What Types of Card Available in Banking Sector

Payment cards are an essential part of a payment system set up by a banking institution that provides a hassle-free and cash-free option for making payments and withdrawing money as per the cardholder’s need. The difference between the types of payment cards and the cards used in the banking system is a basic topic of banking awareness and general knowledge that you should know about and here we are going to discuss it in detail.

Bank cards (also called payment cards, ATM cards, or cash cards) have a set of common, instantly recognizable features:

  • Standard dimensions (85.60 mm × 53.98 mm)

  • The card number (16 digits) and expiry date are displayed on the card

  • Card issuer’s logo (Visa, RuPay, MasterCard, American Express, etc.)

However, there are many types of bank cards available and they differ from each other when it comes to how, when, and where they can be used.

In this article, we focus on the most common types of cards: credit, debit, prepaid, virtual, and gift cards, as well as the advantages and disadvantages of each.

Types of cards used in the banking system

The most common types of cards used in the banking system and the difference between them are as follows-

  • Debit Card

  • Revolving or deferred payment cards

  • Credit Card

  • Forex Card

  • Prepaid Cards

  • Virtual cards

  • Electronic Cards

  • Gift cards

Debit cards

They allow the cardholder to transfer money electronically from their bank account and can also be used as an ATM card to withdraw cash using automated teller machines. Keep in mind that you’re not borrowing money using a debit card, you’re using the money deposited into the bank account linked to the card, whereas with credit cards, you’re borrowing money to make the payment. There are 5 types of debit cards commonly used in India:

1. Visa Debit Cards

2. MasterCard Debit Cards

3. RuPay Debit Cards

4. Contactless debit cards

5. Maestro Debit Card

Revolving or Deferred Payment Cards

This payment method allows you to defer payment for purchases or withdraw cash while you use the card. You can choose to pay the monthly installment amount or a percentage of the outstanding debt. As you pay, credit is made available again. Because it is a line of credit, the agreed interest rate and corresponding fees will always apply, and therefore, there are always costs.

Credit card

A credit card allows the user to borrow money from the bank and make purchases. Credit card issuing banks or companies create a revolving account and provide a line of credit to the cardholder, and the user can then borrow money for payments or even withdraw cash at times. Credit card issuing companies also set a minimum payment amount for the loan amount and charge interest on late payments.

Credit cards come in different categories, like:

  • Rewards credit cards

  • Co-Branded Credit Cards

  • Balance transfer credit cards

  • Student credit cards

  • Store credit cards

  • Secured credit cards

  • Cash-back credit cards

  • Commercial Credit Cards

  • Kisan Credit Cards

  • Travel credit cards

  • Zero percent APR credit cards

  • Business credit cards

Some of the terms associated with credit cards are as follows-

  • Credit Limit – Displays the maximum balance on the credit card

  • Balance – The total amount owed to you, including purchases, finance charges and fees

  • APR or Annual Percentage Rate- is the interest rate applied to the balance carried forward after the grace period of time.

  • Grace Period – The amount of time allowed to pay off your balance

  • Credit Card Fees – Annual or maintenance fees, late fees, and over-limit fees.

Forex Cards

Forex cards stand for foreign exchange cards and are used for international travel to hold foreign currency. There are two main types – single currency cards and multi-currency forex cards. Forex cards can also be used to withdraw currency abroad.

Prepaid Cards

As the name suggests in prepaid cards you can load the amount in advance and then use the money to make transactions, they are not linked to any bank account. The most common example is prepaid gift cards.

In India, RuPay also introduced prepaid cards in 2014, targeting the huge opportunity in untapped, unorganized, corporate gifting and other business spaces.

Virtual Cards

These payment tools are designed to make online purchases avoiding the use of cash or physical cards. Virtual cards do not have a physical format but have an associated set of data for their management, similar to a physical card, such as a card number, expiration date, or CVV code (Card Verification Value).

Digitization has brought the field of payment techniques by storm. Physical bank cards have given way to other functionalities such as mobile payments and Bizum, and biometric payments have already become a reality as we move beyond the physical. But in any of these means of payment, the tools behind them are bank cards. That’s why it’s important to know what types exist and their differences in order to make the best decisions and take care of your financial health.

Electronic cards

Electronic cards are treated as debit cards issued to certain overdraft accounts that are in the nature of personal loans and without any specific end-use restrictions. Banks are permitted to issue electronic cards to natural persons holding overdraft accounts so that local digital transactions can be made in such accounts. For all objectives such as safety, extra factor of authentication (AFA), merchant discount rate (MDR), etc., the instructions regarding debit cards are also applicable to such kinds of electronic cards.

Gift cards

Just like prepaid cards, gift cards are also pre-loaded with funds. What makes gift cards different is that once the money is spent, you can’t reload the gift card and you can’t use it. Gift cards also have a shorter expiration date than prepaid cards.

Gift cards were originally issued by the store and could only be used at that specific location (known as closed-loop gift cards).

Currently, however, major card issuers such as American Express, Visa, or Discover are also offering gift cards that can be used anywhere. This is known as an open-loop gift card.

Frequently Asked Questions about Various Cards available in Banking Sector

1. What are the different methods of using a card at a PoS terminal?

Answer: The card can be swiped (magnetic-stripe card), dipped (chip-based card), or tapped (contactless near field communication {NFC} card) at the PoS terminal.

2. What are magnetic stripe cards, EMV chip and PIN cards, and contactless NFC cards?

Answer: Magnetic stripe card stores the card data on the magnetic stripe present on the card while the data in the EMV chip and PIN card is stored in the chip on the card. In a contactless NFC card, the card is read by holding the card near the card reader. EMV chip and PIN cards and contactless NFC cards are considered more secure than magnetic stripe cards.

3. Have you heard of EMV chip cards?

Answer: Well most cards now come with this technology of an integrated chip which adds a layer of security. EMV stands for Europay, MasterCard, and Visa, and EMV cards are essential to smart payment cards also known as IC cards. They prevent card cloning.

4. What do you mean by CP (Card Present) and (CNP) Card Not Present transactions?

Answer: A CP transaction is a card transaction that is done through the physical presence of the card at the point of the transaction. It is also known as face-to-face or proximity payment transactions. An example is a transaction done at an ATM or PoS terminal. CNP transactions do not require the physical presence of the card at the time of transaction. It is also called a remote transaction. An example is an online transaction or mobile banking transaction using a card.

5. Who decides the limit for cash withdrawal or purchase of goods and services through the card?

Answer: Cash withdrawal limits for ATMs and purchases of goods and services are set by the card issuer. Within these limits, the cardholder can set and modify transaction limits for various uses such as domestic, international, PoS, ATM, online transactions, contactless transactions, etc. Cash withdrawals are allowed using debit cards and full-KYC prepaid cards at PoS terminals. through the Reserve Bank of India (RBI), wherein a maximum of ₹2,000 can be withdrawn per transaction within an aggregate monthly limit of ₹10,000. Cardholders may check with their issuer for details of such facilities offered by them.