Plastic Money. Cash Cards and Credit Cards.

Plastic money is the name given to all types of plastic card which are used in place of cash. There are different names for these cards but in general they have two main purpose: to enable people to obtain cash; or to make payments without using cash or cheques.

Banks now make available to their customers a single card which does three things: it guarantees cheques (like a bank card or cheque guarantee card); it obtains cash from automatic teller machines (ATMs); and it pays for goods by electronic funds transfer at point of sale (EFTPOS).

A fourth use for plastic cards is to give customers credit when they purchase goods or services. Credit cards are issued by credit card companies such as Access, Mastercard, Visa, American Express. Some of these are owned by banks. Charge cards (American Express, Diner’s Club) are similar to credit cards except that the holder has to pay the account in full each month and there is also an annual membership fee.

Debit cards are like credit cards except that they are used to debit (subtract) money to the customer’s bank account when a purchase is made. An existing credit balance is reduced. But when a credit card is used, a debit balance is increased.

The latest development in plastic money is the Smart Card. This carries a microchip on it with account information on the holder. It can also carry information about previous transactions which can be viewed at enquiry terminals. Clearly such a card could also be used to carry non-banking information, such as medical and other personal details.

Cash dispenser, automatic teller machine or cashpoint are some of the names given to machines from which customers can withdraw money from their bank accounts, using their cash cards. They can do this at any branch of their bank and the branches of other banks which are linked to their bank.( Note: In the USA, the teller is a person receiving and handing out money in a bank. This occupation is called cashier in Britain.)

With the cash card, customers also receive a PIN or personal identification number which they should memorize. This number is kept secret even from the staff of their branch. When using the dispenser, customers insert the card and key the PIN number in. By following a clear set of instructions which appear on the video screen, they can withdraw cash up to a certain limit, check the balance of their account or deposit money.

Not all banks provide the same automatic teller services. Examples of services available from customers' own branch machines are account information, orders for new cheque books and deposits of cheques and cash. Own-branch machines may also issue mini-statements of account, showing deposits just made and the current balance.

When you buy something you show your credit card to the seller. The seller takes the details of your card number, the credit limit and the expiry date. You sign the seller's voucher (making two copies) which he uses to collect payment from the credit card company. For this service the retailer pays a fee (around 4 per cent of the value of the transaction). Each month the credit card company sends the cardholder an account which lists that month's transactions and interest charges. EFTPOS is exactly what it stands for: Electronic Funds Transfer at Point of Sale. The cost of goods is transferred electronically at the point of sale from the customer's bank to the seller's bank. The print of sale is at the supermarket or petrol station where customers use their plastic cards to pay for goods. The sales person swipes (passes) the card through a card reader which reads the information on the magnetic strip on the back of the card.

The card reader enables the cash terminal computer to send the customer's details via telephone wires to a Central Switch. The card details are encoded for security. The Central Switch selects the correct bank and sends the card details to the customer's bank's processor which checks the following information: card issue number, if the card has been reported stolen, the expiry date of the card, the value of the purchase, if there enough money in the customer’s account and the retailer’s identification number.

If everything is in order, the customer’s bank’s processor sends a coded authorization to the Central Switch which sends the message to the shop. The shop’s terminal confirms the payment, issues a receipt for the customer to sign and the customer can take the goods away. At the same time the Central Switch transmits the value of the transaction to the shop’s bank. If the payment is not authorized the customer has to find another way to pay for the goods.

After three days the customer’s bank debits the value of the purchase to his or her account. Meanwhile, also after three days, the shop’s bank credits the shop’s account with the value of the goods.

1. What sort of card would a bank account holder use to obtain money when the banks are closed?

2. What sort of card is used to pay for goods in a supermarket or petrol station without cash, cheque book or credit card?

3. What sort of card would a shop ask for if its customer wanted to pay for goods by cheque?

Text 4

Read the text and explain the meaning of the words in bold type. Be ready to answer the questions given below.

The Bill of Exchange – an Instrument of Short-term Export Credit

Shipping on open account, documentary letters of credit and documentary collections are the methods by which banks facilitate payment. We could also say that the banks supervise the transfer of money from importers to exporters against the transfer of goods or services from exporters to importers. They can do this, and facilitate short-term credit (up to six months) at the same time, by using a medieval Italian invention - the Bill of Exchange.

The Bill or draft may be drawn on the importers or a bank. The drawee (usually the bank which issued the credit) accepts the Bill against correct documents. But whoever the drawee is, the value of the Bill is guaranteed if it is accepted by a well-known bank. This means that that bank will honor it when the Bill matures and take on the risk and work of collecting payment plus the commission from the importers. The fact that the Bill has a life or tenor of one or more months means that the importers get credit for that period of time. At the same time the exporters may obtain their money by selling the Bill on the discount market. The buyer discounts it by paying the face value minus the discount which is the interest on the Bill for the remainder of its life. At maturity, the holder presents the Bill to the accepting house for payment. The interest is determined partly by the status of the accepting house (bank) and partly on the interest rates prevailing in the discount market at the time. A first-class name means a lower rate, and a less well-known name produces a higher rate. The higher the rate the greater the discount and the less the value of the Bill in the market. Conversely, the better known the accepting house, the finer the rate and the smaller the discount. However the exporters have to cost the discount into the total price of the export contract. Banks can also provide short-term export finance by means of overdrafts or loans to the exporters. The kind of security taken by the bank may vary. The bank might even provide unsecured finance for an established customer.

But from the point of view of the exporters, the problem with borrowing their own national currency from their bank is that, by the time they are paid by the importers, the value of the currency they are paid in may have gone down. So they might receive less than the original price when they come to change it into their own currency. They can overcome this problem by taking out the loan in a foreign currency. Another possibility is to take out insurance against the risk of an adverse change in the exchange rate. Leads and lags are early and late payments by importers. Leads occur when importers decide to pay for goods earlier than the end of the credit period, if they think the cost of their payment currency is going to rise in terms of their own currency. Lags happen when importers delay payment because the price of the payment currency is falling. The later they pay, the less it will be in their own currency.

Factoring services are available to UK exporters for credit periods of up to 120 days. Clearly the banking system is still used, as with all forms of payment, and the status of the debtors (importers) and the debtors' country is most important. Export credit may also be provided by non-bank institutions. Export Merchants buy from exporters and become the exporters themselves. This eliminates the exchange risk for the producer and reduces the credit period. Export agents act as independent export departments for the exporter. They do the work of exporting but do not take any financial responsibility. Confirming houses are agents of importers. They also eliminate the exchange risk for the exporter and reduce the credit period. They may open or confirm documentary letters of credit on behalf of the importers and offer longer periods of credit. They are paid interest for credit periods and commission by the importers.

1. What is the Bill of Exchange?

2. What is exchange risk?

3. What is the exchange rate?

4. What is the discount market?

5. What is a confirming house?

6. What are Documentary Letters of Credit?

7. What are export merchants?

8. What are leads and lags?

Text 5

Read the text and see if the writer’s ideas are the same as yours. Be ready to answer the questions given below.