Description
Describes Different Types of Plastic Money, concept of a Credit Card, distinction between Credit Card, Charge Card and Debit Card, Mechanics of a Credit Card Transaction, Credit Card as an Augmented Retail Financial Product and Credit Card Business in India: The Emerging Scenario.
Plastic Money
? Plastic money refers to substitution of the usage of
currency money at the time when the transaction of buy and sell is taking place, by usage of a card normally made of plastic (hence the name, Plastic Cards) representing such substitution. The substitution may either be due to postponement of payment or because of prepurchase payment on the card that is issued.
Parties to the Transaction
• Card Issuers: The principal issuers of the plastic
money are the banks. Eg Citibank, Bank of Baroda, etc. • Cardholders: include both salaried individuals and business organizations • Member Establishment: establishments enlisted by the plastic money issuer who accept valid credit cards towards payment for the goods sold or services rendered by them in lieu of cash
? Member Affiliates: issuer may sometimes enter into a
tie-up for issuance of credit cards. In such cases, the organizations which have tie-ups also issue credit cards of the issuer, to their clients ? Clearing Agencies: Typically a card issuer affiliates itself with MasterCard International or Visa International – the two leading international card issuers which act as clearing agencies.
Concept of Credit Cards
? A credit card can be viewed as a payment
mechanism which enables the holder of the card to purchase goods (or services) without parting with immediate cash; and make a one-time payment at the end of a specified period (known as the billing cycle which is usually a month) with a provision for spreading this payment over several easy installments.
• The Credit Card is built around the revolving credit
concept. • The card carries a preset limit for spending which can be utilized by the cardholder during the specified period. • At the end of the month, the holder needs to pay about 5 to 10 percent of the outstanding value of purchases and liquidate the balance in easy installments over the next few months. • The balance outstanding at the end of a month carries a rate of interest of 2 percent to 3 percent per month.
Concept of Charge Cards
? Charge card is a variation of plastic money where
the payment for the purchase of good is done within a month immediately after the purchase.
? A Charge Card is a convenience instrument
? Under this facility, the cardholder needs to make a
consolidated payment to the issuer for all purchases effected with the card during a specified period of time (usually a month). ? Bills are payable in full on presentation which implies that there are no interest charges and no pre-set spending limits either.
Debit Card
? A Debit Card is a `Pay Now’ product where the
customer’s account with the issuer is immediately debited to the extent of the value of transaction.
• ‘Pay Now’ product • Instantaneously debited to customer’s account • Direct access to current and savings account • Essential to open a bank account • Point of sale terminals to be installed at merchant
establishment and hence are capital intensive • Bank account must have the required amount to the extent of the transaction • Risk minimized through PIN based system
Operational Aspects • Issuance: A credit card is issued by the sponsor bank to the cardholder after due evaluation of creditworthiness and financial status of the prospective cardholder. • Purchase: The credit card is operational immediately on receipt of the card. Purchases may be made once the cardholder signs on the back of the card – which will be used as a verification parameter by the member establishment.
? Collection: After the purchase is transacted, the ME
approaches the issuing bank or its clearing representative and claims the amount through the copy of the sales vouchers and purchase statement.
Scenario
The following points are taken care of: ? Issue of Cards:
? KYC norms are followed ? Maximum credit limit is fixed ? Add-on cards issued with the clear understanding that they
are a liability of the principal card ? Terms & Conditions are mentioned and the MITS are highlighted
• Interest Rates:
– Bills are promptly discharged and the customer is given
sufficient time. Interests not mentioned at the time of issue cannot be levied and any changes made require at least one month’s notice Billings – The card issuing bank/NBFC should ensure that wrong bills are not raised and issued to customers Customer Rights – Customer’s rights in relation to credit card operations primarily relate to personal privacy, clarity relating to rights and obligations, preservation of customer records, maintaining confidentiality of customer information and fair practices in debt collection.
? Customer Confidentiality:
? The card issuing bank/NBFC should not reveal any
information relating to a customer obtained at the time of opening the account or issuing the credit card, to any other person or organization without obtaining their specific consent, as regards the purpose/s for which the information would be used and the organisations with whom the information would be used and the organisations would be shared.
? Debt Collection:
? While recovering dues, banks/NBFCs should ensure
that they and their agents adhere to the Reserve Bank’s instructions ? While appointing their party agencies for debt collection, the card issuing bank/NBFC should ensure that such agents observe strict customer confidentiality ? Banks/NBFCs and their agents should not resort to intimidation or harassment of any kind either verbal or physical against any person
doc_337325528.pptx
Describes Different Types of Plastic Money, concept of a Credit Card, distinction between Credit Card, Charge Card and Debit Card, Mechanics of a Credit Card Transaction, Credit Card as an Augmented Retail Financial Product and Credit Card Business in India: The Emerging Scenario.
Plastic Money
? Plastic money refers to substitution of the usage of
currency money at the time when the transaction of buy and sell is taking place, by usage of a card normally made of plastic (hence the name, Plastic Cards) representing such substitution. The substitution may either be due to postponement of payment or because of prepurchase payment on the card that is issued.
Parties to the Transaction
• Card Issuers: The principal issuers of the plastic
money are the banks. Eg Citibank, Bank of Baroda, etc. • Cardholders: include both salaried individuals and business organizations • Member Establishment: establishments enlisted by the plastic money issuer who accept valid credit cards towards payment for the goods sold or services rendered by them in lieu of cash
? Member Affiliates: issuer may sometimes enter into a
tie-up for issuance of credit cards. In such cases, the organizations which have tie-ups also issue credit cards of the issuer, to their clients ? Clearing Agencies: Typically a card issuer affiliates itself with MasterCard International or Visa International – the two leading international card issuers which act as clearing agencies.
Concept of Credit Cards
? A credit card can be viewed as a payment
mechanism which enables the holder of the card to purchase goods (or services) without parting with immediate cash; and make a one-time payment at the end of a specified period (known as the billing cycle which is usually a month) with a provision for spreading this payment over several easy installments.
• The Credit Card is built around the revolving credit
concept. • The card carries a preset limit for spending which can be utilized by the cardholder during the specified period. • At the end of the month, the holder needs to pay about 5 to 10 percent of the outstanding value of purchases and liquidate the balance in easy installments over the next few months. • The balance outstanding at the end of a month carries a rate of interest of 2 percent to 3 percent per month.
Concept of Charge Cards
? Charge card is a variation of plastic money where
the payment for the purchase of good is done within a month immediately after the purchase.
? A Charge Card is a convenience instrument
? Under this facility, the cardholder needs to make a
consolidated payment to the issuer for all purchases effected with the card during a specified period of time (usually a month). ? Bills are payable in full on presentation which implies that there are no interest charges and no pre-set spending limits either.
Debit Card
? A Debit Card is a `Pay Now’ product where the
customer’s account with the issuer is immediately debited to the extent of the value of transaction.
• ‘Pay Now’ product • Instantaneously debited to customer’s account • Direct access to current and savings account • Essential to open a bank account • Point of sale terminals to be installed at merchant
establishment and hence are capital intensive • Bank account must have the required amount to the extent of the transaction • Risk minimized through PIN based system
Operational Aspects • Issuance: A credit card is issued by the sponsor bank to the cardholder after due evaluation of creditworthiness and financial status of the prospective cardholder. • Purchase: The credit card is operational immediately on receipt of the card. Purchases may be made once the cardholder signs on the back of the card – which will be used as a verification parameter by the member establishment.
? Collection: After the purchase is transacted, the ME
approaches the issuing bank or its clearing representative and claims the amount through the copy of the sales vouchers and purchase statement.
Scenario
The following points are taken care of: ? Issue of Cards:
? KYC norms are followed ? Maximum credit limit is fixed ? Add-on cards issued with the clear understanding that they
are a liability of the principal card ? Terms & Conditions are mentioned and the MITS are highlighted
• Interest Rates:
– Bills are promptly discharged and the customer is given
sufficient time. Interests not mentioned at the time of issue cannot be levied and any changes made require at least one month’s notice Billings – The card issuing bank/NBFC should ensure that wrong bills are not raised and issued to customers Customer Rights – Customer’s rights in relation to credit card operations primarily relate to personal privacy, clarity relating to rights and obligations, preservation of customer records, maintaining confidentiality of customer information and fair practices in debt collection.
? Customer Confidentiality:
? The card issuing bank/NBFC should not reveal any
information relating to a customer obtained at the time of opening the account or issuing the credit card, to any other person or organization without obtaining their specific consent, as regards the purpose/s for which the information would be used and the organisations with whom the information would be used and the organisations would be shared.
? Debt Collection:
? While recovering dues, banks/NBFCs should ensure
that they and their agents adhere to the Reserve Bank’s instructions ? While appointing their party agencies for debt collection, the card issuing bank/NBFC should ensure that such agents observe strict customer confidentiality ? Banks/NBFCs and their agents should not resort to intimidation or harassment of any kind either verbal or physical against any person
doc_337325528.pptx