Meaning of liability shift

Liability shift is a way for card associations to reduce card fraud. The associations (Visa and MasterCard) insist on card companies issue cards that are chip cards. Chip cards are also referred to as smart cards. The information for the card account is held in the chip with a default for magnetic stripe.

With liability shift, associations like visa and MasterCard have insisted that card manufactures, card issuers and card acquirers get certified for EMV. All card participants must get on board and different regions all have different dates by which they have to have been certified. Banking in Kenya has also been affected by these developments in liability shift.

EMV certification is a very technical and expensive exercise. Most countries in Africa have missed the deadlines or will miss the deadline due to lack of capital resources to have EMV certification.

How liability shift works

Liability shift is a tool that is being used by the associations to ensure that the card industry is EMV certified which will reduce card fraud. The liability for fraud on a card is being shifted from the merchant to the issuer and acquirer. Where an issuer has give cards that are EMV or chip, these cards use Personal identification number (PIN) to verify card transactions.  Where a chip card has to default to magnetic stripe because the merchant POS or ATM is not EMV certified, the card transaction is verified using signature on a paper receipt.

Signature is less secure than PIN because the signature is not verified at the cardholders account level on the card management system. Pin verification means that the PIN keyed on the POS or ATM is verified by the card management system. Where the PIN is wrong, the transaction will not be authorised. Charge backs for EMV cards will be allowed for most reasons where the merchant is not ENV certified.

How liability shift affects you

As a individual cardholder, the liability shift does not affect you. If you have a corporate card, the liability shift migration does not affect you either. As a card issuer, if your cards are not Chip, you will have a problem of having merchants that accept your cards because merchants will not want to accept card transactions from non-EMV cards. As merchants and Acquirers, liability shift is very important because if the POS and ATMs are not EMV certified, charge backs on transactions become the responsibility of the Merchant or acquirer.

Issuers, acquirers and card processors must ensure that they comply with the associations to become EMV compliant within the given time frames. Failure to comply will mean losses as the liability shift for charge backs will act as income leakages leading to failed, bankrupt and closed card companies.

Introduction to virtual credit card

A virtual credit card is a credit card that every-time when one wants to make an online purchase on enters the actual credit card information and a new number is generated to facilitate the online purchase. This virtual credit card number generated will be temporary and expires immediately the online purchase is successful.

 Advantages of virtual credit card.

• One of the advantages of the virtual credit card is that the number generated is only valid for the one time online purchase and transaction. Once the online transaction and purchase are successful the it expires.
• Another advantage of virtual credit card is that one can set a limit for the particular online purchase and transaction they want to make. This advantage of the virtual credit card ensures that the merchant does not charge more for the online purchase and transaction. Therefore virtual credit cards help the one take control of their finances by ensuring that they stay within their financial budget.
• Virtual credit card has another advantage in that they are widely recognized and can be used by anyone online to make any online transactions and online purchases. Most merchants accept the virtual credit card giving the online shopper freedom. Therefore virtual credit card allows for online purchase from all over the world.
• Data safety and security is another advantage of virtual credit card in that the actual account number of the credit card is not visible to the merchant or on the online payment system. Therefore this information cannot be used by fraudster to make any other fraudulent online purchases and transactions. This makes online transactions and online purchases using the virtual credit card safe and a great advantage.
• Another advantage of the virtual credit card is that it gives the online purchaser freedom as they are not worries that their actual credit card information would be used fraudulently.
• Another advantage of using virtual credit card is that there is flexibility in the use of this virtual credit card as it can only be used when there is a need to make online purchases. Since the number generated for the virtual credit card is temporary then the online purchaser uses it only when they are ready to make any online purchases.

 Disadvantages of virtual credit card.

•  One of the disadvantages of the virtual credit card is that the transfer of funds from the online purchasers account to the merchant account takes time and at times the goods are delivered before the actual payment to the merchant is made.

• Another disadvantage of the virtual credit card is that even though the virtual credit card is widely accepted, some merchants are still skeptical and have not fully accepted the virtual credit card.

What is a Virtual Credit Card

Over the years this has been hampered by hackers who have used the system to fraud the online purchasers using the information they have obtained from the credit cards hence the introduction of the virtual credit card. A virtual credit card is a card which is a replica of the actual credit card and which a user can generate it online. This virtual credit card generated will only be used to make online purchase and not any other purchases. Like any other credit card the person must apply for this virtual credit card. All credit and lending elements will be taken into consideration by the company offering the virtual credit card.

The main characteristics of the virtual credit card which differentiate it from the physical credit card are as follows:

1. Virtual credit cards are only used for online purchases; one cannot make any other purchases using this card.
2. Virtual credit card may be a temporary card which can only be used to make this online purchase once and will not be used again as it will have expired once the transaction is successful.
3. Every-time one wants to make online purchases, then they have to enter the actual credit card information and a new number is generated for the virtual credit card which can then be used.
4. The virtual credit card does not reveal the actual account number and the account details of the actual credit card. These details are only visible to the account holder and the actual credit card provider.
5. The virtual credit card number which is generated and which can be seen is temporary and also useless and cannot be used to access the actual credit card account.
6. The virtual credit card since it generates a temporary number for a particular online purchase therefore there is no information and details of the actual credit card account. This ensures that the actual credit card is not used for fraud.

 Conclusion on virtual credit card

Since the world has become a global village, the introduction of the virtual credit card has brought a great revolution to online purchases. Curbing of fraud which had really been on the increase has also been enhanced by ensuring good data security systems while also giving the freedom to purchase online. Virtual credit card has revolutionised the concept of cards and their usage in this age.

What is a virtual terminal

A virtual terminal is a terminal that can be used for processing any credit card transactions from any computer with internet access anywhere in the world. Virtual terminal can also be referred to as an online version of what is traditionally known as Point of Sale (POS) terminals for example the ones in the supermarkets, hotels and restaurants, retail clothing outlets and many other places.

Due to the increase in use of credit cards on online shopping and in order for these outlets to be competitive, it would be very important that they acquire the virtual terminal.

Competetive advantages of acquiring a Virtual terminal

• A virtual terminal enables the merchant to reach a wider market and therefore increase their sales. The merchant is able to increase sales volume when they acquire a virtual terminal as they are able to make online transaction for a wider market.
• Acquiring a virtual terminal makes the merchant have a competitive edge over their competitors. This is because the merchants are easy to access because of the online accessibility to their customers and potential customers.
• By acquiring a virtual terminal a merchant is able to grow in business by increasing sales, reducing the costs and growth in the profits of the merchant company. the merchant becomes more efficient and effective.

 Requirements for merchants who aspire to acquire a virtual terminal

1. The merchant acquiring the virtual terminal must have the capacity to handle  online transactions. The capacity will include computers and human resource. The question that will be raised is if the merchant acquiring the virtual terminal has the ability to securely and efficiently handle a series of tasks. These tasks that the merchant acquiring the virtual terminal will be able to handle include verification of each transaction, documentation of the transaction and processing of the credit card transaction.
2. The merchant acquiring the virtual terminal must have a very efficient data security system. The system should be secure and safe for the merchant to be able to acquire the virtual terminal.
3. Virtual terminal can also be acquired by the merchant if the merchant has a good reputation financially. This is to say that the credit rating of this merchant is good so as to be able to purchase the virtual terminal.
4. A merchant can also acquire a virtual terminal if the merchant has a wide network of outlets. It would not be prudent to acquire a virtual terminal if the merchant has only  one outlet.

Chase Bank Kenya prepaid cards

The bank is known for its relationship banking. it has scooped many banking industry in Kenya awards in past years. Chase Bank has fifteen branches in Kenya.

Chase bank launched it suite of prepaid cards on the 24th of October 2011. The bank had full page advertisements for these products in both the Nation newspaper and the standard newspaper.

Chase Bank Kenya prepaid cards that were launched are:

Zawadi Chase Bank Kenya prepaid cards

Zawadi meaning gift, is an apt description of how the cards will be sold. These cards can be given to people as gifts. They offer good gifts as the person receiving the gift of the card can purchase what they want.

 Incentive Chase Bank Kenya prepaid cards

These cards may be given as incentives to staff who have performed well in their jobs. these cards could replace the cash bonus that are given to staff at the end of each month.

Traveller Chase Bank Kenya prepaid cards

These category of prepaid cards is targeted for people who travel alot. The account holders can purchase the card either in Kenya shillings or dollar denominated cards. the cards can be used over the Internet.

Chase bank Kenya prepaid cards are MasterCard branded. chase bank is the first bank to offer the MasterCard Chase prepaid cards in Kenya. other banks that offer prepaid cards are Visa branded. These banks are Kenya commercial bank, I and M bank and Bank of Africa.

Advantages of Chase Bank Kenya prepaid cards

• one does not have to be an account holder to purchase a chase prepaid card
• the cards can be purchases on Kenya shillings or dollars
• the cards are MasterCard branded cards so have a wide acceptability
• the cash or funds are held in the card not a bank account, so the risk affects funds only held in the card not a bank account
• they can be used in many outlets both in Kenya and the rest of the world, that accept MasterCard cards

Chase Bank has joined the world in availing customers with prepaid cards. Prepaid cards have become popular especially after the economic crisis in the western world from the year 2008. Credit rating for many people especially in America was affected and so they cannot qualify for credit cards, and prepaid cards is the solution.

Chase Bank Kenya prepaid cards have been introduced into the market at the right time when the growth is expected to double in the next two years.

Types of debit cards

Proprietary debit cards

what are debit cards

Debit cards given by a bank to access just that banks accounts and are known as proprietary card. The cards are sometimes also called ATM cards since they are used just at the banks ATMs. Is the bank has merchants or outlets where they have connected their systems, then these ATM cards can be used to access those merchants. In some instances the banks come together and form a common network of ATMs especially. After membership, the proprietary cards from various banks can be used in these common outlets. Charges are agreed amongst the members.

Co-branded debit cards

When a bank works with another company and they come up with a card that would suit both the institutions members and customers, these are known as co-branded or affiliate cards. The cards may be proprietary or they may be association debit cards. Co-branding is usually done with hotels, clubs, malls and airlines. Both institutions work together to give their customers more convenience and to grow their customer base. Both institutions gain from the partnership.

Association debit cards

Banks may sign up with associations like mastercard and visa to give out their branded cards. The association debit cards are widely used globally. The networks for associations are very well networked and use modern and sophisticated technology to ensure cards so branded are acceptable and create convenience for the financial institutions and their customers. There are stringent rules and regulations for those financial institutions wanting to join associations. Joining fees, annual fees and transactions are some of the charges levied by members. The associations have rules not just for joining, but after joining there are rules of engagement between the associations and other members.

Prepaid debit cards

The prepaid debit cards are used by financial institutions to collect funds before the funds are used. Unlike many other cards, the prepaid cards are paid for before the money is used. There are many kinds of prepaid cards like: gift cards, travel cards, store cards, and payroll cards. The prepaid cards are used as a way to control funds and help in financial management.

The choice of which debit cards financial institution or potential cardholder should get depends on which card is most convenient for them.

What is a prepaid card

prepaid card

A Prepaid card is a card that mostly works like a credit card or a debit card but it has to bee preloaded with money for the cardholder to spend. The card can be used in outlets that credit and debit cards are used.

Prepaid card advantages

• A prepaid card uses money that is loaded. This means it will not lead you to get into debt. Prepaid card can help manage your finances and the amounts loaded will be what is available for use.
• It does not matter whether you have a bank account or not, the applicant can access the prepaid cards when they purchase the cards. This card may be used to reach the unbanked masses in many countries.
• The prepaid card can be given to your children or wife while they travel. The card can be reloaded online for whatever amount is required as per the guidelines of the card company.
• Prepaid cards are faster to get since there is no credit check done.
• The prepaid cards are used to improve credit rating but the cardholder or the card company must give this account to the card reference bureau.
• The cardholder is able to load just what they require especially where they are suspicious of online fraud. Once the funds are depleted, the cardholder waits for the next time when they want to shop and then they load just what they require. This card is not linked to a current or savings account, so if a card is stolen, the money in the bank account is not touched and is safe.

Prepaid card disadvantages

• The prepaid cards have many charges that eat away at the available spending amount. Some companies have hidden charges and after the card has been used at a point of sale or ATM, a charge is debited directly in the cardholders account. Ensure to understand all the costs that are associated with the prepaid card that you get
• There is no cash back guarantee like for credit cards. When a prepaid card is used online, and the goods are not delivered or are damaged, some prepaid card companies do not insist that the cardholder get their money back.
• For those customers who do not like to go online, the prepaid card is seen as a problem since the cardholder is expected to get their balance online. They may be embarrassed if the transaction fails due to lack of funds.

A  cardholder has to be aware of prepaid card advantages and disadvantages of the product they have signed up for.

card payment schemes

The main business carried out by card payment schemes is processing of card transactions between acquiring banks and the issuing banks. A list of the card payment schemes below, showing links to the NYSE:

MasterCard Worldwide (NYSE: MA) card payment schemes

This is a multinational company from America.  Since 2006, mastercard has been listed and publically traded, meaning anyone can invest in Mastercard shares.

Visa Inc.( NYSE: V) card payment schemes

Visa is also an American global corporate. The head quarters are in San Francisco, California. Visa is also listed in the NYSE, though this is a recent listed. Visa has operated since 1966 when it was founded.

Japan Credit Bureau (JCB) card payment schemes

This company was founded in 1961 and in 1968 it bought Osaka credit bureau. The purchase made the card get dominance over the credit card market in Japan. JCB co. Limited is its English name. JCB issues cards in twenty countries

American Express Company (NYSE: AXP), card payment schemes

AmEx is another name for American express company. This company was founded in 1850 with head quarters in New York. It forms one of the thirty components for the dow Jones industrial average. It is a global financial services firm. The AmEx charge cards, credit cards and travelers’ cheques have made this payment scheme very well known.

The company has a mascot which was adopted in 1958. This is the image of a centurion or a roman gladiator which appears on their travelers’ cheques and charge cards. AmEx has strategy to have their customers spend in large volumes which have paid off.

China unionpay card payment schemes

CUP is also referred to as Union pay, is a chiness card. It was founded in 2002 March. It is an approved card scheme by the central bank of China – people’s bank of china.  It is the only domestic bank card organization. China Union Pay acts as interbank network for China but Macau and Hong Kong. This card scheme also links ATMs for major banks and smaller banks. Funds transfer and point of sale are part of the network.

Both mastercard and Visa provide banks and financial institutions with branded payment products which are used for ATM, prepaid, credit and debit cards for customers.  Mastercard and Visa do not issue or Acquire cards so they do not extend credit or even set the fees and rates financial institution offer their customer.

China unionpay is one of the card payment schemes with potential to compete with the American Associations.

Credit and Debit Cards associations

Both MasterCard and VISA are in the process of opening Regional Offices in Kenya for Credit and debit cards.  Is this move by both organizations a sign of commitment to the region after years of neglect, or a response to the threat of their business model posed by mobile commerce? Mobile banking has taken over the day to day transactions of both individuals and corporations in Kenya.

The Kenyan market is unique in the payment space as mobile has leap frogged over all other money transfer and banking channels. Poor communications networks and infrastructure, coupled with the non availability of simple acceptance devices has been the cards’ down fall in many countries especially in Africa. The Automated Teller Machines and Point of Sale are expensive leading Mobile transactions taking over and to fill that void.

Many transactions in Kenya happen on a meal by meal basis with the corner shop and the informal sector have helped mobile commerce to outpace cards. The volume and value of transactions the mobile environment handles daily cannot be equaled by any other payment channel.

credit and debit cards’ have suffered declining competitive edge

The decision of whether this is a good thing for the banking industry depends on where one stands? Maybe not if you are a banker, while the consumers have a totally different view.  The flow of fees earned in the mobile space is also different to the card model. Corner shops prefer the mobile model as they earn revenue instead of lose it in the card model due to commissions paid out for card usage.

Unless the two giants in the card space rethink their model and come back with pricing and rules and policies that suit the local market, the future of Credit and debit cards looks bleak. Credit and debit Cards will become prerogative for the middle to high income people that travel and for tourists.

decision time for credit and debit cards’ business

The big guns need to urgently relook their Africa Strategy to ensure a brighter future. We wait to see how the payment industry will change and if the card associations realize that one size does not normally fit all. Credit and debit cards issuers and acquirers must customize the products to suit their corporate needs.

credit and debit cards

When you use your card, the card business model comes into play,( whether it is a debit, credit or prepaid card,) a merchant discount is paid to the card company. A merchant is where the Point of sale device has been placed by the card company. The merchant commission is paid for the convenience of not having to deal with cash and the risks associated with cash.

card business model

The fee is split among three parties which make up the card business model

Card business model -Acquiring Bank

An acquiring bank is the bank that processes transactions when a card is used. The acquiring bank also credits the merchant’s account for the amounts spent by card owners less the commissions and fees. The acquiring bank is responsible for negotiating eh commissions with their merchants.

Card business model –issuing bank

Issuing bank is the bank that gives the card to the cardholder. The bank is responsible to settle all their cardholder bills either by debiting the cardholders account or taking cash payments from the cardholders. The issuing bank also gets to share on the merchant commission and this income is known as interchange fees.

Card business model – network connectivity

Network connectivity is the links that are used to connect issuers and acquirers. The banks do not have direct relationship with each other but rather they share a network. This allows a transaction from a card issued in Kenya to be accepted and used in a Tanzanian shop. The two largest networks in the work are Mastercard and Visa.

Typically the average merchant discount is approximately 3% of the purchase price. The amount is divided among the three players, issuers, acquirers and network

ATM usage fees for card business model

Whenever you use an ATM a fee is charged for the transaction. The fee charged is share between the Acquirer of the ATM (owner), the Network and the card issuer, just like the usage of cards at Point of Sale. Some concessions may be given to cardholders who use their banks ATM or the fess are less than when another banks ATM is used.

The major credit cards are mastercard, visa and JCB. The major debit cards are mastercard, maestro and Visa electron. American express and diners club are major charge cards. China union pay and discover are major regional cards.all these have a card business model in place to be successful.