Credit Card usage with a Point of Sale
to make sure your Point of Sale can accept and process a credit card.
Some POS systems have a built-in credit card processing routine while
others may interface to third party software. You may also use a credit
card terminal which is totally separate for your POS (shown right). These are
recommended since they usually have a rental fee associated with them.
You will also have to re-enter your credit card approval codes into the
Point of Sale to complete your tender by using a free-standing terminal.
A credit card system is a type of retail transaction settlement and
credit system, named after the small plastic card issued to users of the
system. A credit card is different from a debit card in that it does not
remove money from the users' account after every transaction. In the
case of credit cards, the issuer lends money to the consumer (or the
user). It is also different from a charge card (though this name is
sometimes used by the public to describe credit cards), which requires
the balance to be paid in full each month. In contrast, a credit card
allows the consumer to 'revolve' their balance, at the cost of having
interest charged. Most credit cards are the same shape and size, as
specified by the ISO 7810 standard.
How they work
A user is issued a credit card after an account has been approved by the
credit provider (often a general bank, but sometimes a captive bank
created to issue a particular brand of credit card, such as Wells Fargo
or American Express Centurion Bank), with which the user will be able to
make purchases from merchants accepting that credit card up to a
pre-established credit limit.
When a purchase is made, the credit card user agrees to pay the card
issuer. Originally the user would indicate their consent to pay, by
signing a receipt with a record of the card details and indicating the
amount to be paid, but many merchants now accept verbal authorizations
via telephone and electronic authorization using the Internet.
Electronic verification systems allow merchants (using a strip of
magnetized material on the card holding information in a similar manner
to magnetic tape or a floppy disk) to verify that the card is valid and
the credit card customer has sufficient credit to cover the purchase in
a few seconds, allowing the verification to happen at time of purchase.
Other variations of verification systems are used by eCommerce merchants
to determine if the user's account is valid and able to accept the
Each month, the credit card user is sent a statement indicating the
purchases undertaken with the card, and the total amount owed. After
receiving the statement, the cardholder may dispute any charges that he
or she thinks are incorrect (see Fair Credit Billing Act). Otherwise,
the cardholder must pay a defined minimum proportion of the bill by a
due date, or may choose to pay a higher amount up to the entire amount
owed. The credit provider charges interest on the amount owed (typically
at a much higher rate than most other forms of debt). Some financial
institutions can arrange for automatic payments to be deducted from the
Credit card issuers usually waive interest charges if the balance is
paid in full each month, but typically will charge full interest on the
entire outstanding balance from the date of each purchase if the total
balance is not paid.
For example, if a user had a $1,000 outstanding balance and pays it in
full, there would be no interest charged. If, however, even $1.00 of the
total balance remained unpaid, interest would be charged on the full
$1,000 from the date of purchase until the payment is received. The
precise manner in which interest is charged is usually detailed in a
cardholder agreement which may be summarized on the back of the monthly
The credit card may simply serve as a form of revolving credit, or it
may become a complicated financial instrument with multiple balance
segments each at a different interest rate, possibly with a single
umbrella credit limit, or possibly with separate credit limits
applicable to the various balance segments. Usually this
compartmentalization is the result of special incentive offers from the
issuing bank, either to incent balance transfers from cards of other
issuers, or to incent more spending on the part of the customer. In the
event that several interest rates apply to various balance segments,
payment allocation is generally at the discretion of the issuing bank,
and payments will therefore usually be allocated towards the lowest rate
balances until paid in full before any money is paid towards higher rate
balances. Interest rates can vary considerably from card to card, and
the interest rate on a particular card may jump dramatically if the card
user is late with a payment on that card or any other credit instrument.
As the rates and terms vary, services have been set up allowing users to
calculate savings available by switching cards, which can be
considerable if there is a large outstanding balance.
Because of intense competition in the credit card industry, credit
providers often offer incentives such as frequent flier points, gift
certificates, or cash back (typically 1 percent) to try to attract
customers to their program.
Low interest credit cards or even 0% interest credit cards are
available. The only downside to consumers is that the period of low
interest credit cards is limited to a fixed term, usually between 6 and
12 months after which a higher rate is charged. However, services are
available which alert credit card holders when their low interest period
is due to expire. Most such services charge a monthly or annual fee.
The merchant's side
Even some street market stands now take credit cards. For merchants, a
credit card transaction is often more secure than other forms of
payment, such as checks, because the issuing bank commits to pay the
merchant the moment the transaction is verified. The bank charges a
commission (discount fee), to the merchant for this service and there
may be a certain delay before the agreed payment is received by the
merchant. In addition, a merchant may be penalized or have their ability
to receive payment using that credit card restricted if there are too
many cancellations or reversals of charges.
In some countries, like the Nordic countries, banks guarantee payment on
stolen cards only if ID card is checked. In these countries merchants
therefore usually ask for ID.
The credit card was the successor of a variety of merchant credit
schemes. It was first used in the 1920s, in the United States,
specifically to sell fuel to a growing number of automobile owners. It
has been widely regarded that rampant use of credit cards contributed
greatly to the Great Depression in the United States that began in the
latter 1920s. In 1938 several companies started to accept each
The concept of using a card for purchases was invented in 1887 by Edward
Bellamy and described in his utopian novel Looking Backward. Bellamy
uses the explicit term "Credit Card" eleven times in his novel (Chapters
9, 10, 11, 13, 25 and 26) and 3 times (Chapters 4, 8 and 19) in its
The concept of paying merchants using a card was invented in 1950 by
Ralph Schneider and Frank X. McNamara in order to consolidate multiple
cards. The Diners Club, which was created partially through a merger
with Dine and Sign, produced the first "general purpose" charge card,
which is similar but required the entire bill to be paid with each
statement; it was followed shortly thereafter by American Express and
Carte Blanche. Western Union had begun issuing charge cards to its
frequent customers in 1914.
Bank of America created the BankAmericard in 1958, a product which
eventually evolved into the Visa system ("Chargex" also became Visa).
MasterCard came to being in 1966 when a group of credit-issuing banks
established MasterCharge. The fractured nature of the US banking system
meant that credit cards became an effective way for those who were
traveling around the country to, in effect, move their credit to places
where they could not directly use their banking facilities.
There are now countless variations on the basic concept of revolving
credit for individuals (as issued by banks and honored by a network of
financial institutions), including organization-branded credit cards,
corporate-user credit cards, store cards and so on.
In contrast, although having reached very high adoption levels in the
US, Canada and the UK, it is important to note that many cultures were
much more cash-oriented in the latter half of the twentieth century
(Germany, France, Switzerland, among many others). In these places, the
take-up of credit cards was initially much slower. It took until the
1990s to reach anything like the percentage market-penetration levels
achieved in the US, Canada or UK. In many countries acceptance still
remains poor as the use of a credit card system depends on the banking
system being perceived as reliable.
In contrast, because of the legislative framework surrounding banking
system overdrafts, some countries, France in particular, were much
faster to develop and adopt chip-based credit cards which are now seen
as major anti-fraud credit devices.