CREDIT CARDS
A credit card is a user payments card issued to enable cardholders, on the basis of the cardholders ' promise, for goods and services to pay cardholders amounts plus other agreed fees. The issuer of card (usually a bank) creates a rotating account to give credit lines to the cardholder from which the cardholder can take money to pay payers. a credit card creates a rotating account. A credit card is distinct from a charging card that needs complete repayment of the balance every month. Credit cards, by comparison, permit customers, subject to interest charges, to create an ongoing debt equilibrium. A credit card is also different from a card that the proprietor of the card can use as currency. Credit cards are different than the credit card in that a third-party company usually pays the seller and reimburses the purchaser for the credit card, whereas a charge card simply postpones the purchaser until the later date.
USAGE: A firm issuing a credit card, like a bank or credit union, signs contracts with dealers to accept its credit cards. The issuer of the credit card shall issue the client a credit card when or after the loan supplier has authorised the account and the cardholder shall, by signing the receipt with the card information record, provide the quantity that must be paid or enter a personal identification number (PIN). The cardholder shall indicate that the payment is accepted.
- MINIMUM PAYMENT: The cardholder must pay a defined minimum portion of the amount owed by a due date, or may choose to pay a higher amount. The credit issuer charges interest on the unpaid balance if the billed amount is not paid in full (typically at a much higher rate than most other forms of debt). In addition, if the cardholder fails to make at least the minimum payment by the due date, the issuer may impose a late fee or other penalties. To help mitigate this, some financial institutions can arrange for automatic payments to be deducted from the cardholder's bank account, thus avoiding such penalties altogether, as long as the cardholder has sufficient funds.
- INTEREST CHARGES: Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.
- GRACE PERIOD:A credit card's grace period is the time the cardholder has to pay the balance before interest is assessed on the outstanding balance. Grace periods may vary, but usually range from 20 to 55 days depending on the type of credit card and the issuing bank.
- PARTIES INVOLVED:
- Cardholder: The holder of the card used to make a purchase; the consumer.
- Card-issuing bank: The financial institution or other organisation that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case. Cards issued by banks to cardholders in a different country are known as offshore credit cards.
- Merchant: The individual or business accepting credit card payments 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 organisation: Re-sellers (to merchants) of the services of the acquiring bank.
- Merchant account: This could refer to the acquiring bank or the independent sales organisation, but in general is the organisation that the merchant deals with.
- Credit Card association: An association of card-issuing banks such as Discover, Visa, MasterCard, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.
- Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks.
- Affinity partner: Some institutions lend their names to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. Examples of typical affinity partners are sports teams, universities, charities, professional organisations, and major retailers.
- Insurance providers: Insurers underwriting various insurance protections offered as credit card perks, for example, Car Rental Insurance, Purchase Security, Hotel Burglary Insurance, Travel Medical Protection etc.
FEATURES
As well as convenient credit, credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. Credit cards are accepted in larger establishments in almost all countries, and are available with a variety of credit limits, repayment arrangements. Some have added perks (such as insurance protection, rewards schemes in which points earned by purchasing goods with the card can be redeemed for further goods and services or cash back).
TYPES
- Business Credit Cards: Business credit cards are specialised credit cards issued in the name of a registered business, and typically they can only be used for business purposes. Their use has grown in recent decades. In 1998, for instance, 37% of small businesses reported using a business credit card; by 2009, this number had grown to 64%.
- Secured Credit Cards: A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired.The cardholder of a secured credit card is still expected to make regular payments, as with a regular credit card, but should they default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit.
- Prepaid Cards:A "prepaid credit card" is not a true credit card, since no credit is offered by the card issuer: the cardholder spends money which has been "stored" via a prior deposit by the cardholder or someone else, such as a parent or employer. However, it carries a credit-card brand (such as Discover, Visa, MasterCard, American Express, or JCB) and can be used in similar ways just as though it were a credit card.
- Digital Cards: A digital card is a digital cloud-hosted virtual representation of any kind of identification card or payment card, such as a credit card.
The main benefit to the cardholder is convenience. Compared to debit cards and checks, a credit card allows small short-term loans to be quickly made to a cardholder who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card.
Many credit cards offer rewards and benefits packages, such as enhanced product warranties at no cost, free loss/damage coverage on new purchases, various insurance protections, for example, rental car insurance, common carrier accident protection, and travel medical insurance.
Credit cards can also offer a loyalty program, where each purchase is rewarded with points, which may be redeemed for cash or products. Research has examined whether competition among card networks may potentially make payment rewards too generous, causing higher prices among merchants, thus actually impacting social welfare and its distribution, a situation potentially warranting public policy interventions.
DETRIMENTS TO CARD HOLDERS:
- High interest and bankruptcy:Low introductory credit card rates are limited to a fixed term, usually between 6 and 12 months, after which a higher rate is charged. As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy. Some credit cards often levy a rate of 20 to 30 percent after a payment is missed. In other cases, a fixed charge is levied without change to the interest rate. In some cases universal default may apply: the high default rate is applied to a card in good standing by missing a payment on an unrelated account from the same provider. This can lead to a snowball effect in which the consumer is drowned by unexpectedly high interest rates. Further, most card holder agreements enable the issuer to arbitrarily raise the interest rate for any reason they see fit. First Premier Bank at one point offered a credit card with a 79.9% interest rate; however, they discontinued this card in February 2011 because of persistent defaults.
- Weakens self regulation: Several studies have shown that consumers are likely to spend more money when they pay by credit card. Researchers suggest that when people pay using credit cards, they do not experience the abstract pain of payment.Furthermore, researchers have found that using credit cards can increase consumption of unhealthy food.
- Inflated pricing for all customers:Merchants that settle for credit cards should pay interchange fees and discount fees on all credit-card transactions. In some cases merchants square measure barred by their credit agreements from passing these fees on to mastercard customers, or from setting a minimum dealings quantity . The result's that merchants square measure induced to charge all customers (including people who don't use mastercards ) higher costs to hide the fees on credit card transactions. The inducement will be robust as a result of the merchant's fee may be a proportion of the sale value, that includes a disproportionate result on the gain of companies that have preponderantly mastercard transactions, unless stipendiary for by raising costs typically.
For merchants, a mastercard dealing is usually safer than alternative styles of payment, like cheques, as a result of the provision bank commits to pay the businessperson the instant the dealing is authorised, despite whether or not the patron defaults on the mastercard payment (except for legitimate disputes, that square measure mentioned below, and may lead to charges back to the merchant). In most cases, cards square measure even safer than money, as a result of they discourage felony by the merchant's staff and cut back the quantity of money on the premises. Finally, credit cards cut back the rear workplace expense of process checks/cash and transporting them to the bank.Prior to credit cards, every businessperson had to judge every customer's credit history before extending credit. That task is currently performed by the banks that assume the credit risk. Credit cards also can aid in securing a procurement particularly if the client doesn't have enough money obtainable or during a bank account. further turnover is generated by the actual fact that the client should buy product and services right away and is a smaller amount repressed by the quantity of money in pocket and therefore the immediate state of the customer's bank balance. abundant of merchants' promoting relies on this immediacy.
COST TO MERCHANTS
Merchants square measure charged many fees for acceptive credit cards. The bourgeois is typically charged a commission of around one to four % of the worth of every dealings bought by mastercard.The bourgeois can also pay a variable charge, known as a bourgeois discount rate, for every dealings.In some instances of terribly low-value transactions, use of credit cards can considerably cut back the ratio or cause the bourgeois to lose cash on the dealings. Merchants with terribly low average dealings costs or terribly high average dealings costs square measure additional antipathetic to acceptive credit cards. In some cases merchants could charge users a "credit card supplement" (or surcharge), either a set quantity or a proportion, for payment by mastercard. This apply was prohibited by most mastercard contracts within the us till 2013, once a significant settlement between merchants and mastercard firms allowed merchants to levy surcharges. Most retailers haven't started mistreatment mastercard surcharges, however, for concern of losing customers.Merchants also are needed to lease or purchase process instrumentality, in some cases this instrumentality is provided freed from charge by the processor. Merchants should additionally satisfy knowledge security compliance standards that square measure extremely technical and complex. In several cases, there's a delay of many days before funds square measure deposited into a merchant's checking account. as a result of mastercard fee structures square measure terribly sophisticated, smaller merchants square measure at an obstacle to analyse and predict fees. Finally, merchants assume the danger of chargebacks by shoppers.
Merchants square measure charged many fees for acceptive credit cards. The bourgeois is typically charged a commission of around one to four % of the worth of every dealings bought by mastercard.The bourgeois can also pay a variable charge, known as a bourgeois discount rate, for every dealings.In some instances of terribly low-value transactions, use of credit cards can considerably cut back the ratio or cause the bourgeois to lose cash on the dealings. Merchants with terribly low average dealings costs or terribly high average dealings costs square measure additional antipathetic to acceptive credit cards. In some cases merchants could charge users a "credit card supplement" (or surcharge), either a set quantity or a proportion, for payment by mastercard. This apply was prohibited by most mastercard contracts within the us till 2013, once a significant settlement between merchants and mastercard firms allowed merchants to levy surcharges. Most retailers haven't started mistreatment mastercard surcharges, however, for concern of losing customers.Merchants also are needed to lease or purchase process instrumentality, in some cases this instrumentality is provided freed from charge by the processor. Merchants should additionally satisfy knowledge security compliance standards that square measure extremely technical and complex. In several cases, there's a delay of many days before funds square measure deposited into a merchant's checking account. as a result of mastercard fee structures square measure terribly sophisticated, smaller merchants square measure at an obstacle to analyse and predict fees. Finally, merchants assume the danger of chargebacks by shoppers.
SECURITY
Credit card security depends on the physical security of the plastic card similarly because the privacy of the mastercard variety. Therefore, whenever an individual aside from the cardboard owner has access to the cardboard or its variety, security is probably compromised. Once, merchants would typically settle for mastercard numbers while not further verification for order purchases. It's currently common apply to solely ship to confirmed addresses as a security live to minimise fallacious purchases. Some merchants can settle for a mastercard variety for in-store purchases, whereat access to the quantity permits simple fraud, however several need the cardboard itself to be gift, and need a signature (for magnetic tape cards). A lost or taken card is off, and if this is often done quickly, can greatly limit the fraud which will manifest itself during this manner.
