Page 492 - Business Principles and Management

Chapter 18 • Credit and Insurance

debit card, customers can also withdraw cash from their checking or savings
accounts through ATMs and pay bills by phone or computer. Usually the same
system, a card scanner, is used to process debit cards as credit cards. However,
with debit cards, customers may have to enter a personal identification number
(PIN) before the transaction can be processed.
A debit card saves retailers the trouble of sending sales slips to the bank, and
the bank doesn’t have to bill and collect from customers. The bank, however,
sends monthly summaries of transactions to retailers and customers. The bank
charges fees, of course, for debit card services.
The use of debit cards and credit cards reduces the amount of cash and the
number of checks handled in the economy. Customers benefit from debit cards
by not having to carry large amounts of cash or a checkbook. People who cannot
obtain credit cards may be able to carry a debit card because it reflects money
already deposited in a bank. A debit card is riskier than a credit card, however,
because the money transfer is immediate. There is less legal protection for con-
sumers using debit cards than for those using credit cards. With credit cards, cus-
tomers who pay their bill at the end of the month are actually receiving a “free”
loan of that money for a short time. Debit card charges are withdrawn immedi-
ately from the account, so no money is loaned.
Prepaid calling cards are a type of debit card. They have become very popu-
lar in an age of increased travel and fewer public pay telephones that accept
cash. Calling cards carry relatively low per-minute costs and can be replenished
online using a credit card or simply discarded when empty.
American Express and other companies sell prepaid debit cards that can be
used in place of traveler’s checks or as a ready source of funds for shoppers. Par-
ents may buy a card with a relatively small prepaid amount for their children to
use at summer camp, on school trips, or even in college. The card can be used to
pay for a variety of low-cost goods and services, such as school supplies, snacks, Smart cards have the potential
and laundry machines. for a wide range of applica-
Gift cards issued by many stores are also examples of prepaid debit cards. tions. Can you name some
The price of these cards includes a profit margin for the retailers that sell them. ways in which a smart card
Customers who buy them do not need to carry as much cash, but they have no could be useful to you?
protection against lost or stolen cards and the value of some prepaid cards ex-
pires after a certain date.

SMART CARDS A smart card is a plastic card with an embed-
ded microprocessor that can store and process a large
amount of information. The microprocessor has a reader
“pad” on the surface that replaces the magnetic strip used
on credit and debit cards. Smart cards are used extensively
in Europe but are just beginning to be used by consumers
in the United States. In Germany, every citizen has a smart
card containing his or her health records. Swedish citizens
use smart cards to vote. Currently smart cards are used by
businesses for computer security, in cable and satellite tele-
vision receivers, and in cell phones.
The information on smart cards can be tailored to
specific purposes, and it can be changed and updated. For
example, financial institutions can offer a smart card that
serves as a credit, debit, and ATM card. Health care profes-
sionals can record and update medical information on each PHOTO: © THINKSTOCK IMAGES.
patient’s smart card. Commuters can use smart cards on city
buses, subways, trains, or even to pay tolls on toll roads.
University students can use them for student identification,

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