Objectives of the Term Paper:

Main object of this term paper is to know about the Credit Card Industry in Bangladfesh.

Continuous Improvement of customer satisfactions and resource management

Methodology:

All information of this term paper is collected from two sources.

These are given on the below.

First one is Primary Data (directly collected from Card Division of different bank & different types of card
holder).

And another is Secondary Data (from the Journals & Internet).

Limitations:

This report is not out of some limitations. Throughout the report we have faced a lot of problems. Some
of this are-

Limitations regarding appropriate locations

Lack of information on recent wind speed.

No definite government rules regarding about company Act etc.

INTRODUCTION

In recent years banking industry in Bangladesh has been experiencing a dramatic growth. Use of credit
card, a product of banks, is a relatively new phenomenon in Bangladesh, and its market has been
growing rapidly with the increasing acceptability of plastic money in numerous outlets. According to the
Financial Sector Review by Bangladesh Bank, between June and December 2010, the monthly volume of
credit card transactions grew by 124%, debit cards increased by 112% and transaction through ATMs
increased by 114%.However, since credit card is a relatively new phenomenon in Bangladesh, a large
number of people are not familiar with the advantages and different features of using a credit card. Use
of credit card reduces the complexity of human life. Therefore, credit card can play an important role in
Bangladesh in improving peoples living standard or lifestyle. Several banks like Mercantile Bank Ltd,
Mercantile Bank Ltd, Standard Chartered Bank, Prime Bank Ltd, Eastern Bank Ltd, Trust Bank Ltd., Dhaka
Bank Ltd, United Commercial Bank Ltd, City Bank Ltd, and National Bank Ltd and so on exist in the credit
card market of Bangladesh.
Credit cards provide benefits to consumers and merchants not provided by other payment instruments.
Since the credit card use and ownership have been expanding around the globe, credit cards have
become as a major source in the financing of consumer purchases and a method of money transmission.
Credit cards serve two distinct functions for consumers: (1) a means of payment and (2) a source of
credit. The popularity of credit cards as a payment medium has been attributed to convenience of not
carrying cash. Credit cards provide consumers a secure, reliable and convenient means of payment.
Consumers often receive incentives to use their credit cards such as dispute resolution services,
frequent-use awards, and interest-free short-term loans if no balances are carried between billing
periods. Credit cards also provide various security features and limit consumer liability in the event of
fraudulent use.

Unlike other payment instruments, credit cards allow consumers access to long-term credit, mostly
uncollateralized, at the point of sale. Consumers that use this option are known as revolvers. Those
cardholders who do not avail the credit feature are commonly referred to as convenience users.

Because of many convenient features of credit card usage, credit card has become a profitable product
for many banks in Bangladesh. Therefore, while those banks that are offering credit card services at
present are aggressively devising strategies to increase their customers and thereby capture increased
market share, others are preparing to enter the market with the target to earn profit and establish a
mark in the market. At present there are approximately 402,000 credit card users in Bangladesh.
However, Banks has taken an aggressive initiative to expand their credit card operations rapidly and
thereby increase its cardholders and market share.

Background of the Study:

In todays modern world of technology credit card is a very extensively used mode of financial
transaction and is widely known as plastic money. Credit cards serve two distinct functions for
consumers: a means of payment and a source of credit. Consumer sensitivity to various aspects of credit
card pricing reflects these two types of use. It has created an immense importance in the life of the
people in the well off countries. Bangladesh is also following this trend and has come up with a number
of credit cards. Most of these credit cards are marketed in the Bangladeshi business arena with the help
of Master Card and VISA Card. There are about 402,000 credit cardholders in Bangladesh from different
banks offering credit cards services. Almost one third of the market share is captured by Standard
Chartered Bank and the others are trying to capture more and more market share with different types
of marketing strategies.

About a decade ago the private commercial banks of our country launched new products in the form of
plastic money called Debit Card and Credit Card. The pioneers of these cards, plastic money in
Bangladesh are foreign commercial banks Standard Chartered Bank and American Express Bank. This
plastic money allows the customer to shop in a hassle free way without having cash in hand, and
withdraw cash from designated Automated Taller Machines (ATMs) without standing long hours in a
long queue in the banks.
With technological help from the Information Technology Consultant Limited (ITCL) the private banks
have introduced credit cards, which enable the customers to manage their day-to-day cash related
activities more conveniently. This product is an alternative to cash and cheque. It provides the
cardholders with lots of benefits like acceptance at numerous merchant locations and ATMs in
Bangladesh.

Technical support is the key for providing solid Debit and Credit Card facilities for the customers. It
requires a set of online banking system to provide a facility through which a customer can use the power
of his/ her bank account. For example if a person has a credit card with credit limit of Tk.100,000, s/he
has the facility of purchasing anything, from anywhere that accepts credit cards, of that amount without
having to carry cash in his pocket. So, credit cards actually offer economical security without exposing to
risk. The Point of Sale (POS) machine and the ATMs all are linked with a network so that credit or debit
cards can be easily used on them and the customers get the service of plastic money.

Research Questions

Research Questions are as follows:

What is the relationship between service quality of credit card services and customer satisfaction of
credit cardholders?

What is the relationship between technology related factors of credit card services and customer
satisfaction of credit cardholders?

What is the relationship between economical factors of credit card services and customer satisfaction of
credit cardholders?

Objective of the Study

This research investigates two areas. It has been designed to find out the correlation between the
satisfaction level of Banks Cardholder with the performance of Banks credit card based on their
different features such as service quality, technological factors and economical factors. Therefore the
specific objectives of this report, which are as follows:

To find out overall satisfaction level of the cardholders and satisfaction level of each of the variables
such service quality, technological factors, and economical factors

To find out the correlation between service quality and satisfaction level of the cardholders

To find out correlation between technological factors and satisfaction level among the cardholders

To find out the correlation of economical factors and satisfaction level of cardholders

To provide recommendations in order to improve quality of credit card services

Significance of the study

Customer satisfaction is recognized as the dominant factor in the business organization success. The
author believes that there is a positive relation between customer satisfaction and profitability. This
construct has received a great deal of interest by marketing, service industry management researches in
recent years. The study will make the following significant contribution to banks in Bangladesh.

First, this study will help the researcher to extend the understanding of the relationship between service
qualities, technology related factors and economical factors of credit card services and general customer
satisfaction of cardholders. The results of this study will expose the importance and impact of their
relationship in Credit Card Division.

Second, the present study will help the bank executives better understand how to retain their valuable
customers, increase customers satisfaction and enhance the quality of service, other factors and
customer satisfaction of credit card services.

Third, no such study was conducted to address this concern in Bangladesh. The study result will produce
a set of recommendations, which may be useful for order to improve its services and competitiveness.

Finally, as the researchers are only considering credit card services of a bank, there is scope for further
study in other service organizations like: airline, hospitals, hotels and telecommunication companies in
Bangladesh.

Limitations of the Study

This present study is limited by a number of factors.

The sample population is limited in terms of its size.

The simple random sampling method has been selected rather than other sampling procedures in order
to simplify the research.

Lack of comprehension of the respondents was a major problem that created many confusions
regarding verification of conceptual question.
It was very challenging to get the actual information. In many cases, the questionnaire had to be
explained elaborately to the respondents.

Confidentiality of data was another important barrier that was faced during the conduct of this study.

Limitation of time was one of the most important factors that shortened the present study. Due to time
limitation many aspects could not be discussed in this study.

Sufficient records, publications were not available. The constraints narrowed the scope of real analysis.

The researcher has limited access to online journal in order to use more reference related to the study
similar in nature.

Sufficient information was not attainable because officers were very busy with their daytoday work;
they could hardly provide enough time.

There may be some other factors which can affect customer satisfaction but have not been include in
this research because of the simplicity of the research.

METHODOLOGY

Research Design

In order to identify the research questions and to test its hypotheses, a correlation research design has
been selected as appropriate for this study. The preceding graphical representation of the proposed
model portrays the pattern and structure of the relationships among the set of the measured variables.
The purpose of this study is to investigate the correlation among the measured variables: Service
quality, technology related factors and economical factors for credit card services and satisfaction level
of cardholders. Here service quality, technology related factors, economical variables are being
considered as independent variables, and customer satisfaction works as dependent variable. Therefore,
the present study will be characterized as a correlation study.

Research Approach

To analyze this research problem, the researchers will gather information from the customers who are
enjoying credit card services from Different Banks. The interview has taken place over the phone with
the respondents selected from the customer list at a random basis. If the respondents did not want to
participate in the interview, they were free to do so without providing any reason.

Sampling Method

The sample of this research is formed by the credit cardholders who are receiving credit card services
from different Banks. The researcher has used a simple random sampling method to collect data from
the sample of this research. Malhotra (2003) categorize the simple random sampling (SRS) method as a
probability sampling technique.

The sampling frame for this research has been made from cardholder database of Credit Card Division,
Mercantile Bank. From this database the researcher has selected 20 credit cardholders randomly. This
list has been considered as the appropriate source to use in this study. It covers all the names and
profiles of the credit cardholders.

Surveyed Area

The Surveyed areas of Banking Card Industry are basis on CARDS (Credit & Debit), Customer SERVICE &
Geographical Areas.

ATM Cards: Debit & Credit

Customer Service: Standard Chartered Bank (BD) Ltd & Brac Bank Ltd. provided better Customer service
for the customer.

Geographical Areas: Geographical Areas of surveyed are Gulshan, Motijheel & Dilkusha.

Survey Instrument

To gather data for this study the researcher has used questionnaire method because this method is
appropriate for this study because of some reason. The reasons are as follows:

The respondents from the samples can answer the questions of the questionnaire easily.

The researcher found that most of the previous researches of similar nature has done by questionnaire
method.

Telephone survey was possible in this study as the questionnaire size was small enough and also the
questions were closed ended and therefore they were easy and less time consuming to answer.

A structured questionnaire has been used in this research to collect data from the respondents. The
questionnaire is divided into four sections. First section consists of questions of satisfaction on service
quality, second section consists of questions satisfaction on technology factors on credit card services,
third section consists of questions of satisfaction on economical factors of credit card related services,
and last section consists of questions on customer general satisfaction of all factors. In most cases,
questions are adapted from previous empirical studies and modified to reflect the local situation.
All questionnaires have developed to know the customer perception with a specific focus of credit card
services of Mercantile Bank. These questionnaires have four sections dealing with service quality,
technology related factors, economical factors and customer satisfaction.

Data Collection Procedure

No similar published study has been conducted in the context of Bangladesh. There are various sources
of information related to credit card services published in the bank website and newspaper. Various
articles related to credit card services and other related study has been taken as references from online
journals. Collecting the primary data according to the questionnaire was the most crucial part to
investigate research problem. In order to collect primary data, the researcher has conducted a
questionnaire survey with the strong support of Credit Card Division staff. This data collection approach
is commonly used in this type of research.

Data Analysis Procedure

Data have been collected to find the relationship of Service, Technology & Economical Factor on the
satisfaction level of the customers of credit card division of Mercantile Bank limited. Using descriptive
statistics data have seen analyzed. The data were analyzed by percentage and using table.

About Credit Card

Credit card is a plastic card bearing an account number assigned to a card holder with a credit limit that
can be used to purchase goods and services and to obtain cash disbursements on credit, for which a
card holder is subsequently billed by an issuer for repayment of credit extended at once or on an
installment basis.

Physically, Credit card is a layered piece of hard plastic with holograms and security features. It also
carries a strip of magnetic tape on the back, which is loaded with electronic data including the
cardholder details. The strip is read electronically by specialized machines called Point of Sale (POS)
Terminals at merchants or Automated Teller Machines (ATM) in bank premises or elsewhere. The card is
rectangular, looking rather like the familiar phone card. Its distinguishing feature is that it acts as cash,
may be a large account being only a small piece of documented plastic. This is why it is popularly called
plastic Money.

Global Historical Development of the Credit Card Market

Credit cards were first made broadly available to individuals for consumer spending in the early 1950s by
major department store chains. The cards were furnished as a convenience to the stores regular
charge account customers; they also provided a more efficient means of processing transactions and
managing accounts. Customers were expected to pay for charged items in full when they received the
monthly bill, and no interest fee was imposed. Retail firms believed that customers might spend more
freely if they could buy now and pay later and might more frequently shop at stores where they had
charge accounts. The stores were willing to receive payment on a delayed basis, and without interest, in
exchange for a larger volume of sales. Most stores levied a penalty fee of 1 percent or 1.50 percent per
month if full payment was not received within the billing period. The fee was set relatively high,
compared with general interest rates, as much to discourage customers from making partial payment as
to generate income by extending longer-term credit.

Gradually, however, stores became more inclined to allow customers the option of paying either in full
or by installments, subject to interest or finance charges rather than late fees. Sears and
Montgomery Ward were leaders in this shift to revolving or option accounts, as they found such
accounts to be particularly useful in providing a means for consumers to finance purchases of major
appliances, which made up an important part of these stores sales. Previously, major purchases
typically had been financed through secured sales finance contracts, which had to be established and
approved separately for each transaction.

Entry of Banks into the Credit Card Market

Commercial banks eventually began to recognize the potential profitability of providing open-end
financing to consumers, many of whom apparently were willing to pay high rates of interest to obtain
unsecured credit conveniently. Marketed mainly by banks, the general-purpose credit card for individual
consumers came into broad use in the mid- to late 1960s. To make bank cards appealing to consumers
who already had department store cards, the banks granted cardholders the same interest-free grace
period of twenty-five to thirty days that was customary for store cards. However, the banks also
imposed servicing fees (called merchant discounts) on card-honoring merchants, mainly smaller retail
businesses that were persuaded to accept bank credit cards as a means of competing with the major
chain stores.

For many years, bank credit card operations were only marginally profitable, despite interest rates
comparable to those on store cards, as start-up and operating costs per dollar of receivables were
relatively high and a sizable proportion of cardholders remained convenience users, paying balances in
full each month and thereby avoiding finance charges. To some extent, banks may have been reluctant
to impose higher rates than consumers were accustomed to paying on store cards. In addition, statutory
limits on rates were in effect in most states until the early 1980s; rates typically were capped at 1.50
percent per month (18 percent per year). The ceilings in most states had originally been established for
revolving credit at retailers and represented the general consensus among lawmakers about how high a
rate business needed to charge to cover the cost of providing credit.

Developments in the 1980s

Over the years, the profitability of bank credit card operations improved as operating efficiencies were
developed and as credit cards were distributed and used more widely. When profits came under intense
pressure in the late 1970s and early 1980s from sharp inflation-induced increases in funding costs,
institutions began imposing annual fees on credit cards to supplement income from interest. Many also
adopted more restrictive lending practices, which had the effect of curbing the growth of credit card use
temporarily. Meanwhile, state legislatures one by one moved to raise or remove the ceilings on credit
card rates.

The spread of credit card rate deregulation was triggered partly by a 1978 Supreme Court decision
(Marquette National Bank v. First of Omaha Service Corporation), which held that a nationally chartered
bank may provide credit at the rate ceiling of the state in which it is located, regardless of the ceiling in
the borrowers state. In the early 1980s, several banks moved their credit card operations to states that
had raised or removed rate ceilings on credit cards.

These developments helped restore profitability to the industry, and, as funding costs moved
substantially lower in the mid-1980s, credit card operations became highly profitable. Responding to
increased profitability, many banks, especially those operating nationwide in the USA, became much
more aggressive in marketing credit card accounts, both by relaxing credit standards and by offering
more card enhancements, such as travel accident insurance, auxiliary rental car insurance, and other
distinctive features that varied among issuers. The enhancements initially were available mainly on
premium card plans, which charged higher annual fees and, in many cases, somewhat lower interest
rates; more recently, some combination of enhancements has been available with nearly all standard
plans as well.

Functions of Credit Cards

Credit cards serve two distinct functions for consumers: a means of payment and a source of credit.
Consumer sensitivity to various aspects of credit card pricing reflects these two types of use.

Credit Cards as a Means of Payment

Although cash and checks continue to be the dominant means of completing transactions, credit cards
are an important and growing alternative The growing share of consumer expenditures completed by
credit card attests to the advantages of this means of conducting transactions, including convenience,
safety, automatic recordkeeping, and, in most cases, an interest-free grace period for settling accounts.
On many plans, cardholders are assessed an annual fee to hold a card, but most annual fees are
unrelated to the volume and frequency of purchases.

Consumers who use a credit card principally as a payment device most likely would, in selecting a card,
focus on the level of any annual fee, the length of the grace period, the availability of desirable
enhancements, and the level of authorized charges (the credit limit). The stated interest rate is unlikely
to be of much importance to consumers who view their cards mainly as a transactions device.

Credit Cards as a Source of Credit

The interest rate charged may be more critical to consumers who view a credit card as a debt
instrument and regularly roll over part of their balances to future billing periods, incurring interest
charges to do so. However, even people who use credit cards as a means of borrowing may differ
substantially in the specific ways they use their cards. These differences can bear significantly on the
interest rate sensitivity of consumers and the nature of competition in the credit card market.

Types of Card

There are basically three types of credit cards:

Bank Cards, issued by banks (for example, VISA, Master card and Discover Card)

Travel and Entertainment (T&E) cards, such as American Express and Diners Club.

House cards that are good only in one chain of stores (sears in the biggest one of these, followed by the
oil companies, phone companies and local department stores). T&E cards and national house cards have
the same terms and conditions wherever you apply.

Checking of Application Form:

Applicants Name

Name to Appear on Card properly written

Applicants Date of Birth & Age >=21 and <60

Current Address

Permanent Address

Mothers Name

Telephone at Residence/Office

Income Information [& income >=10,000]

Company Address

Current Job length >= 6 M/ Current Business >=1Y

Applicants Signature & Date [in both the places]

A/C Auto-Transfer Instruction given with Signature

Two Reference Information Mentioned

Supplementary Card Details (Signature, Photo, Passport copy)

 Supplementary Cards Limit Specified

Supplementary Card Applicants Age >=18

Mailing Address is not a Care of or Post Box Address

Recent Color Photograph [2 copy]

Methods of Protection

The following tips are important and universal in order to protect credit card fraud.

Sign your card as soon as you receive it

When you use your card at an ATM, enter your PIN in such a way that no one can easily memorize your
keystrokes.

Do not leave your receipt behind at the ATM. Your PIN and account number from a discarded receipt
could make you vulnerable to credit card fraud. Also do not throw out your credit card statement,
receipts or carbons without first shredding them.

Never give your credit-card number over the telephone unless you initiated the call.

Ignore any Credit-Card offer that requires you to spend money up front or falls to disclose the identity of
the card issuer.

Make certain you got your card back after you make a purchase. One habit to observe is to leave your
wallet open in your hand until you have the card back. Also make sure that you personally tip up any
voided or cancelled sales slips.

Always keep a list of your credit cards, credit-card number and toll-free numbers in case your card is
stolen or lost

Check your monthly statement to make certain all charges are own, and immediately notify the card
issuer of any efforts or unauthorized charges.

Recovery and Collection Section:

Recovery is the relentless process to collect the amount on overdue accounts. Collections is responsible
for the payment receive and recovery of bad debts. In credit card business recovery is one of the most
vital areas like marketing, operations and credit. Most of the credit cards are issued without any
security; consequently the delinquency rate is much higher than that of other advances. Thus,
continuous follow up is the only solution to reduce the delinquency rate. And massive recovery ensures
aggressive marketing. Collection of outstanding amount from the delinquent cardholders is sometimes
very much crucial and difficult. However, the total collection process in the card division is detailed
bellow:

Telephonic contact with each of defaulter.

Preparing MIS on overdue accounts of the card.

Preparing reminders letter for all defaulters.

Corresponding with other branches of Mercantile Bank to follow up their defaulters.

Legal procedure.

Serving legal notice to the defaulters cardholders.

Physical visits to the delinquent cardholders.

Appear at the court for legal procedures

ESTABLISHMENT OF CARD in Bangladesh

Standard Charted Bank first introduce Credit Card in Banagladesh & Dutch-Bangla Bank Ltd. Introduce
Debit Card in Bangladesh. The Bank provides a broad range of financial services to its customers and
corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce
and industries of the country.

CusCustomer Service

This department is responsible for the following tasks:

Answer all types of customer quires relating to application to cards, filling up application form,
transactions, payments, A/C balance, service charges, dispute, problem faced at merchant end etc.

Receive card holders documents such as: application form, request for enhancement of card limit,
conversions of card, replacement of cards, request for PIN, acknowledgement slip, request for change of
address and lost card.

Receive application of card cancellation and also receive waiver of services charges.

Receive check, IBCA from branches also receive auto debit instructions.

Prepare proposal for all sorts of request regarding credit card and debit card.

Companies in general are relying more and more on automation, to satisfy their clienteles growing
demand for accuracy, speed and efficiency in service delivery. The situation being as it is, bank has also
undertaken a comprehensive plan to modernize its operations, with a view to enhancing own
proficiency and reducing operating costs, at the same time. Time also demands, that it look beyond the
spectrum of traditional banking services, in order to excel in a competitive environment.

Banking Software: The Bank has purchased state-of-the-art banking software, incorporating features like
corporate, retail, foreign exchange, treasury and other banking modules. The implementations of the
project are currently underway and hope to cover all the nation wide branches in phases.

ATM Service: Banks are providing Q-Cash, Omnibus, Cash-Link & DBBL ATM facilities to customers since
2002. It has recently introduced hybrid ATMs, with enhanced features, to better serve their valued
customers.

Debit Card: The bank has also introduced debit cards for its customers, to facilitate withdrawal of their
utility, own funds through ATMs, to pay their utility, restaurant and shopping bills etc from locations in
Dhaka, Sylhet and Chittagong. Issuance of debit card is now under progress and the facility will be
extended to other parts of the country as well.

VISA Credit Card: The Bank is in the process of introducing VISA Credit Card, soon after completing the
formalities.

Customers satisfaction is the top priority of the Bank. Bank being the first private sector bank is always
one step ahead of the other competitors in serving the customers need. Bank in its goal has mentioned
that customers expectations will be met through innovative financial products and services. A bunch of
young and energetic work force is engaged to serve the valued customers. So it can be easily said from
these discussions that are following Innovation business strategy to capture the market.

Strategic issues and problems management facing

The strategic issues that are important for the company and worry the management are given below.
These issues have to be addressed by the management immediate in order to retain existing market
position and gain more competitive advantage in the future.

The strategic issues and problems:

Non-diversified portfolio of assets

Not having enough number of efficient employees

The existing branches are not strategically located which is very much important for any bank.

Inefficient R&D department; unable to come up with innovative products and services.
It takes longer time before taking any sort of decision regarding the business

Card Division is not functioning properly due to high level of dependency on other department like (IT,
ITCL & Mysis)

ATM network is very poor as Mercantile Bank has to go through third party processor for having this
service.

The upper management some times gets corrupted in case of issuing loan or taking other sorts of
decision which hamper the business.

Features of Credit Card

Credit Limit

Local

1.0 To 3.0 times of monthly gross income, Min. Tk. 10,000 and Max. Tk. 500,000.

Under special conditions the limit amount may be enhanced to a maximum of Tk.1,000,000 (Taka Ten
Lac) only provided additional prime securities acceptable to the bank is/are furnished:

Wage Earners Bond

Fixed Deposits with Mercantile Bank Ltd.

Other form of bank deposits

ICB unit certificate

Corporate Undertakings

International

Limit may be determined as per Foreign Exchange policy of Bangladesh Bank regarding issuance of
International Credit Cards (TQ, ERQ, RFCD etc) & qualitative judgment of the competent authority.

FEES & CHANGES FOR VISA CARDS:

CREDIT CARD

SL NO

Particulars

Dual Card
International Card

Local Card

Classic

Gold

Classic

Gold

Classic

Gold

01

02

Annual/Renewal fee (Principal Card)

Annual /Renewal fee Supplementary Card-Loan

One Supplementary Card is free

$40

$80

$35

$70

Tk. 1000

Tk.500

Tk. 1800
Tk. 900

03

04

05

06

07

08

09

Card replacement fee

Late payment fee

Cheque return fee

Statement Retrieval fee

Charge Slip Retrieval fee

Outstation Cheque collection fee

PIN reissue charge

$20

10

10

10

10

$30

10

5
5

10

10

10

400

250

100

50

150

100

200

500

250

100

50

150

100

200

10 Excess limit Charge

10

15

350

350

11 Cash Advance Fee

Cash advance fee within the Q-Cash Network:

2% of Withdrawal amount or Tk. 125 whichever is higher for local card and 2% of advance amount or $3
whichever is higher for international card.

1) MBL ATMs No cash advance fee

2) Other ATMs Tk. 10 per transaction.

12 Minimum Payment Charge 5% of outstanding amount or $25 whichever is higher 5% of

outstanding amount or Tk. 500 whichever is higher

13

14

15

16

Interest Rate

Cash Advance Interest

Interest free days

Interest on advance against credit card

2.50% per month

2.50% per month

Maximum 45 days

12% per annum

DEBIT CARD / PRE-PAID CARDS

SL No

Particulars

Taka

01.
02.

03.

Annual/Renewal fee.

Debit Supplementary Card fee (One Supplementary Card is free).

Replacement Fee

Tk. 500

Tk. 400

Tk. 400

Repayment:

(i) Credit Card account statement is generated on monthly basis if there is any outstanding in the
cardholder account.

(ii) If the cardholder repays the entire amount within the due date of payment, no interest will be
charged and thereby cardholders enjoy maximum 45 days credit facilities without interest for POS
transactions.

(iii) If the cardholder repay the minimum payment amount as shown in the credit card account
statement within the payment due date then no late payment penalty will be charged.

Calculation of minimum payment:

(i) When the outstanding in the statement is less than or equal to the credit limit, the minimum
repayment for the current month is as under:

For International Card: 5% of the billing amount or USD 25 whichever is higher. If the billing amount is
less than USD 25, it should be paid in full.

For Local card: 5% if the billing amount is Tk.500 whichever is higher. If the billing amount is less than
Tk.500, it should be paid in full.

(ii) When the billing amount in the card account statement is more than the credit limit, the minimum
payment is 5% of the credit limit plus excess amount of credit limit.

(iii) If the cardholder fails to pay the minimum of the current month bill then in the next month the
minimum payable amount will be current month minimum plus previous month minimum amount.

Interest:
(i) In case of POS transactions, if entire amount is not paid within payment due date, interest will
be charged @ 2.5% on the outstanding balance on daily basis from date of transaction.

(ii) In case of cash withdrawal, interest will be charged @ 2.5% per month on daily basis from the date of
transaction irrespective of payment due date.

Cash advance fee:

(a) On Banks ATM: No fee.

(b) Networks ATM: Tk.10 per transaction.

(c) Other ATM: 2% of transaction amount or Tk.125 whichever is higher.

(d) For international card: USD 3 or 2% of transaction amount whichever is higher.

Source: Internal Documents from Card Division of different banks.

The basic process: Credit and Debit Cards initiation to approval

The initiation of the debit and credit Cards starts from direct marketing to the potential customers. All
the necessary information of the customers is collected and sent to the credit committee for reviewing
and final approval.

The application for a card may also come through the branches. The recommended applications of the
customers of various branches of the bank are also sent to the credit committee for their approval. Card
Division may contact with the applicants through the branch which recommended them if any
document is required and to query about the applicant. An approved applications information will
updated into the data base and issuance order is sent to the production house. When the credit card is
generated, it is then sent to the customer.

Documentation: (Credit Card)

Card Division exercise the following documentation according to types of cards applied for processing
formalities related to credit card. This is also applicable for issuance of the same from Head Office as
well.
Items with asterisk (*) are mandatory. Depending on customer profile and business relation bank may
ask for other documents if necessary on case-to-case basis.

Name of Documents

Service Holder

Proprietorship

Partnership

Limited Company

2 copies of passport size photograph

Yes

Yes

Yes

Yes

TIN Certificate*

Yes

Yes

Yes

Yes

Trade License*

Yes

Salary Certificate*

Yes

Letter of Comfort (From employer)

Yes

Bank Statement
For last 6 months

For last 1 year personal & Co. A/C

For last 1 year personal & Co. A/C

For last 1 year personal & Co. A/C

Proof of Residence:

Gas/Electricity/Mobile Phone Bill/Land Phone Bill

Yes

Yes

Yes

Yes

Blue Book of own Vehicle (if applicable)

Yes

Yes

Yes

Yes

Other Bank Credit Card bill (if applicable)

Yes

Yes

Yes

Yes

Memorandum and Article of Association

Yes

Deed of Partnership

Yes

Letter of Incorporation
Yes

Corporate Guarantee

Yes

Letter of Commencement

For Public Limited Co.

Copy of Passport/Driving/License/Visiting Card

Yes

Yes

Yes

Yes

Club Membership, if any

Yes

Yes

Yes

Yes

However, minimum charge documents (DP Note, Letter of Lien, Letter of Encashment, Letter of
Guarantee etc.) to be obtained.

Papers/documents required for insurance of Debit Card/Pre-Paid Card

(i) Two copies of passport size photograph.

(ii) Customer should maintain a deposit (SB/CD/STD) A/C with any branch of MBL.

(iii) Other than MBL account holders may also avail Pre-Paid card against deposit of money.

Papers/documents required for issuance of International Credit Card

(i) Two copies of passport size photograph.

(ii) TIN certificate.

(iii) Photocopy of passport from 1 to 7 pages including endorsement pages if any.

(iv) Lien confirmation of RFCD A/C is required from the concerned Branch/Bank for issuance of card
against RFCD A/C.

(v) For issuance of card against the balance in ERQ A/C maintained with us or with other bank, lien
confirmation should be obtained from the respective Bank/branch.

(vi) For issuance of card against new exporters and importers/producers quota relevant papers such as,
recommendation letter from EPB/ copy of tax return etc. is required.

SWOT Analysis

SWOT Analysis of the credit Card

STRENGTH

WEAKNESSES

Sound profitability and growth with internal capital generation.

Large number Branches including rural areas.

Strong CAMEL rating by Bangladesh Bank.

Strong and experienced top level management.

Consistent capital growth of the bank since its inception.

Offering highest interest rate on deposit

High Concentration on Fixed Deposits: high cost.

Poorly diversified portfolio

Centralized Decision-Making

Lack of full scale automation

ATM Operation not widespread.

Inefficient Real Time On-Line Banking.

Low concentration on SME & Consumer credit due to weak CRM.

OPPORTUNITIES

THREATS

Scope of market penetration through diversified product.

Opportunity for launching new products relating to deposit and credit and also SME Banking.

Scope of expansion through increase in number of branches

Providing complete online banking

The initiative of expanding its ATM & POS through Euronet.

Increased competition for common market share.

Market Pressure for lowering of Lending Rate

High intensity of rivalry in the industry.

Unstable or changing government rules and regulations.

Political instability and related issues.

Meeting Basel II requirements

Source: Authors Compilation

Industries dominant economic traits

(1) Market Size and Growth rate

402,000 credit card users in Bangladesh. However, Banks has taken an aggressive initiative to expand
their credit card operations rapidly and thereby increase its cardholders and market share.

Market Size (No. of Customers)

FCB share 2.21 Lac

PCB share 1.81 Lac

Total Card Customers 4.02 Lac

Potential Market Size:

Current Active Cards: 4.02 Lac

Potential Customer : Urban

Monthly Income >= Tk 10,000

37.30 Lac (Earning people)

Female & Student Card Market

Urban

Income group of MHI Tk 10,000 or more

(Data : BBS Statistical Book 2010)

(Minimum size) Lac: Household: 20.3, Female: 20.3, Students: 20.3

Market Tapped & Untapped

Tapped: 4.02 Lac (11%)

Untapped: 33.3 Lac (89%)

Total: 37.3 Lac (100%)

Market Tapped & Untapped Demography of Current Card Users of PBL /49 We have pie (59%) of the
population, earning 10K 20K.

Market Size: (Advances)

Total market size is Tk 722 crore.

Foreign banks market is Tk 320 crore. 44%.

Local banks market is Tk 402 crore. 56%.

Growth Rate of Card Advance

Average Annual Growth Rate in recent years (2008 2010):

Local banks 64.2%

Foreign banks: 20.4%

Overall market: 36.1%

A A A A Market: 1000 Crore (2010) Market: 193 Crore (2004) Outstanding advance amount is expected
to be around: Taka 1000 crore by Dec 2010 Market in 2010 (Advances)

Market Trends: Point to Point

Foreign banks have gradually lost market share to PCBs.

Market Trends: Continuous /49 Market Share of FCB is going down.

Trend Attributes

Local banks are increasing Retail Business at mass level

Local banks can operate country wide but foreign banks cant

Foreign banks are focusing on serving upper niche

PCBs are enjoying extended distribution channel and improved customer service with competitive fees
and charges than FCBs

(2) Customer Characteristics

Customer Characteristics of Banking Card Industry are High & Medium income group people. Such as
Service Holder, House Hold people, businessmen and they residing at urban area.

(3) Scope of Competitive rivalry

Scope in the Banking Card Industry for Nationalize commercial bank, foreign commercial bank, non-
banking financial organizations.

(4) Entry/Exit Barriers

Entry barriers: Issuer licenses are not available, Not through easy, Technical support & Skilled
employers.

Exit barriers: Good will may hamper.

Nature of Competitions and Strengths of competitive Forces

(1) Threats of New Entrants

Increased competition for common market share.

Market Pressure for lowering of Lending Rate

High intensity of rivalry in the industry.

Unstable or changing government rules and regulations.

Political instability and related issues.

Meeting Basel II requirements

(2) Threats of substitutes

Threats of substitutes for Banking Card Industry: Mobile Banking, e-banking (Real Time On Line
Banking).

(3) Bargaining Power of Customer

There are lots of cards issuer company & variety types of customer. Customer can choose his/her own
card or issuer company/organization. So that, customers power is unlimited.

(4) Competitive Rivalry between Existing Players

Previous market was monopolistic market. But, now it is perfectly competitive market. There are so
many issuers in the market with new features and promotions.

Drivers of Industry Changes

Industries are changing with diversifying the products like Mobile Banking, Internet Banking tagged with
the Cards and use of Technology diversified.

Competitive Position of Rivals

Standard Charted Bank (BD) Ltd. also dominated the market among other local banks, such as Brac Bank
Ltd. National bank ltd. National Credit & Commerce Bank Ltd. Bank Asia & Mercantile Bank Ltd.

Strategic Moves of Rivals

Banks are taken different types of strategies to upgrade their performance & position in market.

(1) Monitoring Competitors Strategies

By the sells volume, total market share, product features modification market research.

(2) Evaluating the Industrys Major Players are going to be

Major Player going to be in the market is Standard Charted Bank (BD) Ltd., for the reason Brac Bank Ltd.
& Standard Charted Bank (BD) Ltd. has a good market share in the industry, Product Diversification,
Skilled Employee, Sound Technology (Card based), Good Market Focus, Good Sales Team, International
Affiliation, Available Branches over the Country.

Key Factors for Competitive Success

Key factors for competitive success of industry are finds. Such as Skilled person, large sales team, better
customer service, good recovery rate.

Industries Attractiveness

Attractiveness of industrys are make life easy, easy payment system, multi-purpose use of the cards.

Questionnaire about service credit card

Question #1 This question was asked to a number of credit card users to which part of service of Credit
Cards they enjoyed.

Answer: Here 70% users answered that they enjoy Online service of the bank, 20% users answered for
interest rate of Fixed Deposit Receipt (FDR) and 10% users answered with no comment.

Interpretation of the question: I have found from this question that maximum customers are enjoying
the on line service because it is time saver, easier and convenient to use. Customer can easily deposit
and withdraw their cash from any branch of the bank and the bank also offers the highest interest rate
to some deposit scheme and some customers are enjoying this offer.

Question #2 This question was asked about Customers satisfaction level that they are enjoying currently
with Credit Cards.

Answer: Here I found that 60% users replied that they are not fully satisfied, and 40% users are satisfied
with the system the Bank is offering.

Interpretation of the question: The satisfaction level of customers is not so good. I have found from this
question that maximum customers are not fully satisfied because till now bank is giving some service
with traditional system, like Pay Order (PO), Demand Draft (DD) and Fixed Deposit Receipt (FDR). The
Bank setup the online service by radio link and for this sometime it works slowly so customers feel
bother.

Question 03# This question has been given to a couple of users whether the employees give service on
time or not.

Answer: Here I have found each credit card users said that employees give service on time.

Interpretation of the question: The answer implies that the bank is providing its service to the market in
full swing.

Question 04# This question was asked to a number of credit card users whether they enjoyed the
services of Credit Cards or not.

Answer: Here 80% users answered positively and 20% users answered negatively.

Interpretation of the question: Maximum customers of the bank is enjoying the service of Mercantile
Bank Ltd because the bank is providing services with modern technology on banking sector such as ATM
banking, Credit Card, SWIFT and also it is offering maximum interest rate for the depositors.

Question 05# This question has been put to a number of credit card users understand of the bank
specific needs of their customer.

Answer: Here I have found 80% credit card users said that positive 10% user said negative and 10% user
said no response.

Question 06# This question has given a number of credit card users the employee always being willing to
help customer.

Answer: Here I have found 90% users said positive and 10% user said negative the employee always
being willing to help customer.

Question 07# This question has given to a number credit card users the employee behavior arouse
confidence to customer.

Answer: Here I have found that each credit card users said positive the employee behavior arouses
confidence to customer.

Question 08# This question has given to a number of Mercantile Bank credit card for rate over the
banks physically visually attractive.

Answer: Here I found that 70% users are said moderately agree and 15% user said not agrees 15% users
has no comments.

Question 09# This question has given to a number of users of credit card for rate over the employees
service with modern technology.
Answer: Here I have found 95% user is moderately agreed and 55 users is not agreed.

Question 10# This question has given to a number of users of credit card for rate over the banks
material associated with service.

Answer: Here I have found 90% user is moderately agreed and 10% users not agreed.

Question 11# This question has given to a number of users of credit card for rate over the banks keep
promise to do something by a certain time.

Answer: Here I have found 95% user is moderately agreed and 5% users not agreed..

Question 12# This question has given to a number of users of credit card for rate over the bank show a
interest in solving your problem.

Answer: Here I have found 60% user is moderately agreed and 30% users are not agree and 10% users
are no comments.

Question 13# This question has given to a number of users of credit card for rate over the banks service
performance first and with well secured.

Answer: Here I have found 85% user is moderately agreed and 20% are not agreed.

Question 14# This question has given to a number of users of credit card for rate over the banks
promise to provide modern services at a time.

Answer: Here I have found 65% user is agree level, because the bank has provided modern service at the
time that was promise to customer for example online service, ATM services, Credit Card < Debit Card
etc.

Question 15# This question has given to a number of users of credit card for rate over the bank over the
bank always insisting on error-record.

Answer: Here I have found 5% user is moderately agreed and 95% are moderately no agreed.

Questionnaire about technology factors of credit card.

Question 01# A number of credit card users were asked about Banks SMS service.

Answer: Here I found that 70% users replied that they were fully satisfied and 20% users replied
negatively and 10% users replied revealing no comment.

Question 02# This question was asked to a number of credit card users about ATM (Automated Teller
Machine) of the Bank

Answer: Here I found that 70% users replied that they were fully satisfied and 20% users replied
negatively and 10% users have not put any comment
Question 03# This question was asked to a number of credit card users whether they preferred or not
the on-line banking service.

Answer: I found that each user preferred the on-line service of the bank.

Question 04# This question was asked to a number of credit card users about satisfaction level by using
the service.

Answer: I found that each credit card users of were satisfied with the on-line service of the bank.

Question 05# This question was asked to a number of credit card users about Credit Card service.

Answer: 80% users said well, 10% users said not well and the rest did not put any comment.

Question 06# This question was asked to customers about internet facilities

Answer: 80% users said Good, 20% users said not good.

Question 07# This question was asked to a few customers whether they were satisfied with the Internet
Banking system or not.

Answer: 95% users said they were satisfied with the Internet Banking service of and 5% users were not
satisfied with the service.

Question 08# This question was asked to a number of credit card users about Information Technology
the Bank provided.

Answer: 85% users said the efficiency of Information Technology is good and 15% users said the
efficiency of Information Technology of the Bank is not good.

Question 09# This question has been given to a number customers if the bank has modern technological
equipment or not.

Answer: Each user said that the Bank has setup with up-to-date modern equipment till now.

Questionnaire about economical factor credit card industry.

Question #1: This question was asked to a number of credit cards user about the interest rate associated
with credit card.

Answer: Here I found that 50% users answered the cost was very high and 30% answer moderately 20%
answered to be low.

Question #2: This question was asked to a number of credit cards users about the time cost to discharge
money with credit card.

Answer: Here I found that 50% users answered the cost was very high and 30% answer moderately 20%
answered to be low.
Question #3: This question was asked to a number of credit cards users about the time cost to discharge
money with credit card.

Answer: Here I found that 60% users answered the cost was very high and 30% answer moderately 10%
answered to be low.

Question #4: This question was asked to a number of credit cards users about the opening charge credit
card.

Answer: Here I found that100% users answered that are no opening charge.

Question #5: This question was asked to a number of credit cards users about annual fee for using credit
card.

Answer: Here I found that100% users paid their annual fee.

Question #6: This question was asked to a number of credit cards users about booth charge for using
credit card.

Answer: Here I found that100% users paid booth charge.

Question #7: This question was asked to a number of credit cards users about late payment fee imposed
for using credit card of Mercantile Bank.

Answer: Here I found that 90% users paid and 10% users are not paid late payment fee.

Question #8: This question was asked to a number of credit cards users about over limit fee imposed for
using credit card of Mercantile Bank.

Answer: Here I found that 90% users paid and 10% users are not paid over limit fee.

Questionnaire of Service Quality/Technology/Economical Service Satisfaction

Please () your correct answer:

Name :

Occupation :

Age level : 15-30, 30-45, 45-60

Do you use computer? Yes No

Do you use mobile? Yes No

How is SMS Banking Service? Good Satisfactory

Bad No comment

4. How is ATM service? Good Satisfactory

Bad No comment

5. Are you prefer on-line Banking Service? Yes No

6. How much your satisfaction by using on-line

Banking. Good Satisfactory

Bad No comment

7. Do you use credit card? Yes No

8. How is credit card service? Good Satisfactory

Bad No comment

9. Do you use Internet? Yes No

10. Are you want Internet Banking Service? Yes No

Recommendations

The following recommendations are made based on the findings of the study especially based on the 48
items used in the questionnaire. However, it should be noted here that the study might not necessary
represent the true picture of the credit card services, because it is limited only among a 200
respondents out of about 1000 cardholders and also the responses might not represent unbiased
reflection of credit card services. Getting feedback from customers is necessary for Card Industry in
order to improve its customer satisfaction. Feedback from customers enables firms to identify their
specific needs and efficiently allocate resources to design products and services that maximize
satisfaction. However, the recommendations are:

The overall service quality of credit card related services is found to be not very much satisfactory.
Customer satisfaction obviously plays a very important role in retaining the existing customers as well as
tapping new ones. Therefore, it is important for Card Division to focus on improving its service quality.
Banks can adopt benchmark strategy for improving its service quality meaning it can identify which bank
provides the best quality service to its customers and how they do it. Then adopt their means of
providing quality services for its cardholders. There are 14 items used in this study under service quality
variable. For some of the items the respondents have expressed their satisfactory level of satisfaction
while for other items they have either remained neutral or remained dissatisfied. Banks can use the
results found by questionnaire mean values to decide which items needs immediate attention for
improvement and which ones need further focus to excel the already satisfactory level items.

Technology is definitely the utmost factor for providing satisfactory level of services of products like
credit card. Therefore, technology related factors have been used as one of the variables in this study.
Under technology related factors of credit card services there are 8 items. Over all the respondents are
not satisfied with the technology factors of Banks credit card services. The authority should particularly
focus on increasing its outreach of retail access, developing more different types of cards to meet the
needs of different types of cardholders. Moreover, bill payment system should be made easier and not
to mention increase its number of ATMs. Although increasing number of ATMs is in the pipeline but
other items should also be improved in order to improve cardholders satisfaction.

The third measured variable of the study is economical factors. There are 6 items under this variable.
The respondents response suggests that they are not very much satisfied with the economical factors of
credit card services of Banks. To survive in the competitive market of credit card it has to continue
offering competitive economical factors such as reasonable annual fee, reasonable charges and interest
rates, cash advance fee, excess limit fee, overdue fee, and interest free period.

The respondents expressed that they are slightly satisfied with the staff and their manner of the Card
Division. However, there is a lot of scope of improvements if we look at the items over which the
respondents have remained neutral and did not express any satisfaction.

CONCLUSIONS

Credit cards and similar financial products developed through technological kinetics became key factors
for the banks in getting competitive edge. It is a rapidly growing market because the growth of
urbanization and the desire to have a modern lifestyle and better living standard. However, to capture
the market share and compete and survive with so many other competitors in the credit card market of
Bangladesh, the service quality, technological factors, economical factors and satisfaction level of
cardholders are important factors to consider. Thus this study investigates the influence of service
quality, technological factors, and economical factors of credit card services on the satisfaction level of
cardholders. The study identified that there is a significant, although not very strong, positive correlation
between:

Service quality of credit card services and customers satisfaction of Card Industry.

Technological factors of credit card services and customers satisfaction of Card Industry.

Economical factors of credit card services and customers satisfaction of Card Industry.

Thus, it is believed that service quality, technological factors and economical factors of credit card
services of MBL positively influence the satisfaction level of its credit cardholders.
It is clear that developing effective marketing strategies should be accompanied by an understanding of
these factors and items used in this study. These conditions represent a wide range of influences on
customer satisfaction and thereby business performance.

The study findings are only suggestive for they rely solely on the use of questionnaires that might not
capture the full nature and all the facets of satisfaction. Moreover, it might be difficult to generalize the
findings of the present study given the shortness of the sample which was restricted to a very small
number out the total cardholders. Furthermore, there might be biased responses, and, therefore, might
influence the findings and conclusions of the study. However, such an approach has been used in
previous studies. Therefore, the present study should be of useful for Credit Card Industry to devise
strategy to improve its customer satisfaction and expand its market share by retaining the existing
customers and capturing new ones.

Future research with bigger sample size could present a better picture and idea about all the variables
and their level of satisfaction. Detailed customers profile may also lead the research

Appendices

Annex A: Demographic Information of the Respondents

Age group

No. of respondents

20-30

31-40

10

41-50

51-60+

Total

20

Gender
No. of respondents

Male

15

Female

Total

20

Education

No. of respondents

HSC

Graduation

Masters

Total

20

Profession

No. of respondents

Business

10

Service

10

Total
20

Income

No. of respondents

21000-35000

36000-50000

51000-65000

66000-80000

81000-95000

Total

20

Credit Limit

No. of respondents

25000-50000

51000-75000

76000-100000

101000-125000

3
126000-150000

Total

20

Annex B: Definitions & Abbreviation

Card: Means as appropriate, a VISA or MasterCard (Silver or Gold Card) issued by the Bank to the
Cardholder and include primary, supplementary/ Replacement Cards.

Cardholder: Means an individual whose name is in a card account and who is responsible for all
transactions and liabilities on the card account. It includes primary and any supplementary cardholder.

Principal Cardholder: Means the persons to whom a Card is issued on his application alone.

Card Account: The credit Card account opened by the bank for the purpose of entering all credit and
debits received or incurred by the primary cardholder and the supplementary cardholder, if any under
these Terms and conditions.

Card Account Statement: Means a statement or statements of the amount charged debited and/or paid
to Card account(s) stated therein. Card Account Statement shall detail all transactions processed to the
Card Account during the statement period.

Cash Advance: Means an advance or payment made in any currency or by Travelers Cheque or other
forms representing an amount of any currency but shall not include any withdrawals from any account
with Banks.

Company: Means when used in relation to a Cardholder shall include (I) Company of which such
Cardholder is Director or Employee, (ii) Business Enterprise of which such Cardholder is the sole
proprietor and (iii) Firm of which such Cardholder is a Partner.

LTD.: Limited used after the names of the Private organizations with limited numbers of partners,
directors or shareholders in this report.

Merchant: Means any person or entity with whom any member of Visa Card has a subsisting agreement
relating to the use and or acceptance of the Card in payment to such person of entity whether for
goods, services or changes incurred and or to obtain Cash Advances for such person or entity.

CRM: Credit Risk Management

Outstanding Balance: In relation to any Card Account Statement means the outstanding balance in
favors of ABBL as stated therein or where more than one outstanding balance is stated therein the total
of all the outstanding balance stated herein.

Payment Due Date: Means the last date of payment and is usually 20 days from the date of statement, if
not otherwise mentioned, and specified on the Card Account Statement. At least, the Minimum
Payment Due (excluding the overdue amount) must be paid by the Cardholder within the due date at
Card Division of ABBLs Head Office. Any overdue/over limit amount must be paid immediately.

PIN: In relation to any Card means the Personal Identification Number assigned by ABBL to that Card
which will be used for accessing Cardholders nominated Card Account through an ATM.

The PIN is not on the card, it is encrypted (hidden in code) in a database. For example, before you get
cash in ATM, the ATM encrypts the PIN and sends it to the database to see if there is a match. The PIN
can be either in the banks computers in an encrypted form or encrypted on the card itself. The
transformation used in this type of cryptography is called one-way. This means that its easy to compute
a cipher given the banks key and the customers PIN, but not computationally feasible to obtain the
plain text PIN from the cipher, even if the key is known.

Supplementary Cardholder: Means the persons (other then the Principal Cardholder) to whom a Card is
issued on the application or request of the Principal Cardholder whether alone or joining with such
person.

Annex C: The participants

Participants in credit card networks are primarily comprised of consumers, issuers, merchants,
acquirers, and network operators. These participants are involved in a series of interrelated bilateral
transactions. In this section, we will explore the costs and benefits of each participant in the credit card
network.

Consumers

Credit cards provide consumers a secure, reliable and convenient means of payment. Consumers often
receive incentives to use their credit cards such as dispute resolution services, frequent-use awards, and
interest-free short-term loans if no balances are carried between billing periods. Credit cards also
provide various security features and limit consumer liability in the event of fraudulent use.

Merchants

Credit cards also offer several benefits to merchants. Merchants are usually paid in good funds. Credit
cards allow merchants to sell to illiquid consumers or to those paying with future income. Some
observers have noted that credit card acceptance can be used strategically by merchants to steal
customers from other merchants. In order to reap benefit from credit card transactions they have to
incur costs. Merchants pay their financial institutions a percentage of the sales price for credit card
purchases known as a merchant discount fee.
Acquirers

Acquirers earn revenue from merchants by bilaterally setting merchant discount rates and pay
interchange fees to issuers. Alternatively, merchants could have significant bargaining power individually
or as a group to negotiate lower rates.

Issuers

Credit card issuers earn revenue from consumers and acquirers. As mentioned earlier, consumers may
pay annual fees, finance charges if they revolve, and other fees, such as cash-advance and over-the-limit
fees. Issuers compete for cardholders on various dimensions such as various fees, frequent usage
awards, finance charges, and other characteristics. Acquirers pay interchange fees to issuers to
compensate them for costs of attracting and maintaining a cardholder base. These fees are set at the
network level.

Networks

Credit card networks can be classified as two types proprietary and open networks. Proprietary
networks operate as issuer, acquirer, and network operator. Open networks are comprised of member
banks that can be issuers, acquirers or both. The network sets the interchange fees, which are paid by
acquirers to issuers. The main purpose of these organizations is to meet the needs of their members by
providing a set of rules, underlying infrastructure, and some level of research and development to
improve their networks. Some of these rules govern the setting of interchange fees, no-surcharge rules,
and the acceptance of branded products.

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