The credit card is the most popular payment method in recent years. In an increasingly cashless society, payment by credit card is the ideal solution. Fast, secure, and simple – a method of making transactions appreciated by both buyers and merchants. A credit card is a payment tool suitable for both in-store and online payments.
The in-store payment method is based on the use of a credit – or debit card – and a POS payment terminal, which is a tool capable of reading cards. There are many terminal models: each merchant, based on the activity managed and their turnover, will be able to choose which POS to buy.
On the other hand, online payment, typical of e-commerce stores, is made directly by the buyer, without the need for any means of acceptance. Any online credit card payment must be authorized through a series of authentication factors required from the buyer. If the authentication is successful, the payment can be successfully issued.
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Credit card: what it is and what data it contains
A credit card is a plastic card with a magnetic stripe and a microchip for making electronic payments. The card contains the cardholder’s bank details and the credit line granted by the bank. With a credit card, you can make payments online or in-store and withdraw from ATMs or postamat. All payments work on a “pay later” basis, that is, with a subsequent charge at the time of the transaction. Thanks to the account statement, each user can check the payments made by credit card.
On the front of the card are noted all the data of the holder, the identification number of the card, and the expiry date with month and year. On the back, there are the security codes, in other words, those that guarantee security at the time of the transaction. There are two codes: Card Verification Value (CVV2) and Card Validation Code (CVC2), both consisting of three digits.
Let’s find out in detail what are the codes needed to use a credit card:
- Identification number: it is the code with which the credit card is recognized. It consists of 13-16 digits and is embossed on the front of the card;
- CVV2: the Card Verification Value is the security code of the card. It generally consists of 3 digits and is printed on the back of the card. This code is required to authenticate the transactions made;
- PIN: The PIN is a 4-5 digit code provided to the holder by the bank. The PIN code is useful for withdrawing cash from the card at ATMs. Like other payments, the sum withdrawn will also be withdrawn from the user’s account the month following the actual withdrawal;
- Cardholder code: this code consists of 10-12 digits and is sent privately by the bank to the cardholder. It is usually delivered by post, together with the PIN code. Many banks, especially those that provide well-organized online services, allow the user to choose their own owner code in person. When the code is lost, it can be retrieved from an account statement or through customer service assistance.
Payment by credit card: how does it work?
How does a credit card work? Simple. Credit cards are usually issued by the bank in which the holder has a current account. All payment transactions made with the card are instead managed by the payment circuits.
By credit card, you can make payments at merchants equipped with POS, online payments, and withdrawals at ATMs. To withdraw the money you will need to enter the secret PIN code provided by the bank. It is important to remember that a fee will be applied for every withdrawal at an ATM. All credit cards have a maximum monthly spending limit, called the ceiling. This cap varies from card to card and works like a credit line made available by the bank.
It is important not to confuse the credit card with the debit card (or debit card), also provided by the bank and linked to the current account. The difference between credit card and debit card is simple: if you pay by credit card, the payment is debited from the holder’s account the following month. It is even possible to pay it in installments (after a decision with the bank). Paying by debit card the charge will be immediately deducted from the current account, blocking the transaction in case of insufficient economic availability. With a credit card, in fact, it is possible to spend more money than you have on your account (“go red”), with an ATM instead the payment will be authorized only if the amount available is sufficient to cover the amount.
How to pay in-store by credit card
Credit card payment: how does it happen? As stated earlier, the card can be used to make two types of payments: online or in-store. Both payment methods have specific characteristics and methods of use.
To make a payment by credit card in a physical store, it is advisable for the merchant to be equipped with a POS terminal. Payment is made easily via chip, magnetic strip or NFC technology. The card can be inserted in the POS terminal or simply placed (only if it is equipped with contactless technology). To authorize the credit card transaction, the cardholder must always be present in the store. The credit card must be provided to the merchant who, by entering the amount and inserting the card in the terminal, will start the payment procedure. The transaction, in fact, can be completed in two ways:
- Signature: by inserting the credit card in the POS terminal or simply approaching it, the payment takes place automatically. Two receipts come out of the POS, one for the merchant and one for the buyer. To authenticate the payment, the cardholder will be asked to put a signature on the receipt intended for the shopkeeper. The signature issued on the receipt must necessarily coincide with the one on the back of the credit card. With the affixing of the signature, the payment will be authenticated and recognized as actually authorized;
- PIN: the PIN has been implemented as a security measure to authorize payments not only by debit card, but also those by credit card. The authentication procedure is simple. After inserting the card into the terminal, the buyer will be prompted to enter a PIN to complete the transaction. The PIN is secretly provided by the bank to the customer and is known only by the cardholder. After entering the 4-5 digit secret code, the payment will be successfully finalized.
In-store payments with contactless technology deserve a parenthesis of their own. In fact, if the credit card has a contactless function, neither a signature nor a PIN may be required. How? Simple. If the amount to be paid is less than 25 Euros, there will be no need to sign or enter the PIN. Just bring the card to the POS terminal to authorize and finalize the payment in a few seconds. In the event that the amount is greater than 25 Euros, the authentication methods remain the signature and PIN.
How to pay online by credit card
After having seen how to pay by credit card in the store, let’s find out how to do it on the internet.
Paying by credit card online is a systematic and simple operation. Each online store has a check-out section, in which the user can complete their purchase process. There are special payment forms that the buyer must complete. After entering your details and those of your card, a screen will appear that will guarantee the effective transfer of the payment. Each operation will be accompanied by a summary email sent to the user. Let’s find out which data must be entered in the appropriate forms to authenticate the payment:
- Cardholder: name and surname of the cardholder are shown on the front of the card;
- Card identification number: 16-digit code shown on the front of the card;
- Month and year of expiry: expiry date is shown on the front of the card;
- CVV2 Security Code: 3-digit security code found on the back of the card.
To make online security even greater, it is possible to activate the 3d Secure protocol for the protection of online purchases. This protection system provides a password (automatically regenerated by the system) for all online purchases. In other words, every time an online payment is made, the buyer will be asked for the secret password linked to their card. 3d Secure constitutes an important level of security for payment systems.
Credit card: the 3 types
Credit cards are not all the same! There are different types, let’s find out what they are:
- With full refund
A credit card with a full refund is the most common and used one. The reimbursement of the balance provides for the debit of the expenses to the account of the holder by the 15th day of the month following the actual moment of payment. The charge provides for a single solution without interest.
With the Revolving credit card, payments are debited from the holder’s account in monthly installments. The holder establishes with the bank the value of the minimum repayment installment and the maximum value of the loan. The debit will no longer take place in a single solution in the month following the payment but will be diluted monthly in installments set by the owner with the bank.
The credit card option offers the cardholder the possibility to choose whether to pay the charge in full the following month (in balance), or by monthly installments (Revolving). The request will be sent to the holder for each payment made by card.
Paying by card: 3 advantages for merchants
Payment by card guarantees clear benefits for both merchants and buyers. Let’s find out what are the advantages for merchants :
- Increase the turnover
Guaranteeing your customers the ability to pay by credit card is essential to increase your turnover. There are many customers who prefer electronic payments over cash payments. Having a POS terminal is essential: not only for mandatory POS regulations but to intercept as many customers as possible.
- Time optimization
Payments by card, compared to those with cash, are much faster. Just insert the card into the POS terminal to make an instant transfer payment. By simply entering a PIN or a signature, it will be possible to pay any amount requested. A very advantageous payment method in terms of timing compared to the one with cash.
- More security
Paying by credit card guarantees a high level of security of transactions. Money transfers take place from one account to another following the strictest privacy measures. Furthermore, not having too much cash at your point of sale is an additional guarantee of security. There is also a high level of security regarding online payments. Before authenticating the payment, each user is asked for their personal data and those of the card itself. In this way, e-commerce payments are also safe, with an ever-lowering risk of scams.
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Paying by credit card: 3 benefits for buyers
Let’s find out what are the advantages of paying by credit card for buyers :
- Speed of payment
Payment by credit card is quick and easy. In-store transactions happen much faster than cash transactions. Just enter a PIN or a signature to complete the payment. In terms of convenience and speed, the credit card is undoubtedly the most popular payment method for users.
- Financing at your fingertips
The credit card allows the buyer to complete payments even when there is insufficient liquidity in the bank account. The debit is, in fact, postponed the month following the actual payment. The card is therefore a real handy loan granted by the banks.
- Use abroad
A credit card is a very advantageous means of payment for travelers. In fact, when changing countries, it is often necessary to exchange currency with cash. On the contrary, payment circuits allow users to pay by credit card wherever they are. It will not be necessary to make currency exchange and you can make quick and easy payments even abroad.