Credit Card

It is a form of loan and substitute for cash

There are predefined Card Limits

How it Works
Card issuer (Issuing Bank) pays on customers behalf,
And Customer repays the issuer within a given time frame
Customer has to pay within the specified time frame

Card holder benefits

Substitute for Cash

Interest free period
Buy now, pay later
Earn Reward points

The grace period or interest period is of generally 40-55 days, but there are annual
maintenance fees for the same
Its a 2 in 1 banking product, a loan and a payment product

Above Third Party Processor MasterCard/Visa/Amex are also known as

clearing houses

Issuer banks
Currently top players volume wise ICICI, HDFC, SBI, Citibank

Payee/Merchants
Commercial Establishment where the card is used. Eg:- Spencer Store
Card is swiped at Point of Sale (POS) terminal

Interchange/Clearing house
They are generally private players like VISA, AMEX, DINERS, MasterCard

What data is passed in the above process flow ?

1) 16 digit card number and CVV
2) Amount
3) Merchant ID

ON US transaction Vs OFF US transaction

If acquiring bank and issuing bank are same then its a ON US transaction else an
OFF US transaction. In case of ON US transaction an interchange is not involved

How much do everyone earns on it?

Eg: for a 1000- rs transaction
Mercahnt gets 975-985 Rs
Balance of 15-25 gets divided between issuer and acquirer
Interchange gets either an annual fee or a small flat fee per transaction or
both

Transaction Settlement
Now as the transaction gets over, the customer has following options
1) Pay entire outstanding amount by due date
a. Here no interest is charged on the amount
2) Pay less than outstanding amount
a. All banks minimum amount that need to be paid by due date, this is
usually 5% of total outstanding. This is called Minimum Amount Due
Implication of above
The remaining amount accrues interest, from date of transaction and
any fresh transaction also starts accruing interest
3) Pay less than minimum amount due
a. In this case apart from interest you are charged with late payment
charges

Factors for Growth of Credit cards

1) Acceptability
a. Large number of Vendors/Merchants should accept the card
2) Distribution Strength
a. It should be easily available for customers
3) Strong Product Proposition
a. Different type of schemes and limits of usage for different type of
customers
4) Customer Service
5) Ease of Payments and collection

Types of Cards

Card Types
based on
Customer

Consumer

Basic

Premium

Secured

Commercial

Cobranded

Fleet

Pay Direct

Travel

Corporate

Cards with
Corporate
Liability
Basic Cards

Entry level No frill

Low Credit limit
3.2 % - 3.45 % per month interest
Average Transaction value 3000 Rs per month

Premium Cards

Advanced user who wants additional facilities

High credit limit
2.5% - 3.5 % per month interest
Avg transaction value Rs. 9000 10000 per month

Secured Cards
Card against Fixed Deposits
Given to those who open Fixed deposit
Outstanding is linked to FD

Cobranded Cards
Tie ups with companies like Big Bazaar

Cards with
Individual
Liabiliy

Fleet Cards
Used to be given to drivers instead of cash for every outlet
Issuer bills the fleet owner

Pay Direct or Prepaid Cards

Used by companies to facilitate disbursement of salaries

Instruction Card
Used by petrol pump owners for their daily fuel purchases

Travel Cards
Prepaid card for international travel