Plastic Cards

Date: 2015-10-07; view: 408.

Giro Payments

The problem of bad checks is avoided by the giro payment method of transferring ownership of bank deposits. With a check, the payer gives the payment order to the payee. The payee must present the check to either the payer's bank for cash or to his own bank for deposit which will then initiate the clearing process. With a giro payment, the payer sends the payment order directly to his own bank, which then makes payment to the recipient's bank. After the payment has been received, the payee is notified by his bank.

A giro payment cannot bounce because the payer's bank simply will not accept the order if there are insufficient funds to cover it. The giro is not a useful way to pay for unplanned purchases in a store. Its principal use is for regular periodic payments like taxes or utility bills. Paper giro payments are unknown in the U.S.

Plastic cards had their origin in store credit cards. Retailers would often extend credit to favored customers, allowing them to charge their purchases and settle up at the end of the month with a single payment. As the number of customers who bought on credit increased, retailers issued identity cards which evolved into store credit cards.

Later, the financial system developed the third-party credit card, expanding the use of credit to a wider base. The card holder would be sent a bill at the end of the month by the issuer for all of his purchases.

Banks entered this business with third-party cards of their own. However the cards were not widely acceptable because of the restrictions on interstate banking. The banks came up with a solution, the four-party card which involves two banks in each transaction, the cardholder's bank (the issuer of the card) and the retailer's bank.

(2661 symbol)