Thursday, February 12, 2015

Cards - Debit, Credit, Prepaid Cards

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Instead of carrying and using cash, you can use cards for all your financial transactions. Hence, these are known as Plastic Money.

According to the issuance, usage and payments, Cards can be classified into 3 types -

1.  Debit Cards - These are issued by banks, which are linked to a bank account (meaning you need a bank account (savings, current, etc.) before having a Debit card). Debit cards are also known as ATM cards.

Note that you need to have balance in your account, before you make any financial transaction. These can be used for several purposes like -

  • withdraw cash from an ATM
  • purchase goods and services at Point of Sale (POS) / E-commerce (online - domestic & international; however for international transaction, it needs to be enabled by bank)
  • fund transfer / remittances (only domestic), etc.

2.  Credit Cards - These are issued by banks or other institutes approved by RBI. There is a credit limit on transactions. These may or may not be linked to a bank account.

Note that you can make transactions, even if you don't have balance in your account (if linked with bank account), subject to a credit limit approved by the issuer of the credit card. This can be thought as a loan / advance from the issuer, which you need to pay back after a certain period of time. Use of Credit cards are same as that of the Debit cards.

3.  Prepaid Cards - These are issued by banks or non-banks, where value is paid in advance. There are several forms of prepaid cards, like Smart cards or Chip cardsInternet walletsMobile wallets, etc.

Prepaid cards can be further classified into two types -
  • Issued by banks - also known as Open System Prepaid Cards, which are issued by banks. These are similar to Debit cards in usage, but you don't need a bank account to get this type of card. You just need to pay in advance, with a maximum limit of Rs. 1 lakh (previous limit Rs. 50,000)
  • Issued by authorized non-bank entities - also known as Semi-Closed System Prepaid Cards, which are issued by authorized non-bank entities. There are some restrictions on the usage of these cards - can be used only for purchase of goods and services at POS / E-commerce (online) and for domestic remittances, but cannot withdraw money from ATMs.
    Also, you don't need a bank account, but need to pay in advance to the non-bank entity, with a max. limit of Rs. 1 lakh.

# Reader's Question
Can Credit Card be issued without bank account?
(Now after reading the article, you already know the answer)
Credit cards may or may not be linked with a bank account, meaning you don't need to have a bank account, to be issued with a Credit Card. However, before issuing you a Credit card, the issuing bank or other RBI approved institutions (e.g. NBFCs) will verify your credibility.

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