Disadvantages:

I.
II.
III.

To the issuing banks

To the customers.
To the merchants.

Disadvantages to the issuing banks

It is basically an unsecured consumer loan so there is a possibility of bad debt generation of

non-performing asset (NPA). On an average about 1% to 2% of the total business is found to

be NPA.
A lots of manpower is needed which involves a lot of cost.
Huge promotion is needed which is expensive.
In credit card business, it is always a cut throat competition. At present in India there are
about 50 banks which have entered into this business directly and many others are involved

indirectly.
Credit card fraud is a big problem to most of the bankers throughout the world.

Disadvantages to the consumers

Credit card does not comes free. They need to pay annual fees, joining fees and interest on the

late payments.
It provokes the customers to spend more than the means. It is found in Indian context that
most of the customers are using revolving credit facilities which indicate that the payment is

deferred by the card holder by sacrificing payment of interest due to shortage of fund.
Customers are also exposed to credit card fraud.

Disadvantages to the merchants

A part of the revenue goes to the banker who is providing with the credit card acceptance

facilities. It is as high as 1% to 4% of the sale proceeds.

In isolated cases the credit card fraud also affects the merchants. 2% to 3% loss due to fraud.
The merchants membership fees are also very high and are affordable, only if the increase in
sales is substantial.

Advantage from the view point of economy as a whole

From the point of the economy as a whole credit card is having a tremendous positive impact by way
of providing employment, enhancing the spending, boosting up consumerism etc. Which is proved in
acceleration of the economic growth. In India, since 1991 considered till date, which is to be the
golden period of credit card business in the country It goes parallel with the business and economic
development. It reduces the dependence on paper currency.

Disadvantage from the point of economy as a whole

Again, from the point of economy as a whole, perhaps the only drawback of the credit card business is
the possibilities of various credit card frauds in the economy which leads to misuse of money and
ultimately generates black money in the country

ECONOMIC AND SOCIAL IMPACT

Credit card and Employment Generation.

Credit card and Pursuing Power.
Credit card and Currency.
Credit card as Economy barometer.

Credit card and Employment Generation

From the discussion with the credit card bankers, it is found that about 10% of their employees are
engaged in credit card operation. Again, it is understood that about 10 times people are indirectly
employed due to credit card business by way of business outsourcing by the banks for marketing
credit cards, recovering debts through direct selling agents or DSA. Again, a lot of indirect
employment is generated in the merchants establishments which accept credit cards. Credit card
business and Employment generation can be shown in the following table 1 and is depicted in Fig 1.1
in relations to Indian economy. At present there are about 35 lakhs of people directly engaged in credit
card business in India which was about 1 lakh in 1990. It shows how credit card business helps the
nation in its economic upliftment by providing job opportunities to take part in the economic
development of the nation. Moreover there are about another 10 times people who are indirectly
employed in the business. The employment opportunity is not only increasing but also growth rate is

increasing over the last decade. So credit card is also serving a socio-economic purpose of the nation,
to play a key role in enhancing national employment, wealth and social justice.

Credit card and Purchasing Power

The credit card business gives a lot of enhancement to the purchasing power of the clients. Generally
a credit limit of Rs 15,000/- to Rs. 5,00,000/- is allowed which increases the purchasing power of the
consumer. The economic impact of this enhanced purchasing power is huge which is about 4 to 5
times in India as per multiplier theory, as applied by bankers,
The social and economic impact of the credit card can be discussed with following example and
assumptions: Present year active credit cards in India

: Rs 99, 00,000 (Ninety-nine

Lakhs)
Average credit limit Rs. [(15,000 + 5, 00,000) / 2]

: Rs. 2, 57,500

Utilization (20%) on average Rs. [(.2 x 2,57,500)]

: Rs. 51,500

Total Credit Card Business

: [(Rs. 51,500 x 99,00,000)]

Total impact on economy

: [(Rs. 4 x 51,500 x 99,00,000)]

Assuming at least the money will circulate 4 times in a year.

Credit Card and Currency:

Credit card is working as they currency note and serving the economy as a whole. As a substantial
business transaction is done through credit card so the need for legal paper currency is reduced, which
save a lot of government fund and is having a huge economic impact on the countrys financial status
and the society as a whole.

Credit Card as An Economic Barometer

As credit card is a tertiary sector business, more it grows better is the position of the economy. In
India it is seen that credit card membership is growing at the rate of 42.12% on an average from 1996
to 2007, which shows a healthy sign for Indian Economy.
In USA the credit card culture is maximum in the world and it is the biggest economy of the world.
Hence it can be concluded that more the dependence on credit card by the nation more advanced it is,
the gradual growth of credit cards in India shows that the economy is going stronger and stronger
(CMIE Report).
Most of the Merchants are of the opinion that credit card do boost up sales by 15% to 50% from case
to case which is a barometer of economic growth.