Although cash is still a common payment method in some countries, like Italy, where Axerve was born, nowadays the use of credit and debit cards is growing, also thanks to the advantages for consumers and merchants.
The first "modern" credit card, in the form of a plastic card, was created in the 1950s¹ and went from being a small experiment in an American town of just over sixty thousand inhabitants to a payment instrument used by more than one billion people.
A lot has changed since the 50s, for example, in the UK the credit and debit cards use is at a different level compared with Italy. The country is part of the top-10 countries (8th place) with the highest cards use among the population with 62% penetration, as of 2020. The first countries in the ranking are Canada (78%), Japan (72%), Luxembourg and Norway (both at 68%). There are over 60 million active credit cards issued in the UK, and around 100 million debit cards, which equals to almost 2 cards per capita. The transaction volume across all cards in 2020 reached £800 billion.² The whole world is digitizing, especially after the pandemic's impact, and this, of course, is reflected in the payments world and the growing use of the credit and debit cards in Europe and around the world.
As you might know by now, the credit card is an electronic payment method, usually a standard size plastic card (in rare cases metallic). Today there is also a virtual credit card option for e-wallets that we explored in the dedicated insight. The physical cards are issued by an authorised company, often a bank, called an Issuer, that offers card-holders the opportunity to make payments that will be charged with different methods depending on the type of card issued.
The cards always have a monthly spending limit and may be subject to other limitations, such as limits on withdrawals from ATMs or maximum limits on online purchases that, in some cases, can be changed depending on the type of method and the agreements stipulated with the Issuer.
The way credit cards work is explained by a three- or four-party scheme, as follows:
In the three-party scheme, the roles of Acquirer and Issuer are performed by the same entity.
The actors involved in card payments include the national and international circuits, that enable transactions to be processed through their communication network and thanks to the standardisation of rules and processes. The most widely recognised international ones include: American Express, Diners, JCB, Mastercard and Visa.
Paying by credit card in store and online is extremely simple. Let's have a look, first of all, at card data:
16-digit number (Card PAN)
Identifies the credit card and is unique: there is no other card in the world with the same numbers.
Payments in store exclusively require cardholders to enter their PIN, when required. It is useful to remember that the code should be entered by making sure no one else can see it.
In the case of online purchases, the following must instead be inserted: name and surname of the cardholder, PAN, expiry and CVV (not necessarily in this order). Moreover, it may be necessary to add a temporary code called an OTP provided by the bank, via SMS or another form (for example, through a home banking app), at the time of payment. If all data are correct, the card is valid and the credit limit has not been reached, the payment is successful and the user can proceed with other purchases or leave the site.
Credit cards are distinguished in particular by the method of debiting of the sums paid and there are three main types:
Cards that offer deferred repayment methods increasingly allow holders to also choose to make a single payment, offering greater flexibility to the cardholder who can decide whether and how to make the repayments.
Prepaid cards called account cards are becoming increasingly more common: unlike "traditional" cards, these cards have an integrated account, which enables holders to carry out many of the most common banking transactions.
There is still one key element that differentiates the cards, namely the confirmation of transactions. Originally, a credit card payment in store was "confirmed" by its cardholder through a signature written on the receipt issued by the POS, a method replaced with the advent of the credit card with PIN, which is inserted by the purchaser at the time of payment; however, if the card is contactless, no form of authentication is required for purchases of up to € 25.
Credit cards involve costs for the merchants that accept them at their Sales Points or on Ecommerce sites and, in certain cases, also for the holders that use them.
For credit cards with full balance settlement and revolving cards, purchasers may have to pay an annual fee, which is often removed based on a minimum spend with the card in the same period. For prepaid cards, the following may apply: a one-off issue cost, top-up fees and perhaps additional costs for specific transactions (e.g. bill payment). In addition, the use of "premium" prepaid cards is increasingly more frequent, allowing holders to request a free standard version and then upgrade to additional services by paying an additional monthly fee.
Online retailers incur commissions on transactions and payment gateway costs in the case of Ecommerce sites, while for physical stores, the costs connected to the POS are the terminal fee and, also in this case, commissions, typically a percentage of the transaction amount.
Moreover, for Ecommerce merchants arises the issue of safely storing sensitive card data for single and recurring purchases. This can be taken care of by introducing tokenization, which you can find out more about in our dedicated insight.
Diners Club International - Our history.
Credit cards and debit cards in the United Kingdom (UK), Statista, 2021
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