of it.
Credit Limit is the maximum
amount up to which a lending entity such as a bank or NBFC can lend (give)
money to its customers. It is further divided into two main types, viz., cash withdrawal
limit and credit-transaction limit.
Cash-withdrawal limit is the
maximum amount of cash that can be withdrawn through a credit card.
Credit-transaction limit is
the maximum limit set on credit transactions (of purchases) that can be done
through a credit card.
Usually, cash withdrawal
limit is less than the credit transaction limit.
We have just finished
discussing the essential glossary (introductory part) of this article. Now
let's move ahead to comprehend the meaning of credit card.
What is Credit Card? Meaning
To know, what is a credit
card? First let’s see how it looks like.
.
The meaning of credit card
is broadly covered in following six points:
Credit card is a
plastic-card issued by a bank or non-banking financial company (NBFC) ready to
lend money (give credit) to its customer.
Basically, it is a
synthetic-card made from a laminated plastic sheet and other materials like
paints, magnetic stripe, microchip (IC), gelatin, hologram, etc.
It entitles (authorizes) the
customer to buy goods and services from merchants, traders and other parties,
based on credit sanctioned to him (customer, who is a cardholder).
It shall be used within a
prescribed credit limit. This limit is based on the earning capacity and
creditworthiness of a cardholder as communicated (settled) by an entity (bank
or NBFC) issuing it to its customer.
It gives a customer a
suitable choice to plan payments for goods and services that may be most
necessary to him on a day-to-day basis.
By using it, customer
promises the repayment of credit transactions executed by him. Such a repayment
along with interest (as applicable) shall be paid to bank or NBFC at a later
agreed (contracted) date. Generally, repayments along with an applicable interest
are made either after a period of 30-45 days or are done on a monthly billing
basis.
Definition
of Credit Card
2. In a Financial perspective,
3. In terms of Business,
Definition
of Credit CardSize of Credit Card
Standard size of credit card
issued by a bank (or NBFC) is depicted below.
The average dimensions of a
credit card in inches, mm and cm:
Credit card has a height of
2.125 inches (53.98 mm or 5.4 cm).
It has a width of 3.370
inches (85.60 mm or 8.5 cm).
Its thickness is of 0.030
inch (0.76 mm or 0.076 cm).
Its four corners (edges) are
rounded with a circle of radius (r) measuring 0.125 inch (3.18 mm or 0.318 cm).
The above measurements
(sizes or dimensions) are averages of the maximum and minimum values defined
for credit cards using ID-1 format of ISO/IEC 7810.
ISO/IEC 7810 is an
international standard that specifies physical characteristics like size,
thickness, etc. for identification cards.
The identification cards
used for banking purposes include ATM, credit, debit cards, etc. These are
helpful to carry out quick financial transactions on a day-to-day basis.
Though ID-1 format of
ISO/IEC 7810 international standard is widely followed globally, variations may
rarely occur from country to country and even from one credit card issuing
entity to another.
Anatomy of Credit Card
The anatomy of credit card
can be studied by analyzing its front & back side.
Image credits © Prof. Mudit
Katyani.
1. Sample image of face or
front side of a credit card.
Image credits © Prof. Mudit Katyani.
The front side of a credit card shows following details:
Logo of issuing entity.
Logo of payment processor.
Hologram.
Expiration date.
Cardholder’s name.
Card number.
Individual account identifier number.
Issuer identifier number (IIN).
Embedded microchip.
Major industry identifier (MII).
Issue date
Bank identification number (BIN).
2. Sample image of rear or back side of a credit card.
Image credits © Prof. Mudit Katyani.
The back side of a credit card shows following details:
Security code (card verification number).
Magnetic stripe.
Signature panel.
Additional information.
Now let’s discuss all details of credit card.
1. Logo of issuing entity
Logo of an issuing entity (which is either a bank or
NBFC) is a unique graphic mark.
The features of logo of an issuing entity:
Logo is an emblem of the entity which issues a credit
card in order to lend money to its customers.
Its main purpose is to ease and aid instant public
recognition of the issuer.
It’s a symbol which helps people quickly identify the
name of bank or NBFC that has issued a credit-card.
2. Logo of payment processor
Generally, a bank issues a credit card in collaboration
with some payment processing company. To indicate this tie-up, bank on its
issued cards also puts (mentions) a logo of its partnered card payment
processor.
Payment processor logo helps a cardholder (user) to
identify which payment processor will process and compile his credit card’s transactions.
It also helps him to choose an appropriate payment processor while shopping and
filing payment forms.
Some leading credit card payment processors:
Visa,
MasterCard,
Discover,
American express (AMEX), and
Japan credit bureau (JCB).
3. Hologram
Hologram is a 3D image either of an object, individual or
some special symbol that has been projected and captured on a 2D flat surface.
Important reasons why a hologram is used on credit card:
Hologram is mainly used as a seal of originality.
It helps to authenticate a genuine brand from counterfeit
one.
It aids in distinguishing an original credit card from
fake (dummy) cards.
It acts as one of the security measures to avoid and/or
minimize forgery.
4. Card number
Card number is a long and unique number assigned to a
credit card. Often, it is embossed (raised) on the face (front-side) of a card.
Generally, it is 16-digits in length and can be extended up to a maximum limit
of 19-digits. An ISO/IEC 7812-1 card number is typically sixteen digits long
and is grouped in four sets with four digits in each set.
An ISO/IEC 7812-1 card numbering system consists of:
Major industry identifier (MII) digit value,
Bank identification number (BIN) now replaced with an
issuer identifier number (IIN),
Individual account identifier, and
Checksum or check digit.
First single-digit (from left) of a credit card number is
a ’Major Industry Identifier (MII)’ digit value. MII digit value or number
signifies the category or type of the entity that issued a card.
Note: please click on the image under section ’Anatomy of
Credit Card’ to get a zoomed preview and find out where exactly is MII digit
value located.
Refer table below to identify which MII digit represents
which issuer category.
Image credits © Wikipedia.
First set of four-digits (which also includes MII digit
value) of a credit card number is referred as ’Bank Identification Number
(BIN)’. It is printed in small fonts just below the card number and is located
on its front-left side.
First-six digits of a credit card number (including the
single MII digit value) represents an ’Issuer Identifier Number (IIN)’ of a
card issuing entity. It is required to operate in the global, inter-industry and/or
intra-industry interchange.
As per ISO/IEC 7812-1, ’BIN is now replaced by IIN’.
Following paragraph explains the reason why IIN replaced
BIN.
With the rising demand and recognition of credit cards,
the financial institutions opined the replacement of BIN with IIN. The purpose
of such replacement was to cover wider areas of financial services, to bring
various service providers under one roof and also to ease their identification.
The IIN number consists of initial six digits when compared to BIN, which
consists of starting four digits only. The incorporated change results in more
prompt and proper assistance to compile and execute the credit card processing.
Digits starting from seventh position up to the second
last position (7 to (n-1)) makes an ’Individual Account Identifier’. Here, n
equals the total number of digits found in a credit card number.
For example, if n=16, then the individual account
identifier number would start from 7 to (16-1) i.e. from seventh position to
the fifteenth position.
The individual account identifier number is variable in
length and can reach up to a maximum of 12-digits.
Final (last or ending) single-digit of a credit card number
is known as a ’Check Digit’. It is also called as a ’Checksum’.
As per ISO/IEC 7812-1, the check digit or checksum is a
digit added to the end of a card number that helps to verify (confirm) its
accuracy and/or validate its authenticity (genuineness). Most card numbers
encoded with this digit use a LUHN Formula which is based on ’LUHN Algorithm’
or a ’MOD-10 method’.
Thus, ISO/IEC 7812-1 credit card numbering system gives
details on; the type of industry, of an issuing entity, customer’s information,
check digit, etc.
5. Expiration date
Expiration date of a credit card is the last date until
which a card remains valid and can be used.
This final date of validity is also referred as ’VALID
THRU’ and is read as ’valid through’.
It uses a MM/YY date format where MM implies a Month and
YY stands for a Year.
For example, if 12/22 is mentioned on a credit card, then
it is valid until 12thmonth of year 2022 i.e. its ’VALID THRU’ date is December
2022. In other words, we can say that the card will get expired and lose its
usability on 1stJanuary 2023.
6. Cardholder name
Cardholder name is a given string of embossed or printed
alphabets on a credit card. It either mentions first and last name of an
individual or specifies the registered name of a company, firm, or an
organization holding the account.
To complete online (the internet) transactions, it is
mandatory that name on the credit card must match its cardholder’s name.
7. Embedded microchip
Embedded microchip is usually located on the front side
of a credit card.
Following are important features of microchip:
Microchip is an electronic storage device which is
commonly known as a semiconductor memory.
It acts as an enhanced protection shield of a card that
safely stores confidential credentials of a cardholder. The credentials stored
in an embedded microchip includes PIN (Personal Identification Number), details
of a credit card issuing entity, etc.
It provides a comprehensive security to prevent cloning
or duplication of a credit card.
It encrypts the sensitive data it stores. If hackers scan
a credit card with some electronic spying device, then they will only fetch
encrypted junk and not the original information that microchip contains. This
encrypted scrap is almost useless to them as it is very difficult to decode and
misuse it intentionally.
It has a superior semiconductor memory and a good
processing capacity.
Thus, it acts as a mandatory and essential security
feature of a credit card.
8. Issue date
Issue date of a credit card is the starting date from
when a card becomes valid and gets ready to be used by cardholder.
This starting date of card’s validity is also referred as
’VALID FROM’.
As like an expiration date, issue date also uses a MM/YY
date format.
For example, if 01/15 is mentioned on a credit card, then
its validity started from the 1st month of year 2015 i.e. its ’VALID FROM’
date is January 2015. In other words, we can say that the card became
officially valid and got ready to be used on 1st January 2015.
9. Magnetic stripe
Magnetic stripe is also sometimes called as ’mag-stripe’
or ’swipe card’. Generally, it is located on the back side of a credit card. It
comes in three different colors viz., black, brown, and silver. It is a storage
device and is further internally divided into three horizontal stripes known as
Track 1, Track 2, and Track 3.
ISO/IEC 7811 is an international standard that specifies
the traditional data recording techniques to be used on the magnetic stripe of
identification cards like credit cards.
According to this standard, the data recording density on
Track 1, Track 2, and Track 3 must be 210 bpi (bits per inch), 75 bpi, and 210
bpi, respectively. In other words, Track 1, Track 2, and Track 3 must be 8.27
bpmm (bits per mm), 2.95 bpmm, and 8.27 bpmm, respectively.
The data recorded on Track 1 and Track 2 of the magnetic
stripe contains details of the cardholder’s account. In other words, these
tracks contain details of a credit card number, name of the cardholder, its
expiry date and the issuer’s country code.
Track 1 mostly contains record of an alphabetical value
which is always a credit cardholder’s name and his related information.
Track 2 of magnetic stripe has CVV1, CVC1, CAV1 and CID
code of Visa, MasterCard, JCB, American Express, respectively, encoded on it.
Track 3 is either non-existent or empty or may consist of
some supplementary information about the credit cardholder and is hardly used
for some validation process.
Now with continuous improvement in the technology,
magnetic stripes are getting obsolete as new contact-less credit cards are
emerging in the market.
10. Security code
Security Code is also referred as a card verification
number or value. It is unique from any other number found on a credit card.
Generally, it is a 3-digits number, but sometimes it may even be a 4-digits
number.
Card security code gives an additional layer of security
to the credit card. It helps to check and confirm the physical accessibility of
the card. This prevents an unauthorized card access and minimizes online
frauds.
The card security code is named and abbreviated
differently by various card payments processing companies. Visa, MasterCard,
American Express and JCB call it as CVV2, CVC2, CID, and CAV2, respectively.
CVV2 is an abbreviation of ’card verification value two’.
CVC2 is an abbreviation of ’card validation code two’.
CID stands for a ’card identification number’.
CAV2 can be expanded as ’card authentication value two’.
In case of Visa, MasterCard and JCB, card security code
is a 3-digits number and is generally printed on the rear or back side of a
credit card.
However, in case of American Express, it is a 4-digits
number which is usually printed on the face or front side of a credit card.
11. Signature panel
Signature panel is a rectangular space located on the
back side of a credit card. As it name says, it is a reserved place where a
cardholder must put or sign his authorized signature. It must be signed by the
holder with a good permanent marker pen. For this purpose, a pen with
dark-colored ink preferably blue or black must be used.
Following are important features of having a signature
panel:
It is an added feature for customization and security of
a credit card.
It allows the merchants and/or traders to validate the
authenticity of person using a credit card. It helps them to cross check
whether the physical-signature in the transaction invoice matches with the
signature on the back of a card.
It is mandatory that signature panel must be signed
properly else the credit card is not considered as a valid one. Generally, this
message is warned on its top-right corner with printed statement like,
“NOT VALID UNLESS SIGNED.”
12. Additional information
Additional information is also printed on the back side
of a credit card. Mainly, it contains useful details about; the service
disclaimer, official address of card issuing entity, and toll-free telephone
number for customer service.
Service disclaimer acts like a legal acknowledgement
(acceptance) for an agreement on the terms and conditions between a credit card
issuing entity and the cardholder.
Address of an issuing entity gives official mailing or
contact information of the bank or NBFC that issued a credit card to its
customer. If anyone is in possession of a lost and found card, then in such a
case, this address helps a possessor to surrender the lost card to its original
issuer.
Customer service is generally available via an official
toll-free telephone number. This service helps a cardholder to get his
card-related queries resolved, seek an immediate additional guidance (help)
regarding usage of credit card, register complaints, alert frauds, and also to
contact an issuer on various important matters arising on a day-to-day basis.
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