How safe are credit cards?

If your credit card is stolen the first thing that comes to your mind is to report the matter to the telephone number, printed in newspapers. In principle, the best and safest thing to do is call the authorization centre of the bank that issued your card (the issuer bank). Calling the number published in the media is second best because it connects the cardholder to a “volunteer” bank, which caters for the needs of all the issuers of a given card.

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The catering bank often mistakes the identity of the issuer. Many banks share the same name or are branches of a network. Banks with identical names can exist in Prague, Budapest and Frankfut or Vienna, for instance. Should a fax cancelling the card be send to the wrong bank – the card will simply not be cancelled until it is too late. By the time the mistake is discovered, the card is usually thoroughly abused and the financial means of the cardholder are exhausted.


If the card has been abused and fraudulent purchases or money withdrawals have been debited to the unfortunate cardholder bank or credit card account- the cardholder can reclaim these charges. He has to clearly identify them and state in writing that he did not affect them. A process called “chargeback” thus is set in motion. A chargeback is a transaction disputed within the payment system. The cardholder can initiate a dispute when he receives his statement and rejects one or more items on it or when an issuing financial institution disputes a transaction for a technical reason (usually at the behest of the cardholder or if his account is overdrawn). A technical reason could be the wrong or no signature, wrong or no date, important details missing in the sales vouchers and so on. Despite the warnings carried on many a sales voucher both refunds and cancellations are daily occurrences.

To be considered a chargeback, the card issuer must initiate a well-defined dispute procedure. This it can do only after it has determined the reasons invalidating the transaction. The issuing financial institution can only initiate a chargeback. The cardholder himself has no standing on this matter and the chargeback rules and regulations are nor accessible to him. He is confined to lodging a complaint with the issuer. This is an abnormal situation whereby rules affecting the balances and mandating operations resulting in debits and credits in the bank account are not available to the account name (owner). The issuer, at its discretion, may decide that issuing a chargeback is the best way to rectify the complaint.

The following sequence of events is, thus fairly common.

1. The cardholder presents his card to a merchant (aka: an acceptor of payment system cards).


2. He merchant may request an authorization for the transaction, either by electronic means (a Point of sale/ electronic Fund Transfer apparatus) or by the phone (voice authorization). A merchant is obliged to do so if the value of the transaction exceeds pre-defined thresholds. But there are other cases in which this might be either a required or recommended policy.

3. If the transaction is authorized, the merchant notes down the authorization reference notes down the authorization reference number and gives the goods and services to the cardholder. In a face-to-face transaction (as opposed to a phone or internet/electronic transaction), the merchant must request the cardholder to sign the sale slip. He must them compare the signature provided by the cardholder to the signature specimen at the back of the card. A mismatch of the signature (or their absence either on the cad or on the slip invalidates the transaction.) The merchant will then provide the cardholder with a receipt, normally with a copy of the signed voucher.

4. Periodically, the merchant collects all the transaction vouchers and sends them to his bank (the “acquiring” bank.)

5. The acquiring bank pays the merchant on foot of the transaction vouchers minus the commission payable to the credit card company.

6. The acquiring bank sends the transition to the payment system (VISA International or Europay International) through its connection to the relevant network (VisaNet, in the case of Visa, for instance.)

7. The credit company (Visa, Master, Diners Club) credits the acquirer bank.

8. The credit card company sends the transaction to the issuing bank and automatically debits the issuer.

9. The issuing bank debits the cardholder’s account. It issues monthly or transaction related statements to the cardholder.

10. The cardholder pays the issuing bank on foot of the statement (this is automatic. Involuntary debiting of the cardholders account with the bank.)

Some credit card companies, particularly in the US, deal directly with the customer. They give credit on the basis of security deposit. But in this case too safety is not guaranteed.

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