How Do Credit Cards Work India

Credit cards have come a long way from being a service reserved for the exclusive few to a commonly used financial instrument. Gone are the days when people used cash for purchases at stores, restaurants and other shopping activity. A large chunk of both brick and mortar store shopping as well as online purchase activity is conducted across the globe using credit cards.

Source: http://s.hswstatic.com/gif/credit-card-20.jpg

Credit card companies have refined the service offering specialized cards like travel centric cards, co-branded retail credit cards along with premium credit cards catering to the needs of wide sections of the society. Using a credit card while shopping is an easy breeze and card holders simply need to swap their credit card with the credit card swapping machine available with the retail merchant.

Have you ever wondered how the credit card works and delivers the financial transactions to the merchant? Read on to know the basic functionality of credit cards and their working operations.

Win-win situation for both merchants and customers:

Credit cards are a great financial tool gaining popularity across the globe because of their intrinsic beneficial nature. Credit cards offer a win-win situation for both the retail merchant and the credit card holder. For the credit card holder, firstly it cuts out the requirement of carrying cash while out shopping. Secondly, it offers the card holder the huge advantage of buying now and paying later making it possible for users to manage their spending wisely. For the merchant offering credit card services, it means an increase in the quantum of business as more and more credit card holders would be eager to shop at stores accepting credit card services.

Understanding credit card transactions:

The working mechanism of a credit card is divided into two distinct steps. The first step involves the verification of the credit card done at the merchant store while swapping the card. The second step relates to the final financial transaction between the card service provider, the retail merchant and the card holder. In the first step of credit card verification, a retailer swaps the users credit card on a dedicated machine connected to the computer. The electronic chip in the credit card displays all the credit related information of the card. The software tells the merchant if the card is available for purchase or is blocked. Once the card is approved for financial transaction, the merchant can swap the card at the credit card terminal to facilitate payments. Once the credit card is swapped, a paper receipt gets generated. The receipt must be signed by the card holder as an agreement to pay the credit card company.

Payment of credit card dues:

As a basic nature of credit card transaction, the credit card company pays the merchant instantly while the card holder pays the card holder over a period of time. If the card holder pays the bank or service provider within the credit free period, no extra interest is charged. In case the user repays after the expiry of the interest free grace period, a compounded daily interest is charged for pending amounts.