Global Trade Center

The bank credit or debit card is a relatively recent method of payment that offers an alternative to the check or giro payment. The credit card has its origins in store credit.

The Store Credit Card
Historically, it was a common practice for retailers to extend credit to their better customers, allowing them to charge their purchases and to settle up at the end of the month with a single payment. This arrangement made it easier for such customers to spend on impulse; they were not constrained by the amount of cash they were carrying or even by the need to carry a checkbook. Of course the retailer accepted the risk of default, but store credit generated enough extra business to make the risk worthwhile.

As the number of people buying on credit increased, retailers began to issue cards so that sales clerks could identify these creditworthy customers. The identity cards evolved into “charga-plates” and eventually into the modern store credit card. With these, stores began to offer cardholders a revolving line of credit, giving them the option of paying over time rather than settling at the end of each month.

In providing these services, large retailers had a considerable advantage. The scale of their business could support a specialized credit department to check credit and to process payments. The extension of credit to a large enough population also gave the big retailers the benefits of pooling. Small retailers, without the benefits of scale, found the extension of credit too expensive.

Insurance

Insurance is
particularly useful in dealing with such events as accidents, illnesses and
natural disasters some examples might illustrate.

Reciprocal
insurance:

In agricultural
communities, mutual aid is common. If a farmers’ barn burns down, neighbors
contribute materials and labor to rebuild it. In primitive hunter-gatherer
societies, a family’s food supply is highly uncertain: a family that has more
than it can eat one day may face starvation the next. A common way to deal with
this uncertainty is gift exchange. A family with a surplus gives it away to the
other members of the community; in return, it will at other times receive its
share of the surplus of the others.

Mutual aid and
gift exchange are examples of reciprocal insurance. Those facing a particular
kind of risk agree to share the losses. Reciprocal insurance is a form of
trade.. The farmers makes the relatively small  sacrifice of helping  neighbors
as necessary if they lose their barns in exchange for a large amount of help
from them in the less likely event that his own barn is lost. With gift
exchange, a family gives up some of its food when it has plenty in exchange for
food from others when it may have little

The problem of bad checks can be avoided entirely by using a completely different method of transferring ownership of bank deposits-the giro payment.

Like a check, a giro payment is an order from the payer to his bank to pay the recipient. There is, however, an important difference. With a check, the payer gives the payment
order to the recipient. The recipient then presents it to the payer’s bank, or  has it presented by his own bank. With a giro payment, on the other hand, the payer hands the payment order directly to his own bank. The payer’s bank then makes payment to the recipient’s bank, for the account of the recipient. The recipient then receives notification that payment has been made.

A giro payment
cannot bounce. The payer’s bank will simply not accept the order to pay unless there are sufficient funds-in a deposit or in cash-to cover it. Because of the way it works, however, the giro payment it not a useful way to pay for unplanned purchases in a store or restaurant. Its principal use is for regular periodic payments like tax or utility bills (or tuition).

Giro payments may be made using a paper form much like a check or they may be made electronically. Paper giro payments are very popular in many countries, often more popular than checks, but they are unknown in the United States.

Electronic giro payments are common in the United States and are executed via automated clearinghouses (about which more later). Many U.S. banks also offer telephone bill-paying and home-banking services. With telephone bill paying, customers can
instruct their banks over the telephone to make payments on their behalf. The bank does so either with a bank check or electronically.

Home banking offers essentially the same service, but using a proprietary terminal or personal computer connected to the bank by telephone.