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• A credit card is a financial instrument, which can be used more than once to buy products and services on credit. • It is a plastic card, with a encoded magnetic strip at the back,connected to a credit account . • It is issued by a bank that allows the holder to buy goods and services and pay for them later. If, on the due date, the holder does not pay the balance, the bank charges interest on the unpaid balance.
• The concept of using a card for purchases was described in 1887 by Edward Bellamy in his utopian novel. • The modern credit card was the successor of a variety of merchant credit schemes. • In 1938 several companies started to accept each other's cards. Western Union had begun issuing charge cards to its frequent customers in 1914. • The concept of paying different merchants using the same card was invented in 1950 by Ralph Schneider and Frank X.McNamara.
• They produced the first "general purpose" charge card, & required the entire bill to be paid with each statement. • This was followed by American Express,in 1958, which created a worldwide credit card network. •Bank of America created the Bank Americard in 1958, a product which evolved into the Visa system. • Master card came to being in 1966 when a group of credit-issuing banks established MasterCharge; it received a significant boost when Citibank merged its proprietary Everything Card, launched in 1967, into Master Charge in 1969.
The FRONT of the credit card consist of the following: • Issuing bank logo • • • • • • EMV chip Hologram Credit card number Card brand logo Expiry Date Cardholder's name
The REVERSE of the credit card consist of the following: • Magnetic Strip • Signature Strip • Card Security Code
TYPES OF CREDIT CARDS
1.Standard credit cards
• Balance Transfer Credit Cards
These cards are normally those that offer a very low interest rate on balance transfer or in many cases a 0% interest.
• Low Interest Rate Cards
Low-interest-rate cards means carrying a balance from one month to the next less costly. The card has a low annual percentage rate so,finance fees stay low, but these cards have limited benefits and services
2.Reward program credit cards There are a number of offers that come with different
credit cards available and these come in all shapes and sizes as with any product. Common offers are: • • • • • Air mile Credit Cards Cash back Credit Cards General reward points credit cards Hotel or travel points credit cards Retail rewards credit cards
3.Credit cards for bad credit
• Secured credit cards
These are secured on an asset.
• Prepaid credit cards
In this you have to put money into the account to use your card.
4.Specialty credit cards
Student Credit cards
These cards may only be available if you are a student .
•Business Credit Cards
All businesses need a good cash flow & credit cards are an essential means of credit for many businesses.
1. • • •
The cardholder pays for the purchase. The merchant submits the transaction to the acquiring bank. The acquirer verifies the credit card number, the transaction type & the amount with the issuer & reserves that amount of the cardholder's credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction.
2. • •
Authorized transactions are stored in "batches", which are sent to the acquirer. Batches are typically submitted once per day at the end of the business day.
Clearing and Settlement:
The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer.
• Once the acquirer has been paid, the acquirer pays the merchant. • The merchant receives the amount totaling the funds in the batch minus the "discount rate,“. 5.
• A chargeback is an event in which money in a merchant account is held due to a dispute relating to the transaction. Chargebacks are typically initiated by the cardholder.
• Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. • Interest can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or even if the issuing bank decides to raise its revenue.
MAJOR BRANDS OF CREDIT CARDS
• • • • • • VISA MASTER CARDS VISA MINI AMERICAN EXPRESS DISCOVER DINERS
VISA CREDIT CARDS
• The Visa International Service Association is an USA based association which is joint venture of more than 20,000 financial institutes. • Visa Cards is one of the biggest Credit Card providing services and it is accepted world wide. • In this system the payments are made by the customer on monthly basis on his purchase and if he's not able to pay the amount within a specified period of time then some interest will be charged on his purchases.
• Master Card is one of the major credit cards which are used regularly by the people around the world and especially in United States of America. • Master Cards are not in one dimension but the company has introduced many types of cards after its arrival in the market. • Some of them are Platinum MasterCard, Gold MasterCard, BMO MasterCard and Prepaid MasterCard.
American Express is also known as Amex is a world wide financial services company. The company is best known due to its famous cards. These cards include : • American Express Credit Cards • American Express Reward Credit Cards • American Express Platinum Cards.
Banks Issuing Credit Cards
• • • • • • • • • • • ABN Amro American Express Citi Bank HSBC Standard Chartered HDFC ICICI BOB BOI SBI Canara Bank
Credit card issuers have several types of costs. • Interest expenses Banks generally borrow the money which they lend to their customers. As they receive very low-interest loans from other firms, they may borrow as much as their customers require, while lending their capital to other borrowers at higher rates.
• Operating costs It is the cost of running the credit
card portfolio,including everything like paying the executives who run the company,printing the plastics,mailing the statements,running the computers that keep track of cardholder's balance.
• When a consumer becomes severely delinquent on a debt (often at the point of six months without payment), the creditor may declare the debt to be a charge-off. The item will include relevant dates, and the amount of the bad debt.
Credit card issuers have several types of revenues. 1.Interchange fee: In addition to fees paid by the card holder, merchants must also pay interchange fees to the cardissuing bank and the card association.
2. Interest on outstanding balances:Interest charges vary widely
from card issuer to card issuer.
3.Fees charged to customers
The major fees are for • Late payments or overdue payments • Charges that result in exceeding the credit limit on the card,called overlimit fees • Returned cheque fees or payment processing fees • Membership fees (annual or monthly) • Exchange rate loading fees
• They allow you to make large purchases on credit without carrying around a lot of cash. • They allow convenient remote purchasing ordering/shopping online or by phone. • They allow accurate record-keeping by consolidating purchases into a single statement. • Carrying a Credit card is more safe & convenient than carrying cash or a cheque book.
• You may become an impulsive buyer and tend to overspend because of the ease of using credit cards as these encourage the purchasing you cannot really afford. • Credit card system will increase indebtedness among the card holders. • Credit cards are a relatively expensive way of obtaining credit,if you don't use them carefully, especially because of the high interest rates and other costs.