Lyceum of the Philippines University

College of International Tourism and Hospitality Management

Luisito D. Borja Front Office
H-322 CAKO Prof. Nicholas Tiongco

Credit Card
I. History
A credit card is a payment card issued to users (cardholders) to enable
the cardholder to pay a merchant for goods and services based on the
cardholder's promise to the card issuer to pay them for the amounts so paid
plus the other agreed charges. The card issuer (usually a bank) creates a
revolving account and grants a line of credit to the cardholder, from which
the cardholder can borrow money for payment to a merchant or as a cash advance.
In other words, credit cards combine payment services with extensions of
credit. Complex fee structures in the credit card industry may limit customers'
ability to comparison shop, helping to ensure that the industry is not price-
competitive and helping to maximize industry profits. Due to concerns about
this, many legislatures have regulated credit card fees.

A credit card is different from a charge card, which requires the balance
to be repaid in full each month. In contrast, credit cards allow the consumers
a continuing balance of debt, subject to interest being charged. A credit card
also differs from a cash card, which can be used like currency by the owner
of the card. A credit card differs from a charge card also in that a credit
card typically involves a third-party entity that pays the seller and is
reimbursed by the buyer, whereas a charge card simply defers payment by the
buyer until a later date.

Before credit cards were invented, payments were made through a token
that held economic value. Be it a herd of cows or a wad of cash, this direct
form of payment was pretty inconvenient and at times dangerous.

The credit card was the evolution of payment tokens, a pocket-sized

plastic apparatus that took the place of cash in favor of a faster and more
convenient way to buy things. Here’s a timeline to illustrate how the
predecessors of credit card existed:

 1850 – American Express was formed to go toe to toe with the US Postal
Service in terms of quicker deliveries. Later on, the company shifted
to money orders, which was a safer way to pay than cash.
 1865 – Department stores started issuing charge coins, which was one of
the earliest forms of “buy now, pay later” tokens.
 1914 – More department stores started to offer in-store credit. However,
their credit program was only applicable to one store.
 1935 – Charge plates, a card that featured details like the owner’s name
and address, started to boom. They’re the closest thing to credit cards
before they became what they are now.
 1950 – The first inter-establishment “credit card” was launched by
Diners’ Club. The first batch of these credit cards merely came in
cardboard.
 1959 – American Express started issuing plastic cards to its customers.
 1966 – A group of California banks teamed up together to create a credit
card union called Interbank Card Association. Later, it was changed to
Master Charge: The Interbank Card and then its current, very familiar
name of Mastercard.

 1969 – IBM engineer Forrest Parry created the prototype for the magnetic
stripe credit card. He simply taped a piece of the magnetic stripe to a
cardboard using clear adhesive tape and the product was developed from
there.
 1970 – IBM issued the first magnetic stripe plastic card that would
forever change the way credit cards.
 1981 – The first form of credit card rewards program was unveiled by
American Airlines.
 2015 – Europay, Mastercard, and Visa announced its shift from magnetic
stripe to an embedded chip in the card. Banks would, later on adopt this
technology in favor of security.

Although the magnetic stripe-equipped credit card started its

circulation in the seventies in the United States, it was not until 1982 when
Filipinos first saw their own credit card.
 A company called Philippine Commercial Credit Card started the first
wave of cashless payment options in the country. Eventually, the company
changed its name to Bankard Inc., which is now part of the Yuchengco Group of
Companies.

Apart from being the first credit card issuer in the Philippines, Bankard
also hit a lot of milestones in the local credit card industry such as:

 Deferred payment plan of up to 12 months (1986)

 License from MasterCard International (1991)
 Computerized phone support hotline for its customers (1994)
 Listed as a publicly traded company at the Philippine Stock
Exchange (1995)
 License from Visa International (1995)
 Credit card airline miles program (1996)
 Reloadable electronic card (1996)
 Online payment via website (1997)

II. Points of Interest

A. Different Parts of Credit Card
Credit cards have different parts or features that a cardholder should
be familiarize with for efficient use and security purposes. The front of the
card includes the following:

1. Bank branding: This section identifies your card issuer. Cards typically
show your lender’s name, but they may display a logo for a specific
program instead. For example, some cards are branded with rewards
programs or retailer names.

2. Card number: The card number is one of the most important parts of a
card. It is the 16-digit number linked to your account with the card
issuer, and those are the digits you’ll need to provide when making
purchases online or by phone. If you use American Express, the card
number is only 15 digits.
 Protect your card number. Be careful where you write it down, and limit
who you give the number to—whether you type in the number or give your
card to somebody even for a moment. When card numbers get stolen by
thieves, they can be used to make purchases in your account. You might
not have to pay for those purchases, but cleaning up the mess can be
inconvenient.

To shop online, you need more than just a card number. You’ll also need
the card’s expiration date and security code, as well as the zip code
on file with your card issuer. The security code is typically a three-
digit number on the back of the card, but this varies by issuer—read
about the security code section below for details. Most systems also ask
for the cardholder’s name.

If you’re using a debit card that’s linked to your checking account,

your card number is different from your checking account number. This
might be confusing because paper checks show your checking account number
and the money comes out of checking— but your card number is different.

3. Cardholder’s name: This is the person authorized to use the card. That
person didn’t necessarily open the account—they might simply have
permission to spend from the account as an “authorized user”. Only
authorized card users can make purchases with a debit or credit card,
and merchants are encouraged to ask for ID before accepting payment with
a card.

4. Smart chips: These tiny metal processors make cards more secure than
traditional magnetic-stripe-only cards. They make it harder for thieves
to use stolen credit card numbers. While common (and sometimes a
necessity) overseas, banks in the United States have been slow to adopt
smart cards. After 2015, banks and retailers got more motivation to add
these security features. Those who have yet to embrace chip technology
may face more risk of fraud with magnetic stripe transactions.

If your card has a chip, use it whenever possible by inserting your card
instead of swiping. The chip adds a single-use code to every transaction,
which makes stolen data much less useful. Preventing fraud can keep costs
 down for everybody, and it means you’re less likely to have to replace
cards and update card numbers when your information gets stolen. Read
more about how chip-enabled cards work.

5. Expiration date: From time to time, you’ll need to replace your card.
The move to smarter cards is just one reason banks issue new cards. Your
expiration date is important because it’s required for purchases you
make online or over the phone—you’ll need to provide the correct
expiration date for your payment to be approved. Banks typically mail
out new cards shortly before old cards expire.

6. Payment network logo: It’s essential to know what type of card you have.
Common examples include MasterCard, Visa, and Discover. If making
purchases online, there’s usually a drop-down menu that requires you to
select which network your card belongs to. These logos are also helpful
when you plan to use your card to pay for goods or services—merchants
often display stickers or placards that tell you which cards they accept
(you can always just ask about additional cards as well).

There’s more to making payments than reading off a card number. The back
of a debit or credit card includes additional important features.

1. Magnetic stripe: This black strip contains information about you and
your card, which can be read by specialized devices known as card
readers. Every time you swipe your card at a merchant, you’re running
the magnetic stripe through a card reader so that your card can be
charged. Magnetic stripes include your name, card number, expiration
date, and other details. If that information is stolen—whether hackers
steal the data or a dishonest merchant runs your card through a card
skimming device)—it can be used to create a fake card with a magnetic
stripe that matches your card.

Magnetic stripes occasionally wear down, especially if you’re a heavy

card user. They can be damaged if they get too close to strong magnets.
If your stripe stops working, merchants may need to punch in your card
number by hand, which they may be reluctant to do for several reasons,
but you can order replacement cards with a new stripe.
2. Hologram: Some cards display a hologram, or a mirror-like area showing
a three-dimensional image that seems to move as you change your viewing
angle. Holograms are security features which help merchants identify
valid cards—holograms are not easy to fake. Sometimes holograms appear
on the front of your card.

3. Bank contact information: If you need to get in touch with your bank,
use the contact information on the back of your card. This is not only
convenient—it’s also an excellent way to prevent fraud. When you use the
contact information on your card, you know that you’re really talking
with somebody from your bank. This is especially important if you get a
call or email that might be from your bank, but might also be from a con
artist. Instead of returning their call or email using the contact
information they provide, call the number on the back of your card so
there’s no doubt that you’re calling a legitimate number.

It’s a good idea to keep your card issuer’s contact information stored
separately from your card. If you lose your card, you’ll want to contact
your bank as soon as possible. Write the number down in a safe place,
or store it in your phone’s contact list.

4. Signature panel: Your card must be signed before you can use it, so sign
your name in this area. It’s not easy to fit a signature in that small
box, but do your best. Signatures are a requirement for card issuers,
and merchants should also verify that you’ve signed the card. Some people
write “SEE ID” in this area hoping that merchants will demand
identification from anybody who tries to use the card. Technically,
that’s usually against your card issuer’s rules, and merchants don’t
always notice or honor that request.

5. Security codes: Cards are printed with an additional code to help ensure
that anybody using the card number has a legitimate, original card. For
payments online or by phone, merchants require more than just the card
number and expiration date from the front of your card. The security
code on the back creates an additional hurdle for hackers who may have
stolen your card number from merchant systems or with the help of a
skimmer.
 Security codes might be referred to as CVV, CVV2, CVC, CSC, CID, or other
similar names. Most websites just ask for a “security code” and provide
a small box for you to type the code into. On Visa, MasterCard, and
Discover cards, the code is a three-digit code on the back of your card.
The preceding four digits (“3456” in the image above) are the last four
digits of your card number. On American Express cards, the security code
is a four-digit code on the front of the card. Look above your card
number on the right side of the card.

Your security code, like all the other numbers on your card, is a critical
piece of information. Don’t share that code unless it’s necessary for
making a payment to somebody you trust.

6. Network logos: Your card might have additional network logos on the back,
often in the lower-right corner. These logos help you figure out which
ATMs you can use for free. You can, of course, use other ATMs, but you'll
most likely pay fees to the ATM operator. Plus, you might pay additional
fees to your bank or credit card issuer if you use out-of-network ATMs.

B. Credit Limit
One of the most important things to know about your credit card is your
credit limit. Your credit card's credit limit is the maximum outstanding
balance you can have on your credit card at a given point in time without
receiving a penalty. Managing your credit limit is important both for staying
out of debt and building a good credit score.

Your credit card issuer determines your credit limit when you first apply
for the credit card. They will assess your income, current debt level, and
credit history and set a credit limit base on those factors. If you have a
new credit history, a history of late payments, low income, or a high debt
level you may be approved for a low credit limit to start.

Unfortunately, you won't know what your credit limit will be until you've
completed your application and are approved for the credit card. (The exception
is with a secured credit card where your credit limit equal to your security
deposit.) If you're (reasonably) unhappy with the credit limit you've
received, you can request a bigger one or turn down the credit card.

Your credit limit may not stay the same the entire time you have the
credit card. If you use your credit card wisely and make your monthly payments
on time, you can be approved for periodic credit limit increases, sometimes
without having to request a credit limit increase. Similarly, your credit
limit can be lowered if your payment habits fall behind or your debt increases
to a level that your credit card issuer deems risky.

C. Difference between Credit Card and Debit Card

Debit cards and credit cards are accepted at many of the same places.
They also both offer convenience and eliminate the need to carry cash. They
even look similar.

The fundamental difference between a debit card and a credit card account
is where the cards pull the money. A debit card takes it from your banking
account and a credit card charges it to your line of credit.

A credit card is a card that allows you to borrow money against a line
of credit, otherwise known as the card’s credit limit. You use the card to
make basic transactions, which are then reflected on your bill.

Worth noting: you are charged interest on your purchases, though there
is no interest charged if you do not carry your balance over from month to
month. Credit cards have high interest rates, and your credit card balance
and payment history can affect your credit score. Below are other facts about
credit cards:

 A credit card is a line of credit you can access with your card.
 Generally, you must sign on these purchases (exceptions may be at the
gas pump or for small amounts at a drive-through window).
 You will pay interest on the purchases made if not paid off in 30 days.
 Debit cards offer the convenience of a credit card but work in a different
way. Debit cards draw money directly from your checking account when you make
the purchase. They do this by placing a hold on the amount of the purchase.
Then the merchant sends in the transaction to their bank and it is transferred
to the merchant's account. It can take a few days for this to happen, and the
hold may drop off before the transaction goes through.

It’s important to keep a running balance of your checking account to

make sure you do not accidentally overdraw your account.

You will have a PIN to use with your debit card at stores or ATMs.
However, you can also use your debit card without a PIN at most merchants.
You will just sign the receipt like you would with a credit card. Below are
some other facts regarding debit cards.

 A debit card is tied directly to your checking account.

 It can be used where a credit card can be used.
 Generally, you will use your PIN to complete the transactions.

It used to be commonly thought that you needed a credit card to complete

certain transactions, such as rent a car or to purchase items online, or that
it was safer and easier to travel with a credit card rather than carrying cash
or using a checkbook.

Some also argue that a credit card offers additional insurance on

purchases and makes it easier to request a refund or a return.

You should carefully read the disclosure information for your credit
card to understand the benefit.

Debit cards offer the same convenience without requiring you to borrow
the money to complete the transactions, though debit cards don’t always provide
the same consumer protections of credit cards.
 D. Credit Card Verification
A sales system using a credit card in which a card holder presents said
credit card to a business that sells goods or services, said business, after
confirming the validity of said credit card, supplies the goods or services
to said card holder, comprising:

 a credit card containing coded information unique to said card holder;

and
 a credit card verification device possessed by said business, said credit
card verification device comprising a zero-knowledge verification unit
based on a zero-knowledge verification system and being capable of
verifying said credit card containing coded information based on the
zero-knowledge verification system whereby
 a transaction in said sales system using said credit card is carried out
without presenting said personal information of said card holder to said
business.

A sales system using a credit card according to claim 1, wherein said

personal information includes a card number of said credit card possessed by
said card holder.

A sales system using a credit card according to claim 1, wherein said

credit card verification device is possessed by a card company verifying said
credit card.

E. Credit Card Sale

As per the billing instruction mentioned on the reservation
correspondence, the cashier should prepare the bill for the guest. The billing
instruction should be also printed on the guest registration card.

If the billing is to be settled to the Company / Travel Agent account

then check for the credit letter from the accounts and also make sure a valid
AR ID is present on the Company / Travel agent profile.

 For Approved credit cards verify that the credit card voucher filed with
the folio belongs to the correct guest. Also verify that the credit card
number and name are legible on the voucher.
  If the folio balance exceeds the previously authorized amount, the card
Centre must be called for authorization. Compare the voucher and the
credit card to ensure that the signatures match.
 If the guest has presented an approved credit card at check-in, this
same credit card must be used in settling the account. If the guest
wishes to charge the account to another credit card, it must be verified
through the credit card authorization Centre before settling the account.
 Enter the correct amount on the EDC machine after swiping the credit
card.
 Get signature from the guest.
 Select the correct credit card type and enter the same amount as what
appearing on EDC slip while settling the guest bill.

F. Oldest Credit Card

In 1950, the Diners Club issued the first credit card (invented by Diners
Club founder Frank McNamara) in the United States (restaurant bills only).
The first Diners Club credit cards were given out in 1950 to 200 people (most
were friends and acquaintances of McNamara) and accepted by 14 restaurants in
New York.

The cards were not made of plastic; instead, the first Diners Club credit
cards were made of a paper stock with the accepting locations printed on the
back. The companies who accepted the Diners Club credit card were charged 7
percent for each transaction while the subscribers to the credit card were
charged a $3 annual fee.

G. Oldest Credit Card Company

American Express, also known as Amex, is one of the oldest credit card
companies in the country. Unlike other creditors, which gave you the option
to make monthly payments to pay down your credit, the traditional American
Express card extends a shorter line of credit. You needed to pay off your
balance each month to remain in good standing. The company has also added new
cards that functioned more like traditional credit cards, giving you more time
to pay off your balance.
 H. Mastercard Credit Cards
The first digit in your credit-card number signifies the system:

3 - travel/entertainment cards (such as American Express and Diners Club)

4 - Visa
5 - MasterCard
6 - Discover Card

The structure of the card number varies by system. For example, American
Express card numbers start with 37; Carte Blanche and Diners Club with 38.

Digits two and three, two through four, two through five or two through
six are the bank number (depending on whether digit two is a 1, 2, 3 or other).
The digits after the bank number up through digit 15 are the account number,
and digit 16 is a check digit.
 I. Visa Credit Cards
Digits two through six are the bank number, digits seven through 12 or
seven through 15 are the account number and digit 13 or 16 is a check digit.

J. American Express
Digits three and four are type and currency, digits five through 11 are
the account number, digits 12 through 14 are the card number within the account
and digit 15 is a check digit.
 III. Credit Card Fraud
Credit card fraud is a wide-ranging term for theft and fraud committed
using or involving a payment card, such as a credit card or debit card, as a
fraudulent source of funds in a transaction. The purpose may be to obtain
goods without paying, or to obtain unauthorized funds from an account. Credit
card fraud is also an adjunct to identity theft.

Below are different types of credit card fraud:

1. Application Fraud
Application fraud generally happens in conjunction with identity theft. It
happens when other people apply for credit or a new credit card in your name.
They will usually first steal supporting documents, which are then used to
substantiate their fraudulent application. Banks have various safeguarding
measures in place to stop this type of fraud from happening. The most important
one is requiring original documentation only. Additionally, they will often
telephone employers to confirm identity. Unfortunately, criminals will
frequently forge documents and provide false telephone numbers for places of
employment. Unfortunately, there are always ways around certain safeguarding
measures.

2. Electronic or Manual Credit Card Imprints

A second form of credit card fraud is experienced through credit card imprints
This means that somebody skims information that is placed on the magnetic
strip of the card. This is then used to encode a fake card or to complete
fraudulent transactions.

3. CNP (Card Not Present) Fraud

If somebody knows the expiry date and account number of your card, they can
commit CNP fraud against you. This can be done through phone, mail or internet.
It essentially means that somebody uses your card without actually being in
physical possession of it. More and more and often, merchants will require
the card verification code, making CNP fraud slightly more difficult, but if
a fraudster can get your account number, they probably know that number too.
Additionally, there are only 999 possible combinations for the verification
code. As such, many criminals attempt to order items of very low amounts until
they figure out the right number. Be on the lookout, therefore, for small
payments on your statements.
4. Counterfeit Card Fraud
Counterfeit card fraud is usually committed through skimming. This means that
a fake magnetic swipe card holds all your card details. This fake strip is
then used to create a fraudulent card that is fully functional. Essentially,
it is an exact copy, which means fraudsters can simply swipe it in a machine
to pay for certain goods. This type of fraud can also be committed by someone
who knows your card details. They can use this information to create a so-
called ‘fake plastic’. Here, the magnetic strip or the chip on the card doesn’t
actually work. However, it is often easy enough to convince a merchant that
there is something wrong with the card, at which point they will enter the
transaction by hand.

5. Lost and Stolen Card Fraud

The next possible type is lost and stolen card fraud. Here, your card will be
taken from your possession, either through theft or because you lost it. The
criminals who get their hands on it will then use it to make payments. It is
difficult to do this through machines, as they will require a pin number.
However, it is easy enough to use a found or stolen card to make online
purchases. It is for this reason that it is vital that you cancel your cards
as soon as you realize they are missing.

6. Card ID Theft
Card ID theft happens when the details of your card become known to a criminal,
and this information is then used to take over a card account or open a new
one. Your name will be used for this. This is one of the most difficult types
of fraud to identify and to recover from, because it can take a long time
before you even know that it has happened.

7. Mail Non-Receipt Card Fraud

This type of fraud is also known as never received issue or intercept fraud.
In this case, you were expecting a new card or replacement one and a criminal
is able to intercept these. The criminal will then register the card and they
will use it to make purchases and more.
8. Assumed Identity
With assumed identity fraud, a criminal will use a temporary address and a
false name to obtain a credit card. There are a number of systems in place
with banks for protection against this type of fraud. For instance, they will
ask new customers to provide account references and these will be check to
ascertain that they are genuine. Additionally, they could ask for such things
as birth certificates, original copies of driver’s license or passports and
so on. They often ask for these things before they will send a card out.

9. Doctored Cards
A doctored card is a card whereby a strong magnet has erased its metallic
stripe. Criminals do this and then manage to change the details on the card
itself so that they match those of valid cards. Naturally, this card won’t
work when a criminal tries to pay for something. However, they will then use
their charm to convince a merchant to just enter the details of the card
manually.

10. Fake Cards

It takes a lot of time, skill and effort to create fake credit cards, but that
doesn’t stop a determine criminal. A card has to meet certain complex security
features and cards are becoming increasingly advanced, meaning this is much
harder to do. There is the magnetic strip, the chip and, often, holograms.
However, someone who is skilled can forge this type of cards using fake names
and numbers and will make transactions with the card. The card isn’t actually
linked to an account, so the credit card company will not pay for the
transaction since they cannot link it to a specific user. By that time,
however, the criminal will be long gone with their purchases.

11. Account Takeover

Account takeover is actually one of the most common forms of credit card
fraud. Basically, a criminal will somehow manage to get hold of all of your
information and relevant documents. This is usually done online. They will
then contact the credit card company and pretend to be you, asking them to
change the address. They will provide ‘proof’ of identity, since they have
hacked through or otherwise obtained, your personal details. A replacement
card will then be sent to the fake address, and the criminal will be able to
make charges.
Unfortunately, it isn’t rare for this type of fraud to occur. It is important,
therefore, that you are aware of what they are and you must be able to take
the appropriate steps to prevent criminals from committing credit card fraud
against you. Protecting your personal information is the most important
element of that. This means common sense steps such as using strong, unique
passwords and not leaving documents in plain sight.