Credit Card Board Questions

Q1:- WHAT ARE THE VARIOUS FACILITIES OFFERED TO A CREDIT AND DEBIT CARD HOLDER? ANSWER:• Because of intense competition in the credit card industry, credit card providers often offer incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their programs. • Low interest credit cards or even 0% interest credit cards are available. • The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. • However, services are available which alert credit card

Q2:- New types of credit card available in the market? Answer: • Credit Card: The basic form of credit card gives credit to the user. The grace period varies from 20-50 days. One can choose to pay all dues at one go or settle them in monthly installments. It also gives various benefits like travel discounts, discount on retail loans. • Charge card: Its similar as that of the credit card but its dues are to be paid on its due date. Settlement in installments is not applicable. • Global card: global card enables you to use your credit card even when u are overseas. You can spend in dollars and other foreign currency and still settle dues in local currency. The credit limit is fixed on basic travel quota BTQ we can withdraw cash up to 500 US

• Smart card: A smart card, combines credit card and debit card properties. The contact pads on the card enable electronic access to the chip. A smart card, chip card, or integrated circuit card (ICC), is defined as any pocket-sized card with embedded integrated circuits which can process information. • Corporate credit card: Issuers negotiate package with major employers for issuance of credit cards to their executives. They are issued under one umbrella scheme and at heavily discounted annual fees. corporate card negotiates extra privilege • ATM card: Banks offer this card to its deposit holder for free of cost. its used to withdraw cash from bank accounts when bank counters are closed or even when counters are open to save on time.

• Co-branded card: leading merchant establishment banks especially chains have started issuing co-branded cards. they offer extra benefits to card holders. HPCL offers petrol /fuel credit points as benefits. Jet airways offers extra miles. Big bazaar and times of India also offers various offers on events and entertainment arranged by them. 

• Online card: They are different cards for online web based transactions it provides good security against frauds. Small limits of rs.1000/- are ser on such cards to prevent big online frauds. Original credit card is not valid for online transactions.

Q3. Who are the parties to credit card? Explain about them. Answer: • Cardholder: The holder of the card used to make a purchase; the consumer. • Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. • Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder • Acquiring bank: The financial institution accepting payment for the products or services

• Independent sales organization: Resellers (to merchants) of the services of the acquiring bank. • Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with. • Credit Card association: An association of cardissuing banks such as Visa, MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks. • Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks.

• Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet. • Affinity partner: Some institutions lend their names to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. Examples of typical affinity partners are sports teams, universities, charities, professional organizations, and major retailers. • Information: The flow of information and money between these parties — always through the card

Q4. Discuss the advantages and disadvantages of credit cards to its member and its bank. Answer:

ADVANTAGE

To Members/Cardholders • Convenience: It is very convenient to carry a card as compared to cash. Its acceptance is better than cheques. Risk of theft is less and if stolen, stoppage and recovery is better than cash and cheque. It is even more convenient for unplanned purchases and needs as one may not carry enough cash every time. • Spot credit: As and when needed, credit is available. Its pre negotiated (decided) credit limit which can be availed of whenever desired. Credit is free of interest till first immediate billing cycle. This improves purchasing power.

• Easy payments: Minimum balance payment for each bill is a must. Over and above this, it is cardholder’s ability and willingness to pay for each card bill. • ATM cash: Cash can be withdrawn from ATMs as and when required. This is very important feature in countries like India where cash usage is more as compared to other modes of payments. Thus card improves liquidity and credibility of the cardholders. • Reward points and discounts: These are additional benefits provided by issuer for usage of card. Reward points can be converted to discount and gifts as per the catalogue of the issuer. • Privileges: Access to VIP lounges at the airport and star hotels is an additional privilege for the cardholder.

• Other loans: Bankers provide personal loans, car loans, etc. with some priority and ease if cardholders payment history is good. • Balance transfer: Bankers encourage cardholders to transfer their outstanding dues to other issuers card to their bank card. This transfer is again at a concession rate of interest. • Insurance: Most bankers insure the life of cardholders at a concessional rate of interest and assign insurance proceeds towards outstanding bill on the card. In case of eventuality, insurance proceeds meet bankers outstanding dues and remainder amount is paid to the heirs of the cardholder.

To bank/issuers • Profit: APR is high on credit cards as these are high risk unsecured loans. If cards are issued with proper due diligence then defaults is less and banker’s profit in the card business are high. • New customers: New customers get hooked to bankers as cardholders. It is easy to sell them other products such as housing loans, auto loans, bank assurance products later on. • Brand image: Card issuing bank creates better brand images in the minds of its customer as compared to other banks. • ATM sharing fees: Bankers who establish their own ATMs get sharing fees from other banks if other banks

Disadvantages To Members/Cardholders • Some people have been swindled by giving their credit card numbers to dishonest salespeople over the phone. • It becomes a loan when the credit becomes due and you do not pay for it. • Adding monthly interest charges means you pay more for the goods and services. • Overspending: Consumers can fall into the habit of using credit cards to extend their income.

• Cost: Cost of card is high. Annual fee, APR, penalties, lost card replacement charges is significant. • Habitual borrowing: With popularity of card, stigma on loans as negative feature of life, has vanished. Borrowing and enjoying life is no longer looked down upon. Unknowingly everyone has become a habitual borrower. Incidentally no religious book approves of this style of living. • Fraud risk: Credit card are used as a smart idea by the frauds. Stolen or misplaced credit cards are used for shopping, ATM transactions and also online purchases.

To bank/issuers • Risk: cards are unsecured loans. Recovery mechanism does not have any recourse on assets. Legal backup thus limited. Establishing a recovery system within these limitations is a high cost affair. • Servicing cost: cards are technology oriented . cards are costly. Issuance process, billing and payment processing is a laborious and costly affair. • Utilization dependency: banks earn well on cards are used frequently by the holders. Indian psyche is not very tuned to careless use. Cards which are not used much are in fact cost burden on the bank. • Payment habits: APR interest earnings are significant provided part of billed amount is rolled over to the next billing. If many customers pay full bill every time, there is no APR earning for bank.