Cards. Love them or hate them, they are a key part of our lives in general, and of the fintech part of our lives in particular. If you're going to understand fintech, it's important to understand at least the basics of what goes on behind the scenes with cards. Not to mention knowing the proper terminology to use.
You spot a bank. You know you're getting low on cash. You stop and walk up to the machine. You pull out your wallet, and here comes your first choice: which card should I use? You probably don't think much about it, since there's probably a card you're used to using. But what makes your "cash card" special is that you know the four digit PIN code that stands between you and your cash.
But they're not all the same. The most basic and original kind of card is an ATM card. Here's an example:
Notice that the card doesn't say VISA or Mastercard on it. It's an ATM card, which is different! You put the card into the machine:
Then you enter your PIN code on the keypad. The ATM machine is actually connected, perhaps through a series of networks (more on them later) to your bank's computers. The first few of the card numbers identify your bank. Your bank gets the request and checks your balance. If you have enough money in your account, the bank immediately debits your balance, and sends an approval of the withdrawal request to the ATM machine. The machine then counts out your money and you take it:
You take your card and the transaction is complete, just as though you had been with a human teller.
The original ATM machines were connected to the same computers in roughly the same way as human tellers. Each bank had its own ATM machines, just as each one had its own branches.
Shortly after ATM's were deployed, the first interbank network was rolled out. One of the first was NYCE.
NYCE was developed and owned by a set of New York banks to enable a customer of any bank in the network to use any ATM that was also in the network. There are now over 300,000 ATM's in the NYCE network, and a whole lot more in the other networks that sprang up to compete with them.
If you pull out that bank card and try to pay for a meal in a restaurant with it, things aren't going to end well. But banks want you to use their cards! So after some time, the debit card was introduced. It looks nearly the same as an ATM card, but not quite. Here's mine, for example:
It has the same general appearance and numbering scheme as the ATM card pictured above, and the same "good thru" date. But it says VISA, and it says "DEBIT," which makes it different!
One way to think of it is a card with two hats on.
Hat number 1, the DEBIT hat: it's an ATM card. You put it in an ATM machine, enter your PIN, get your cash and away you go.
Hat number 2: the VISA hat: it's a "credit card." You hand it to the cashier at the store, it's swiped, and you walk away with your stuff. Except that, instead of being a separate account, the card is associated with your normal bank account, and the money comes directly out of your checking account. No talk of "minimum payments," it just comes out. Hope you've got enough there! Because it's not a "credit" card -- it's, sneakily, a kind of cash card!
That's enough about cards for one sitting. But I hope you can see a theme emerging: there are a number of systems designed and built for different purposes that can be accessed by cards that look and act much the same ... except the underlying technology is completely different.
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