Information Technology Reference
In-Depth Information
According to the International Air Transport Association (IATA), the airline industry
earned a slim profit margin of $5.6 billion (1.1 percent) on sales of $490 billion in 2007.
Over 80 percent of passengers pay for their tickets using credit cards, whose fees cost the
airlines $1.5 billion. In an attempt to improve their profit margin, the airline Web sites now
offer a variety of lower-fee payment options including PayPal, Bill Me Later, MoneyZap,
and TeleCheck. 55
Credit, Charge, Debit, and Smart Cards
Many online shoppers use credit and charge cards for most of their Internet purchases. A
credit card, such as Visa or MasterCard, has a preset spending limit based on the user's credit
history, and each month the user can pay part or all of the amount owed. Interest is charged
on the unpaid amount. A charge card, such as American Express, carries no preset spending
limit, and the entire amount charged to the card is due at the end of the billing period. Charge
cards do not involve lines of credit and do not accumulate interest charges. American Express
became the first company to offer disposable credit card numbers in 2000. Other banks, such
as Citibank, protect the consumer by providing a unique number for each transaction. Debit
cards look like credit cards or automated teller machine (ATM) cards, but they operate like
cash or a personal check. Credit, charge, and debit cards currently store limited information
about you on a magnetic strip. This information is read each time the card is swiped to make
a purchase. All credit card customers are protected by law from paying more than $50 for
fraudulent transactions.
The smart card is a credit card-sized device with an embedded microchip to provide
electronic memory and processing capability. Smart cards can be used for a variety of pur-
poses, including storing a user's financial facts, health insurance data, credit card numbers,
and network identification codes and passwords. They can also store monetary values for
spending.
Smart cards are better protected from misuse than conventional credit, charge, and debit
cards because the smart-card information is encrypted. Conventional credit, charge, and debit
cards clearly show your account number on the face of the card. The card number, along
with a forged signature, is all that a thief needs to purchase items and charge them against
your card. A smart card makes credit theft practically impossible because a key to unlock the
encrypted information is required, and there is no external number that a thief can identify
and no physical signature a thief can forge.
The smart card connects to a reader with direct physical contact or via remote contactless
radio frequency interface. Smart cards have been around for over a decade and are widely
used in Europe, Australia, and Japan. UK credit card giant Barclaycard is conducting a pilot
test of contactless retail and transit payment using mobile phones that support near field
communications (NFC). 56 Smart card use has not caught on in the United States because
there are few smart-card readers to record payments and U.S. banking regulations have slowed
smart-card marketing and acceptance as well. Table 8.2 compares various types of payment
systems.
smart card
A credit card-sized device with an
embedded microchip to provide
electronic memory and processing
capability.
Table 8.2
Payment System
Description
Advantages
Disadvantages
Credit card
Carries preset spending
limit based on the user's
credit history.
Each month the user
can pay part or all of the
amount owed.
Unpaid balance accumulates
interest charges—often at a
high rate of interest.
Comparison of Payment
Systems
Charge card
Looks like a credit card but
carries no preset spending
limit.
Charge cards do not
involve lines of credit
and do not accumulate
interest charges.
The entire amount charged
to the card is due at the end
of the billing period.
Debit card
Look like a credit card or
automated teller machine
(ATM) card.
Operates like cash or a
personal check
Money is immediately
deducted from user's
account balance.
Smart card
Credit card device with
embedded microchip
capable of storing facts
about card holder
Better protected from
misuse than conventional
credit, charge, and debit
cards because the
smart-card information
is encrypted
Not widely used in the U.S.
 
 
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