Questions and Answers
What is the primary function of the magnetic strip and microchip on a credit card?
Which entity is directly responsible for repaying the funds borrowed from a credit card?
In the context of credit card transactions, which role does the acquiring bank primarily fulfill?
Which organization is responsible for overseeing transactions between financial institutions in the credit card system?
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What is one common method of using credit cards in money laundering?
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Which of the following roles does not directly issue credit cards to consumers?
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How do cardholders typically interact with the credit card issuing bank?
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Which aspect of credit card transactions minimizes the risk of money laundering during initial stages?
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What benefits do businesses gain from establishing legitimate fronts for credit card cash withdrawals?
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Which of the following is a primary advantage of third-party payment processors for small businesses?
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Study Notes
Credit Card Industry Overview
- Credit cards enable consumers to purchase goods using borrowed funds from the card-issuing institution.
- Transactions occur through a card's magnetic strip and microchip, debiting the issuer and crediting the merchant's bank.
- Cardholders must repay the issuing bank as per agreed terms, making responsibility for payment crucial.
Key Entities in Credit Card Transactions
- Cardholder: Individual authorized to use the card with repayment responsibility.
- Issuing Bank: Financial institution granting credit cards to cardholders, sometimes with credit card associations.
- Merchant: Business accepting credit card payments, holding an account with an acquiring bank.
- Acquiring Bank: Merchant's bank providing necessary equipment for credit card transactions and managing merchant accounts.
- Third-Party Payment Processor (TPPP): Facilitates payment processing for small businesses or online retailers, coordinating with banks.
- Credit Card Association: Organization of financial institutions that manages transactions between banks and ensures operational infrastructure for fund transfers.
Money Laundering and Credit Cards
- Credit cards are rarely used in early money laundering stages due to cash payment restrictions.
- Common money laundering techniques include:
- Overpaying credit card balances with illegal funds and requesting refunds.
- Using credit cards to access funds in offshore banks with relaxed regulations.
- Setting up legitimate business fronts in the US to withdraw cash from overseas using business credit cards.
Credit Card Fraud Schemes
- Skimming: Technique involving devices that capture credit card information from users, prevalent at gas stations and ATMs.
- Bust-Out: Scheme where fraudsters create fake identities to acquire credit cards, build credit history, maximize limits, and leave debts unpaid.
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Description
Explore the intricate workings of the credit card industry with this quiz. Understand how credit cards operate, the role of card-issuing institutions, and the mechanics of electronic transactions. Test your knowledge on the terms and repayment processes involved in credit card usage.
