Credit Card…

CLASSIFCATIONS, TYPES, CHARGES/FEES AND

BUSINESS MODELS

Business Department
AFGHANISTAN PAYMENTS SYSTEM | H# 29, Lane 1, Street 8, Shahr-e- Naw, District 10, Kabul,
Afghanistan.
 What is a credit card?
Physically, a modern credit card is a rectangular piece of plastic, graphite, or a metallic alloy, that
identifies a financial account. All contain a magnetic strip on the back, and some contain an
RFID chip. An account number and the owner’s name or business name may be imprinted on the
front.
Behind the scenes, the credit card represents a type of financial account. By using credit cards,
customers can offer a bank’s money instead of their own to pay for a product or service today,
and over time, they repay the bank. For the benefit of using someone else’s money, customers
will often need to pay interest, as expected with other types of loans. This is where problems can
arise. Using other people’s money is often preferable than using your own because it lets you
keep your own money available for other purposes, but if you buy something with someone
else’s money while not being able to repay that type of loan, the results can destroy your own
financial future.

How does a credit card work?

When you choose to pay with a credit card and you hand the card to a cashier or submit your
card number over a secure internet connection, the merchant you’re dealing with validates your
account and whether the bank will allow the purchase to go through. If everything looks good,
your purchase is added to your credit account. Many companies are involved with each swipe of
a credit card, and money exchanges hands between all these companies each time a card is used.
Merchants pay fees to accept credit cards, and eventually the card-issuing banks receive part of
this as revenue. Once a month, the bank accumulates your credit card purchases and sends you a
bill
What are the benefits of using credit cards?
There are three major benefits to credit cards, without which, it wouldn’t be worth the hassle to
use these products instead of debit cards or cash.
1. Credit cards create a barrier between merchants and your own money. If nothing else,
credit card companies are good at handling fraud, and they create a line of defense
between fraudsters and your money. You should always check the rules when you open a
credit card, but in almost all cases, you are not liable for any unauthorized use of your
credit card account. And unlike a debit card, unauthorized use doesn’t affect your bank
account, so you’ll still have your money if you happen to need it for something else on
the same day someone uses your credit card account.
If you pay with any other form of money and later have a problem with the store, you
have more power when you use a credit card. If the store refuses to provide a refund and

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 clearly should, you can tell the credit card company to reverse the charge. Stores have a
bigger incentive to try to work with you to resolve the issue because too many of these
reversals can result in problems for their businesses.
2. Extended warranties and protections. In most cases, buying a product or service with a
credit card automatically gives you more choices if you have problems with the purchase.
Many credit cards extend the manufacturer’s warranty. Some offer purchase protection,
where if you damage the purchase in some way not covered by the warranty, the bank
will replace it. In some cases, credit cards offer purchase price protection, so if a store
lowers the price on a product within a certain time period after you buy it, the bank will
refund some or all of the price difference.
3. Credit card rewards. This happens to be one of the best marketing tools of all time. In
order to gain more users and more credit card transactions, banks offer a variety of
incentives to encourage new customers to apply. The issuers entice customers with
promises of sign-up bonuses, cash back rewards, airline miles, and 0-percent introductory
interest rates.
Talking about credit card use, there are other benefits and risks associated with the use of credit
cards.
The main credit benefit and risk zones.
Having the ability to borrow money when you need it gives you flexibility. But borrowing too
much money and being unable to pay it back is a serious problem/issue. In fact, the fastest
growing group declaring bankruptcy is age twenty to twenty-four. It’s important to use credit
responsibly and avoid having too much debt. If you understand how credit works and use it
wisely, it can help you to reach your goals.
Credit benefit zone
The benefits of having credit are:
 The option of buying something today and paying the money back over time, rather than
having to wait
 The flexibility to act on major purchases and life opportunities that may require more
money than you have on hand right now, like buying a computer, or borrowing for
college
 Easier to rent an apartment and to get service from local utility companies
 Easier to buy what you want, when you want it
Credit risk zone
The risks of having credit are:

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
  Overdoing it; borrowing more than you can afford to repay
 If you don’t make your payments on time, you’ll damage your credit record
 Losing money on late fees
 Having to pay additional interest
 Difficulty getting loans or credit in the future

How does one qualify for and choose a credit card?

Based universal practices. just about everyone over the age of 18 with an income can qualify for
a credit card. In some cases, an income might not even be necessary. For those who don’t have a
credit history or an income, secured credit cards (a type of credit card that is backed by a secured
payment used as collateral on the account ) are available. For these cards, users need to place a
deposit with the bank, and the credit is drawn from the deposit. This is a good way to build up
credit history to qualify for an unsecured card in the future.
Below are the types of credit cards that one can choose to use. It can help to browse card reviews
that pertain to the type of card that works for you.
 The best credit cards for 0 percent APR on balance transfers. These are good for
eliminating balances on high-interest cards where you aren’t able to pay the full bill each
month.
 The best cards for accumulating frequent flyer miles. If you travel often on a specific
airline, having a card branded for that particular airline can help you save money on
ancillary travel fees (like baggage checking) and airfare. These are similar to travel
rewards credit cards, which often are more flexible.
 The best credit cards for earning cash back. Cash back is the holy grail of credit card
rewards. They often provide the biggest benefit per dollar spent on the card, particularly
for someone who doesn’t travel on the same airline frequently. Every purchase earns
some form of cash back, sometimes up to a rate of 5%. In many cases, you can make
your rewards go further by redeeming them in the form of a gift card for a store you had
planned to visit anyway.
 The best credit cards for students. College students are at an impressionable age, and
there’s some sense that they are not yet prepared to use credit cards responsibly,
particularly without an income. Some cards in this category help encourage appropriate
financial behavior by rewarding it. They’re often easier to qualify for without a credit
history.

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
  The best credit cards for small businesses. Small business owners often have financing
needs that differ from typical consumers. Banks address some of these needs by creating
cards suited for business owners. They often provide cash back rewards tailored to a
business’s needs, but also provide credit under the business’s name and help proprietors
and CEOs separate their personal expenses from those for their businesses.

Applying for a credit card, what are the charges associated with Credit Card
one needs to know?

Credit Card Charges

Interest charges
This is what a provider charges you when you use your credit card to borrow.
For example, if you have a balance of £100 on a card with 20% APR, it would earn interest of
£20 per year.
*To avoid paying interest, repay your balance in full every month. If this is not possible, you can
pay less by finding a card with a lower APR.

Fees for breaking card terms

 Late payment charges
Your credit card bill will specify a minimum payment amount and a date you need to make the
payment by. If you do not pay by that date, you will be charged a late payment fee of £12.
*To avoid late payment charges, set up a direct debit to pay at least the minimum amount every
month.
Missing a payment can also affect your credit rating and lead to your provider increasing your
interest rate or withdrawing your introductory 0% APR offer.
How to repay a credit card
Charges for exceeding your credit limit
If you go over your credit limit, you will be charged a fee which could be around £12.

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 *You can avoid this by checking your limit and current spending by signing in to your online
banking or phoning your provider.
If you know that you are likely to spend too much before the end of the month, ask your provider
to increase your credit limit.
How do credit limits work?
Dormancy fees
Some American Express credit cards and store cards charge an inactivity fee if you go too long
without using them, for example more than 12 months.
If you have a card that charges an inactivity fee, consider cancelling it.

How many credit cards should you have?

Card charges
 Cash withdrawals
You could face the following charges if you use your credit card to withdraw cash:
 Withdrawal fee: This is usually about 3% of what you take out, although there is usually
a minimum fee amount of a few pounds.
 Higher APR: The interest rate charged on cash advances is usually higher than your APR
on purchases - often around 27.9% but sometimes much more.
 Immediate interest: You will be charged interest on the amount you withdraw straight
away.

Balance transfers
When you make a balance transfer or money transfer, you will usually have to pay a fee to make
the transfer.
This fee is a percentage of the balance you want to transfer. For example, if you transferred
£2,000 to a card with a fee of 2.5%, this would cost £50.
Spending abroad
If you use your credit card abroad, it could charge you:
 A loading fee of around 2.99% each time you spend

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
  The exchange rate, which is likely to be less competitive than most travel money rates
 Interest on the amount withdrawn straight away*
 An ATM withdrawal fee e.g. 3%
* You usually get around 56 days before you are charged interest when you use a credit card for
purchases at home
*However, cards designed for use abroad can come without fees for spending or withdrawing
cash.
Monthly and annual fees
Some credit cards charge a fixed fee that you have to pay annually or monthly. These fees
generally cost from £12 to £150 a year.
If you have a monthly fee, you will pay it off as part of your credit card bill.
For example, if you had a card with a monthly fee of £3 and repaid £50 a month, £3 of this
would pay off the fee and £47 would go towards the interest and balance.

Can you get a refund?

If you think you have been charged any fees incorrectly, contact your credit card provider
immediately and ask for a refund.

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 Credit cards vary in types. They are classified into five different classes that are shown in the
chart below.

Based on mode of credit recovery

 Charge Card: is 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: is 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 favored clients, entitling them to high unsecured
overdrafts, some insurance cover, etc

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 Based on geographical validity

 Domestic card- Cards that are issued by the domestic card schemes such as Rupay, AfPay and
e.t.c
 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. RuPay Credit card
of HDFC Bank
 Master Card- this card is issued under the umbrella of “MasterCard International”
 VISA Card – it is issued by any a bnk having tie-up with “VISA international”
 Domestic Tie-up Card- it is issued by any Bank having tie-up with domestic credit card
schemes such as NPCI and APS.
Based on issuer Category

 Corporate Cards- Issued to corporate and business firms.

 Individual Cards- Non-corporate cards that are issued to individuals

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 The business cycle of a credit card, how does it work?

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 Disadvantages of Credit Card….

To cardholders:
• Loss or stealing of card
• Leads to overspending
• Very high rate of interest, if total is not paid when due
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

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 An International Credit Card Transaction Model

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622
 Model for AfPay
Why we create this model?
How does it work?

www.aps.af
Add: Afghanistan Payments System (APS), House # 29, Lane # 1,
info@aps.af
Street # 8, District 10, Shahr-e-Naw, Kabul-Afghanistan
+93 (0) 20 2210 622