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 Based on Based on Based on Based on

of credit status of geographical franchise/ issuer
recovery credit card validity Tie-up Category

Individ- Corpor-
Charge Revolving Domestic Internation-
ual ate
Card credit card card al Card
Cards Cards

Domestic
Proprie- Master VISA
Tie-up
tary card Card Card
Standard Business Card
Gold Card
Card 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, tax-
consultants ,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 retailer’s 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 customer’s purchase.
 Credit card cycle
• Purchase of goods and
service on card
Credit purchase
• marchant delivers goods after taking an authenticated credit card
and noting the number and taking signature on certain forms.
Credit card processing

• Marchant raises the bill for the purchase and sends it to

the credit card issuing bank for payment
Bill raising

• Issuing bank pays amount to the merchant

establishment
payment

• Issuing bank raises bill on the credit cardholder and

Bill to card holder 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 User /
Card Issuing Bank
Payment of credit card(3) Customer

Clearing and settlements (7)

Charging of credit card Purchase of

and raising bills (4) goods and
services (3)

Submission of bill
Marchant’s bank for collection (5) Merchant
establishment
Payment for bills (6)
 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