Chapter 5. System of payment

Lead-in

1 How do people usually pay for their purchases?

2 Are there any differences of payment in different countries? What are they?

3 How do people usually pay when they are traveling?

4 What is the most convenient way of payment?

5 Look at the pictures of credit cards and say: which of them have you used? Do they have any differences in usage? What are they? Which one was the most comfortable for you in usage and why? What conditions did you have to follow?

1970s-era MasterCharge card Credit Card

Barclaycard, as issued in the UK The Chargex logo used in Canada

Text 1. Credit cards

Scan the text and find out the main conditions and terms that you’ll have to follow if you want to use a credit card. Discuss it with your partner. Do you think these terms universal for all countries?

Vocabulary

1 to grant – предоставлять

2 merchant – торговец, торговая фирма

3 to revolve – периодически возвращаться

4 consent – согласие

5 receipt – расписка, квитанция

6 transaction – сделка, торговая операция

7 to verify – проверять; сверять

8 to dispute – оспаривать

9 to deduct – вычитать

10 to waive – не требовать выполнения чего-л.

11 to vary – изменяться, меняться

12 revenue – доход

13 incentive – поощрение, стимул

14 downside – недостаток

15 legitimate – законный

A credit card is part of a system of payments named after the small plastic card issued to users of the system. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the same shape and size as specified by the ISO 7810 standard.

An example of the front in a typical credit card:

- Issuing bank logo

- EMV chip

- Hologram

- Credit card number

- Card brand logo

- Expiry Date

- Cardholder's name

An example of the reverse side of a typical credit card:

- Magnetic Stripe

- Signature Strip

- Card Security Code

Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants 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. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom and Ireland commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect. 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 if the balance is not paid in full (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 user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.

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. 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, or even if the issuing bank decides to raise its revenue.

Because of intense competition in the credit card industry, credit card providers often offer incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their programs.

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.

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 authorized, regardless of whether the consumer defaults on the credit card payment (except for legitimate disputes, which can result in charges back to the merchant). In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises. Prior to credit cards, each merchant had to evaluate each customer's credit history before extending credit. That task is now performed by the banks which assume the credit risk.

Text work

1. Give English equivalents for the following Russian words and word-combinations

1 предоставляет кредит потребителю

2 превышение (баланс) должен быть оплачен полностью каждый месяц

3 логотип карты

4 защитный код карты

5 определяя сумму к оплате

6 достаточный кредит, чтобы оплатить покупку

7 терминал оплаты по кредитным картам

8 отчет, показывающий покупки, совершенные с помощью карты

9 срок платежа

10 жесткая конкуренция в индустрии кредитных карт

2. Find synonyms to the following words from the text

1 expiration time

2 bargainer

3 to check , examine

4 buying

5 stimulus

3. Find the definitions to the given notions:

1 Issuer

2 Balance

3 Verification

4 Due date

5 Legitimate dispute

6 Charge

7 Interest rate

4. Read and translate the following groups of words derived from a common root

1 to pay –payable – payment – payer – payee – paying

2 to verify – verification – verifier – verified – verifiable – verifiability

3 to add – addition – additional – added

4 courage – discourage – encourage – encouragement

5 to consume – consumer – consumption – consumed – consumable – consumables

5. Answer the questions

1 What is a credit card?

2 What organisation can give you a credit card?

3 What is the difference between a credit card and a charge card?

4 What information should be indicated on the credit card?

5 How and where can you use a credit card?

6 What does the credit card user get every month? Why does he receive it?

7 What are the interst charges? How can they change?

8 Is it save to use a credit card? Why?

9 Do you have any credit cards?

10 Is it convenient to use a credit card while traveling? Why?

Text 2. Treveler’s cheques

Scan the text and find the information about the currency in which traveler’s cheques are available and about commission. Retell it to your partner.

A traveler’s cheque (also traveller’s cheque, travellers cheque, traveler’s check, or travelers check) is a preprinted, fixed-amount cheque designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.

As a traveler’s cheque can usually be replaced if lost or stolen (if the owner still has the nota, issued together with the purchase of the cheque), they are often used by people on vacation in place of cash. The use of credit cards has, however, rendered them less important than they previously were; there are few places that do not accept credit cards (especially international ones such as Mastercard and American Express) but do accept traveler’s cheques – in fact, many places now do not accept the latter. As a result, Travelex now also sells “traveller’s cheque cards” which are used like credit cards. In contrast, American Express discontinued their own traveler’s cheque cards, announcing they would no longer honor the cards effective October 31, 2007.

Traveler’s cheques are available in several currencies such as U.S. dollars, Canadian dollars, pounds sterling, Japanese yen, and euro; denominations usually being 20, 50, or 100 (x100 for Yen) of whatever currency, and are usually sold in pads of five or ten cheques, e.g., 5 x €20 for €100. Traveler’s cheques do not expire so unused cheques can be kept by the purchaser to spend at any time in the future. The purchaser of a supply of traveler’s cheques effectively gives an interest-free loan to the issuer, which is why it is common for banks to sell them “commission free” to their customers. The commission, where it is charged, is usually 1-2% of the total face value sold.

American Express was the first company to develop a large-scale traveller’s cheque system in 1891, and is still the largest issuer of traveler’s cheques today by volume.

However, traveler’s cheques were first issued on 1 January 1772 by the London Credit Exchange Company for use in ninety European cities, and in 1874 Thomas Cook was issuing ‘circular notes’ that operated in the manner of traveler’s cheques.

Legal terms for the parties to a traveler’s cheque are the obligor or issuer, the organization that produces it; the agent, the bank or other place that sells it; the purchaser, the natural person who buys it, and the payee, the entity to whom the purchaser writes the cheque for goods and/or services. For purposes of clearance, the obligor is both maker and drawee.

Upon obtaining custody of a purchased supply of traveler’s cheques, the purchaser should immediately write his or her signature once upon each cheque, usually on the cheque’s upper portion. The purchaser will also have received a receipt and some other documentation that should be kept in a safe place other than where he or she carries the cheques.

When wanting to cash a traveler’s cheque while making a purchase, the purchaser should, in the presence of the payee, date and countersign the cheque in the indicated space, usually on the cheque’s lower portion (if at a restaurant, it may be helpful to ask the waiter to watch and wait for this to be done). Applicable change for a purchase transaction should be given in local currency as if the cheques were banknotes.

Several travellers cheques have been created, yet the most accepted travellers cheques are:

- Thomas Cook

- American Express

It is a reasonable security procedure for the payee to ask to inspect the purchaser’s picture ID; a driving licence or passport should suffice, and doing so would most usefully be towards the end of comparing the purchaser’s signature on the ID with those on the cheque. The best first step, however, that can be taken by any payee who has concerns about the validity of any traveler’s cheque, is to contact the issuer directly; a negative finding by a third-party cheque verification service based on an ID check may merely indicate that the service has no record about the purchaser (to be expected, practically by definition, of many travelers), or at worst that he has been deemed incompetent to manage a personal chequing account (which would have no bearing on the validity of a traveller’s cheque).

American Express has a world wide reputation but their travelers cheques are not readily accepted as advertised. For instance in Thailand, some banks refused to accept the cheques, while others not only charged a transaction fee, they also charged a per cheque charge; and in addition they also required you leave a copy of your passport with the cashing facility. This places your passport information in parts of the world where information security should be a high priority.