Credit Cards

Valentine’s Day Reflections

I know some folks have been swiping left and right this weekend buying things for their significant other. Fancy restaurants, jewelry, chocolates, roses, teddy bears and all the normal Valentine’s Day purchases are probably all pending transactions on your credit card, right? I know there are a few on mine.

In continuation of my post on MasterCard a couple weeks ago, I’d like to briefly go over why companieslimitedcards like MasterCard, Visa, and Discover are so important in our global economy.

MasterCard, American Express, Discover, and Visa are examples of credit card networks. The purpose of these networks is specifically to process payments on behalf of you as a cardholder and the merchant/company you have purchased from. Like you have options on the credit card you sign up for, merchants have choices as to which credit card network they want to belong to. Some companies, will only subscribe to MasterCard or only Visa because there are fees associated to subscribe to a payment processing account. However, the more credit card networks a company joins, the more customers they can do business with in this plastic/digital economy.

For example, I was recently at Sam’s Club ready to make a purchase and it was brought to my attention that they only accept MasterCard. Fortunately, I have a MasterCard credit card, but if I only had a Visa, Sam’s would have lost my transaction that day.

When you actually swipe your card to make a purchase, you give your credit card issuing bank permission to make a payment on your behalf to the merchants acquiring bank using the credit card network to transmit the proper account information. The acquiring bank will then (assuming you have that capacity on your credit limit) put those funds into the merchant’s account and reconcile all transactions for that account at the end of the business day. Also at the end of the business day, your issuing bank will reconcile the payments made on the behalf of ALL of its card network members and systematically assign your transactions to your account. This is where technology and information security is very important from the card network/payment processing end. If they assign an accidental transaction to your account and you don’t notice immediately, you would be required to pay for a transaction that is not yours. Also if someone is able to collect your credit card information from a fake online store front and use it to make big purchases on your account that exceed the limit of your card, YOUR credit score can take a hit.

You would hope your credit card network would be able to realize that you wouldn’t make a purchase over your limit, right? You would hope they would notify you when a transaction over a certain amount is made or if a transaction in an unfamiliar location was made using your credit card information, right? If you answered right to either of these questions, you will know why technology is so important in the credit card and payment processing world. These companies spend millions a year for technology to help monitor  your accounts for fraud, watch your spending habits so they are able to detect if suspicious activity was made using your account, and help you maintain control over your account using various security precautions.

In my opinion, these networks don’t seem to show signs of going anywhere anytime soon. I don’t mind investing money to help companies provide me greater security and protection of my funds, hence my current long positions in Visa, MasterCard and PayPal. Next credit card post we’ll talk through the interest rate situation.

Happy President’s Day and until next post folks…

 

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