Credit card (pixabay photo)
There are four parties involved in the credit card transaction: the customer who owns the credit, the credit company, the business, and the settler – the person who mediates between the credit company and the business.
When the credit transaction is carried out, there is a migration of actions between the four factors above: the customer undertakes to pay the credit company the amount that went through his card at the time of the debit, the credit company has to approve or reject the transaction, and then it undertakes to transfer the transaction amount to the business through the clearing house. The date of transfer of the proceeds from the liquidator to the business is determined in the agreement between the business and the liquidator, and the business for its part undertakes to provide the product/service purchased by the customer.
The business pays the broker a commission for the mediation it grants him between himself and the credit company, this commission is also called the “business commission”. As of today, the amount of this commission is about 1.1% of the amount of the transaction. In addition, the liquidator himself pays a fee to the credit company, also called “cross fee”. This fee is included in the clearing fee, and its amount is about 0.7%. In many of the transactions, the issuing company and the clearing company are the same company, and this is if the customer and the business belong to the same credit company. In such a case, the credit company benefits from the entire 1.1% of the settlement fee.
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Advantages of using credit cards
From the customer’s point of view, the use of a debit card saves the need to carry cash or checks, and is therefore safer. Since the customer receives a report on all the purchases he makes with a credit card, the use of a credit card can help him track his expenses and cancel charges in case of non-receipt of products.
Another advantage of using credit cards is the possibility they give the customer to postpone the payments, whether until the end of the month, or for a longer time. This is through payment transactions or through revolving credit cards.
Disadvantages of the credit card
Many buyers testify that the use of credit cards causes a psychological disconnection in the buyer between the purchase and the actual spending of the money. This is in contrast to the use of cash which is perceived more tangibly as “spending money”. As a result, customers find themselves surprised at the end of the month by the amount of the credit card charge. Therefore, in educational programs to improve control over the household budget, it is sometimes recommended to cancel credit cards or avoid using them, at least for a certain period of time.
In addition, as any payment method, credit cards are also vulnerable to fraudulent acts. In the case of credit card fraud, most of the damage is attributed to the store where the purchases were made and to the credit company, while the card holder bears relatively little damage (if any). In the case of credit card theft, for example, a law in Israel states that “the customer will not be responsible in any case for misuse made after notification of the theft has been given”.
Another disadvantage, of course, is the commissions – the commissions of the credit companies’ profits are divided into two: commissions that it collects from the payees (the sellers), and usage fees and interest in the case of credit use that are collected from the card holders (the buyers).
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