Credit Cards Dne

8/13/2019 Credit Cards Dne

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Credit cardsA credit card is part of a system of payments named after the smallplastic card issued to users of the system.

It is a card entitling its holder to buy goods and services based on theholder's promise to pay for these goods and services.

The issuer of the card grants a line of credit to the consumer (or theuser) from which the user can borrow money for payment to amerchant or as a cash advance to the user.

Most credit cards are issued by local banks or credit unions, and arethe shape and size specified by the ISO/IEC 7810 standard as ID-1.This is defined as 85.60 53.98 mm in size


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Creditcards1. Issuing bank logo

2. EMV chip on "smart cards"

3. Hologram

4. Credit card number

5. Card brand logo

6. Expiration Date7. Card Holder Name

8. contactless chip


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Creditcardnumbering

An example of the reverse side of a typicalcredit card:

Magnetic Stripe

Signature Strip

Card Security Code


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How credit cards workCredit cards are issued after an account has been approved by thecredit provider, after which cardholders can use it to make

purchases at merchants accepting that card.

i.When a purchase is made, the credit card user agrees to pay thecard issuer.

ii.The cardholder indicates consent to pay by signing a receipt with

a record of the card details and indicating the amount to be paid orby entering a personal identification number(PIN).

iii.Also, many merchants now accept verbal authorizations viatelephone and electronic authorization using the Internet, knownas a 'Card/Cardholder Not Present' (CNP) transaction.


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How credit cards work Electronic verification systems allow merchants to verify that the

card is valid and the credit card customer has sufficient credit tocover the purchase in a few seconds, allowing the verification tohappen at time of purchase.

i. The verification is performed using a credit card payment terminal

or Point of Sale (POS) system with a communications link to themerchant's acquiring bank.

ii. Data from the card is obtained from a magnetic stripe or chip on thecard.

Other variations of verification systems are used by eCommerce

merchants to determine if the user's account is valid and able toaccept the charge.

i. These will typically involve the cardholder providing additionalinformation, such as the security code printed on the back of thecard, or the address of the cardholder.


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How credit cards work Each month, the credit card user is sent a statement indicating

the purchases undertaken with the card, any outstanding fees,and the total amount owed.

After receiving the statement, the cardholder may dispute anycharges that he or she thinks are incorrect.

Otherwise, the cardholder must pay a defined minimumproportion of the bill by a due date, or may choose to pay ahigher amount up to the entire amount owed.

The credit issuer charges interest on the amount owed if thebalance is not paid in full (typically at a much higher rate thanmost other forms of debt).


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Interest charges

Credit card issuers usually waive(not-claim) interest charges if thebalance is paid in full each month, but typically will charge full intereston the entire outstanding balance from the date of each purchase if thetotal balance is not paid.

For example, if a user had a $1,000 transaction and repaid it in fullwithin this grace period, there would be no interest charged.

If, however, even $1.00 of the total amount remained unpaid, interestwould be charged on the $1,000 from the date of purchase until thepayment is received.

The general calculation formula most financial institutions use todetermine the amount of interest to be charged is APR/100 xADB/365 x number of days revolved.

Take the Annual percentage rate (APR) and divide by 100 then multiplyto the amount of the average daily balance (ADB) divided by 365 andthen take this total and multiply by the total number of days the amount

revolved before payment was made on the account.


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Interest charges Interest rates can vary considerably from card to

card,

and the interest rate on a particular card may jumpdramatically if the card user is late with a paymenton that card

or any other credit instrument,

or even if the issuing bank decides to raise itsrevenue.


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Benefits to customers The main benefit to each customer is convenience.

Compared to debit cards and cheques, a credit card allowssmall short-term loans to be quickly made to a customerwho need not calculate a balance remaining before every

transaction, provided the total charges do not exceed themaximum credit line for the card.

Credit cards also provide more fraud protection than debitcards.

In the UK for example, the bank is jointly liable with themerchant for purchases of defective products over 100.


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Benefits to customers Many credit cards offer rewardsand benefits packages, such

as offering enhanced product warranties at no cost, freeloss/damage coverage on new purchases, and points which

may be redeemed for cash, products, or airline tickets.

Additionally, carrying a credit card may be a conveniencetosome customers as it eliminates the need to carry any cash formost purposes.


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Grace period A credit card's grace period is the time the customer has to

pay the balance before interest is assessed on theoutstanding balance.

Grace periods vary, but usually range from 20 to 50 daysdepending on the type of credit card and the issuing

bank. Usually, if a customer is late paying the balance, finance

chargeswill be calculated and the grace period does notapply.

Finance charges incurred depend on the grace period and

balance; with most credit cards there is no grace period ifthere is any outstanding balance from the previousbilling cycle or statement (i.e. interest is applied on boththe previous balance and new transactions).

However, there are some credit cards that will only apply

finance charge on the previous or old balance, excludingnew transactions.


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Benefits to merchants For merchants, a credit card transaction is often moresecure than other forms of payment, cash, because they

discourage theft by the merchant's employees and reducethe amount of cash on the premises.

For each purchase, the bank charges the merchant a

commission(discount fee) for this service and there may bea certain delay before the agreed payment is received bythe merchant.

The commission is often a percentage of the transaction

amount, plus a fixed fee (interchange rate).

Some small merchants require credit purchases to have aminimum amount to compensate for the transaction costs.


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Parties involved Cardholder: The holder of the card used to make a purchase;

the consumer.

Card-issuing bank: The financial institution or otherorganization that issued the credit card to the cardholder. Thisbank bills the consumer for repayment and bears the risk thatthe card is used fraudulently.

Merchant: The individual or business accepting credit cardpayments for products or services sold to the cardholder.

Acquiring bank: The financial institution accepting payment

for the products or services on behalf of the merchant.

Independent sales organization: Resellers (to merchants) ofthe services of the acquiring bank.


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Parties involved Merchant account: This could refer to the acquiring bank

or the independent sales organization, but in general isthe organization that the merchant deals with.

Credit Card association: An association of card-issuingbanks such as Visa, MasterCard, Discover, AmericanExpress, etc. that set transaction terms for merchants,card-issuing banks, and acquiring banks.

Transaction network: The system that implements themechanics of the electronic transactions. May be operatedby an independent company, and one company mayoperate multiple networks.


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Transaction steps Authorization: The cardholder pays for the purchase and

the merchant submits the transaction to the acquirer(acquiring bank).

The acquirer verifies the credit card number, thetransaction type and the amount with the issuer (Card-issuing bank) and reserves that amount of thecardholder's credit limit for the merchant.

An authorization will generate an approval code, whichthe merchant stores with the transaction.


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Transaction steps

Batching: Authorized transactions are stored in "batches",which are sent to the acquirer.

Batches are typically submitted once per day at the end ofthe business day.

If a transaction is not submitted in the batch, theauthorization will stay valid for a period determined by

the issuer, after which the held amount will be returnedback to the cardholder's available credit.


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Transactionsteps Clearing and Settlement: The acquirer sends the batch

transactions through the credit card association, whichdebits the issuers for payment and credits the acquirer.

Essentially, the issuer pays the acquirer for thetransaction.

Funding: Once the acquirer has been paid, the acquirerpays the merchant.

The merchant receives the amount totaling the funds inthe batch minus either the "discount rate," "mid-qualifiedrate", or "non-qualified rate" which are tiers of fees themerchant pays the acquirer for processing thetransactions.


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Transaction steps

Charge backs: A chargeback is an event in which moneyin a merchant account is held due to a disputerelating tothe transaction.

Charge backs are typically initiated by the cardholder.

In the event of a chargeback, the issuer returns thetransaction to the acquirer for resolution.

The acquirer then forwards the chargeback to themerchant, who must either accept the chargeback or

contest it.

A merchant is responsible for the chargeback only ifhe/she has violated the card acceptance procedures as perthe merchant agreement with card acquirers.


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Rewards

Many credit card customers receive rewards, such asfrequent flyer points, gift certificates, or cash back as anincentive to use the card.

Rewards are generally tied to purchasing an item orservice on the card, which may or may not include

balance transfers, cash advances, or other special uses.

Depending on the type of card, rewards will generallycost the issuer between 0.25% and 2.0% of the spread.

Networks such as Visa or MasterCard have increasedtheir fees to allow issuers to fund their rewards system.

Some issuers discourage redemption by forcing thecardholder to call customer service for rewards.


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Fees charged to customers

Late payments or overdue payments Charges that result in exceeding the credit limit on the

card (whether done deliberately or by mistake), calledover limit fees

Returned cheque, fees or payment processing fees (egphone payment fee)

Cash advances and convenience cheques (often 3% ofthe amount)

Transactions in a foreign currency (as much as 3% of theamount). A few financial institutions do not charge a feefor this.

Membership fees (annual or monthly), sometimes apercentage of the credit limit.

Exchange rate loading fees (these may sometimes not bereported on the customer's statement, even when theyare applied)


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Credit cards in TMs Many credit cards can also be used in an ATM to

withdraw money against the credit limitextended to thecard, but many card issuers charge interest on cashadvances before they do so on purchases.

The intereston cash advances is commonly charged fromthe date the withdrawal is made, rather than the monthlybilling date.

Many consumers have large cash balances, which have

no grace period and incur interest at a rate that is(usually) higher than the purchase rate, and will carrythose balance for years, even if they pay off theirstatement balance each month.


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Types of cards in INDI Premium Credit Cards

Cash Back Credit Cards

Gold Credit Cards Airline Credit Cards

Silver Credit Cards

Business Credit Cards

Balance Transfer Credit Cards

Co-branded Credit Cards

Low Interest Credit Cards

Lifetime Free Credit Cards

Rewards

There are some additional credit cards

that are available in India as well.Rewards credit cards available in Indiacan be subdivided into six categories Points, Hotels and Travels, Retail, Autoand Fuel.


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Thank you !

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Credit Cards Dne