Credit Cards

What are Credit Cards?

Pre-approved credit which can be used for the purchase of items now and payment of them later.

Credit cards
It is a plastic card having a magnetic strip, issued by a bank or business authorizing the holder to buy goods or services on credit. Also called charge cards The concept of using a card for was first described in 1887 by Edward Bellamy in his utopian novel Looking Backward. The size of most credit cards is 85.60 53.98 mm

Eligibility For Getting The Card

Person should have a savings current account in the bank. His assets and liabilities on a particular date are reported to bank. A statement of annual or monthly income. He is considered credit worthy up to certain limit depending upon his income, assets and expenditure.

Particulars Displayed On Credit Cards

Name of the customer 16-digit card number Validity date The VISA hologram and the VISA logo Name of the issuing bank Signature period Magnetic strip PIN

What does 16 digit means

CLASSIFICATION OF CREDIT CARDS Based on mode of credit recovery Based on status of credit card Based on geographical validity Based on franchise/ Tie-up Based on issuer Category

Charge Card

Revolving credit card

Domestic card

International Card

Individual Cards

Corporate Cards

Standard Card

Business Card

Proprietary card
Gold Card

Master Card

VISA Card

Domestic Tie-up Card

Based on mode of credit recovery

Charge Card-A card that charges no interest but
requires the user to pay his/her balance in full upon receipt of the statement, usually on a monthly basis. While it is similar to a credit card, the major benefit offered by a charge card is that it has much higher, often unlimited, spending limits.

Revolving credit card-A line of credit where

the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs

Based on status of credit card

Standard Card- it is a generally issued credit card Business Card- (Executive cards ) it is issued to small partnership firms , solicitors, taxconsultants ,for use by executives on their business trips. Gold Card-a credit card issued by credit-card companies to favoured clients, entitling them to high unsecured overdrafts, some insurance cover, etc

Based on geographical validity

Domestic card- Cards that are valid only in India and Nepal are called domestic cards. International Card- credit Cards that are valid internationally are called international cards.

Based on franchise/ Tie-up

Proprietary card- A bank issues such cards under its
own brands. Eg. SBI card Cancard of canara bank

Master Card- this card is issued under the umbrella of

MasterCard International

VISA Card it is issued by any abnk having tie up with

VISA international

Domestic Tie-up Card- it is issued by any abnk

having tie up with domestic credit card brands such as CanCard and IndCard.

Based on issuer Category

Individual Cards- Non-corporate cards that are issued to individuals Corporate Cards- Issued to corporate and business firms.

Innovative Cards
ATM Cards Debit Crds- debits designated saving bank a/c. Private label Card- issued by retailers and can be used only in that retailers store. Affinity Group Cards- it can be used by collection of people with some form of common interest or relation ( professional ,alumni,retired persons org. )

Credit card cycle

A card holder makes purchase , and present it to the merchant instead of cash . The retailer will check the number on the card , and he will tally signature of voucher and credit card . Vouchers are send to banks, which in turn reimburses it for the customers purchase.

Credit card cycle

Credit purchase
Purchase of goods and service on card
marchant delivers goods after taking an authenticated credit card and noting the number and taking signature on certain forms. Marchant raises the bill for the purchase and sends it to the credit card issuing bank for payment Issuing bank pays amount to the merchant establishment
payment

Credit card processing

Bill raising

Bill to card holder

Issuing bank raises bill on the credit cardholder and sends it for payment Credit card holder makes the payment to the issuing bank

Card payment

Mechanics of Credit Card Operation

Contract for credit card (1)

Issue of credit card (2)

Card Issuing Bank

Payment of credit card(3)

Card User / Customer

Clearing and settlements (7) Charging of credit card and raising bills (4) Purchase of goods and services (3)

Marchants bank

Submission of bill for collection (5) Payment for bills (6)

Merchant establishment

Advantages
To Cardholders :
Simple, convenient and can be substituted for cash Convenient method of payment He need not approach a bank for taking credit Credit cards issued by leading banks are acceptable in many countries Holders can withdraw cash from any branch of major banks worldwide. Issuer of card provides 24 hrs customer helpline available across the world in case of any emergency.

To Merchants/ Shopkeepers :

Guaranteed payment Lessens the security risk of holding the cash Overseas visitors may purchase more, providing new market for retailer

To credit card companies/ Banks : Source of revenue

- Joining fee - card renew fee - services charges from retailers - Interest charged to customer

Disadvantages
To cardholders : Loss or stealing of card To Merchants/ Shopkeepers : Retailers are required to pay a certain fee and service charges at an agreed percentage of their credit card sales. To credit card companies : Risk of bad debt Risk of fraud

Safety Tips
Sign card with signature Do not leave cards lying around Close unused accounts in writing and by phone, then cut up the card Do not give out account number unless making purchases Keep a list of all cards, account numbers, and phone numbers separate from cards Report lost or stolen cards promptly