Paying with a credit card is one of the most famous alternative forms of payment used. They are more secure than other methods, but present higher interest rates.
A Credit card can be compared to a cash advance and is requested from banks or credit unions. With the added security they represent, they are also favoured for online purchases.
History of credit cards
Payment systems involving tokens have been present through history. But the actual working system of the credit card came into existence as a means to pay for fuel in the United States. The system was later adapted for more general purchases by the charge card company: Diners Club. Air travel agencies made them more widely known over different territories, while Western Union and American Express made them more accessible and further developed the concept into what we know today. The tokens, or cards, used were different at the various steps of its development. The cards were made of paper, embossed metal plates (like Military dog tags) and were finally proposed in the PVC card format used nowadays.
How does the credit card system work?
A Credit card is provided to a customer by an Issuer, it can be a bank or a credit union for example. There is a contract between the customer and the card provider that a set limit of money is loaned to the client. The funds limit is usually set for a 30 day period, and the contract itself is over a yearly basis. The customer can use these funds, as long as the amount used is paid back to the bank within the “grace period”. During a purchase, the payment is validated either by a PIN or a signature done at the checkout. This adds to this system’s security.
Online shopping and credit cards
The fact that these cards’ funds are separated from a customer’s account is a plus safety-wise. This also explains why it is one of the favourite payment methods when it comes to online shopping. However, risks are still present. Scams, identity and credit card information theft are possible threats when communicating online. Using a third party to protect one’s information, like PayPal, is a good way of securing the transaction.