Page 491 - Business Principles and Management

Unit 5

CHECKPOINT
Why would a business want to establish its own private credit
card system?

Types of Financial Transaction Cards

Consumers often view credit cards as plastic money. Over the years, purchases
with “plastic” have grown steadily. Most people have two or more credit cards.
The major credit card firms compete intensely in most industrialized nations.
Newer types of “plastic” have been developed for financial transactions, and
more and more brands of credit cards are offering an increasing number of fea-
tures to attract customers.

BANK AND NONBANK CREDIT CARDS
Banks and nonbanks provide credit cards. For consumers, bank cards do not dif-
fer much from nonbank cards. Visa and MasterCard are bank cards in that their
ownership is made up of banks. You can obtain a bank credit card under the
MasterCard or Visa brand from many local banks. Examples of nonbank cards
are American Express and Discover. American Express is a large financial services
company that provides credit through a variety of cards that use the American
Express name. Discover is actually a credit card system owned by Morgan Stanley,
an international investment bank. Nonbank credit cards are obtained from the
company by filling out and mailing an application, applying online through the
company’s Web site, or completing an application at cooperating businesses.
Most bank and nonbank credit card companies have different cards for differ-
ent types of customers. For example, American Express offers cards with a range
of services. The blue, green, gold, platinum, and optima cards meet the needs of
different consumers and businesses. So-called “prestige cards,” such as the plat-
inum card, often charge higher fees for added services but can be free of annual
fees for customers with excellent credit.
Credit cards are often co-branded. Co-branded credit cards are cosponsored
by two companies and have benefits and rewards designed specifically for their
joint customers. For example, the American Express Delta SkyMiles Card is a
co-branded credit card for people who travel frequently on Delta Airlines that
offers cardholders travel discounts and other travel-related benefits.
Another type of credit card that builds on consumer loyalties is an affinity
card. Affinity credit cards are associated with specific organizations and offered
to people affiliated with those organizations. An affinity credit card is cospon-
sored by the organization it is associated with, and the organization receives a
percentage of the sales or profits generated by the card. Many universities offer
affinity credit cards to their alumni. People who use affinity credit cards gener-
ally do so to help support an organization or cause they care about.

DEBIT CARDS

Debit cards resemble credit cards in appearance but are very different. A credit
card is like a short-term loan, whereas a debit card is more like cash or a check.
A debit card immediately transfers funds electronically from the customer’s
checking account to the business’s account when a purchase is made. With a

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