Evolution of Payment Instruments

Decades back when people want to purchase some goods they go to the nearby shop and give hard cash to get the same. In 20th century there was a tremendous growth in technologies of all kind, so eventually payment industry also found its way to cope up with the pace in which the technologies evolve. Banks were computerized and People were introduced with payment cards through which they could make transaction which reduced the burden of standing in long queues to withdraw some bucks from an account. It reduced the risk of carrying cash to make transactions.

After some painful decades, at present we enjoy the luxury of carrying the cards easily to purchase anything-anywhere-anytime. As technologies evolve, now we have so many flavours of payment instruments like chip cards, contactless cards, wallets, mobile apps, etc. This blogger is created with the intention of giving as much possible information on all the possible sections of payment industry.



Saturday, October 7, 2017

Classification of Bank Cards based on technology


Payment cards can be classified into following categories based on the technology used,

Magnetic Stripe cards:

These cards have only the magnetic stripe tape on the back side of the card. The embossed magnetic stripe will have Track 1, Track 2 and Track 3 among which Track 1/Track 2 are only readable and Track 3 is read/writable. Track 3 is not used by any major card schemes like Visa, Mastercard and Amex in card payments industry. Track 1 is used majorly in Airline transactions as mentioned in IATA (International Air Transport Association) standards and Track 2 is used in all retail financial transaction as per ABA (American Bankers Association) standards.

Track 2 format is as follows,

·         Primary Account Number

·         Separator (=)

·         Expiry Date (MMYY)

·         POS Service Code

·         PIN Verification Value

·         Discretionary Data (Ex., CVV, CVC, CAV, etc.)

Track 1 format is as follows,

·         Format code

·         Primary Account Number

·         Separator

·         Cardholder Name

·         Separator

·         Expiry Date

·         POS Service Code

·         PIN Verification Value

·         Discretionary Data

The magnetic stripe readers at the point of sale will read the track data to make the transactions while swiping the card. The data present in magnetic stripe is static data and customer will be prompted for PIN or Signature validation during the transaction. Customer’s signature can be verified against the signature present in the panel present in the back side of the card.
 

EMV Chip cards:

Europay, Mastercard and Visa devised the standards for Chips in payments card industry thus it is called as EMV Chip cards. The embedded chip can interact with the chip readers present in POS machines and the transaction data changes dynamically for every transaction unlike magnetic stripe cards. The dynamic application cryptogram (ARQC) value generated during transactions are driven by encryption keys thus makes the chip transactions more secured and impossible to crack.

The chips are very versatile as there can be multiple applications installed in a single chip to perform different functionality (Ex. Credit, Savings and Current accounts in one chip). Track 2 equivalent will be used along with chip data in EMV transactions in which either CVV or iCVV will be present as discretionary data. EMV cards also has the magnetic stripe at the back side, the same can be used if in case the chip is in unreadable condition and the same is called Fallback transaction.

Contactless Magnetic stripe & Contactless EMV cards:

The contactless cards have an embedded contactless chip (different from regular EMV chip) capable of communicating with contactless readers through NFC (Near field communication) technology. The transaction can be made by just showing the card within the proximity of the reader. Contactless cards either pass magnetic stripe data or chip data with dCVV (dynamic Cardholder Verification Value) based on the type of reader it is interacting with.

Contactless EMV cards can be used in both contactless EMV & contactless magnetic stripe readers and contactless magnetic stripe cards can only be used in contactless magnetic stripe readers. These cards can also be used in EMV contact and magnetic stripe only POS machines.

In United States, most of the merchant issues & accepts only contactless magnetic stripe payments and rest of the world is migrating from contact EMV to contactless EMV capability. This is because US migrated to contactless technology even before the introduction of contactless EMV and so it will take lot of investment for them to upgrade the technology again.

PayPass and payWave are the contactless technologies adopted by Mastercard and Visa respectively.

Virtual cards:

In this upcoming future technology, there won’t be any physical cards issued and the cards will be present in mobile application. The virtual cards present in the mobile applications can be used like a contactless card just by tapping the mobile to interact with the POS machine using NFC technology.

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