international journal of contemporary practices

8/12/2019 International Journal of Contemporary Practices

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www.aircindia.net 15

International Journal of Contemporary Practices - Vol. 1, Issue. 12 ISSN: 2231-5608

on the card. It is the most popular and convenient payment tools in the

world. It is a part of payment and clearing system. From appearance,

credit card is a plastic card having a magnetic strip, issued by a bank that

authorizes the card holder to buy goods or services within credit limit.

How credit cards work

Credit cards are issued by a credit card issuer, such as a bank or credit

union, after an account has been approved by the credit provider, after

which cardholders can use it to make purchases at merchants accepting

that card. Merchants often advertise which cards they accept by

displayingacceptance marks generally derived from logos or may

communicate this orally, as in "We take (brands X, Y, and Z)" or "We don't

take credit cards".

When a purchase is made, the credit card user agrees to pay the card

issuer. The cardholder indicates consent to pay by signing areceipt with a

record of the card details and indicating the amount to be paid or by

entering apersonal identification number (PIN). Also, many merchants

now accept verbal authorizations via telephone and electronic

authorization using the Internet, known as acard not present

transaction (CNP).

Electronic verificationsystems allow merchants to verify in a few seconds

that the card is valid and the credit card customer has sufficient credit to

cover the purchase, allowing the verification to happen at time of

purchase. The verification is performed using a credit card

payment terminal or point-of-sale (POS) system with a communications

link to the merchant's acquiring bank. Data from the card is

obtained from amagnetic stripe or chip on the card.

Forcard not present transactions where the card is not shown (e.g.,e-

commerce,mail order, and telephone sales), merchants additionally verifythat the customer is in physical possession of the card and is the

authorized user by asking for additional information such as thesecurity

code printed on the back of the card, date of expiry, and billing address.

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

any charges that he or she thinks are incorrect. Otherwise, the cardholder

must pay a defined minimum proportion of the bill by a due date, or maychoose to pay a higher amount up to the entire amount owed. The credit

issuer chargesinterest on the amount owed if the balance is not paid in
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full (typically at a much higher rate than most other forms of debt). In

addition, if the credit card user fails to make at least the minimum

payment by the due date, the issuer may impose a "late fee" and/or other

penalties on the user. To help mitigate this, some financial institutions can

arrange for automatic payments to be deducted from the user's bank

accounts, thus avoiding such penalties altogether as long as the

cardholder has sufficientfunds.

SWOT Analysis

Strength is something an organization is good at or something that gives

the organization advantage. Weakness is something an organization lacks,

that means inferioraspects compared with competitors. Both strength and

weakness belong to internal factors of the organization. Opportunity is a

potential to advance the organizationby the business development and anunfulfilled market need. Threat is something that may reduce the potential

advantage of the organization. Both threat and opportunity belong to

external factorsof the organization.

Strengths of Credit Card

Accepting credit cards makes good business sense. Below are key benefits

that you can receive fromaccepting credit cards all of which add up to a

smart business decision.

1. Avoiding the risk of carrying cash. For large purchases, you do nothave to withdraw a large amount fromyour bank and carry it around

while shopping because you run the risk of being robbed. A credit

card is easy, convenient, and safer than carrying so much cash in

your bag orpocket.

2. Avoiding inferior products. If you purchased a product and findout

that it doesntwork as expected, and the seller tells you they will just

replace it, or they assure you that it is under warranty, dontwaste

your time. Send a letter to your credit card company that you are nothonoring and will not pay for the transaction. Then tell your seller

that they could get their product back and return the charge slip you

signed. Dont waste your time taking the inferior product several

times to the shop for warranty repair. Thatshow easy it is to reject a

product that has not delivered its marketingpromise.

3. Keep Records of your expenses. Aside from official receipts, credit

card statements make a good record of your expenses.

4. Cash Back and Rewards Points. Most credit cards have a rewards

program that you will find useful in your store transactions.
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5. Convenient Online Purchases. Some credit card companies have

begun issuing extension cards exclusively for your online purchases.

This separates your online purchases from the purchases done with

your main credit card. This card usually has a smaller fraction of

your total credit limit.

6. Building a good Credit Standing. If you use your credit card

properly, you will improve your credit score/ credit rating in

the financial community. If you have a high balance in your credit

card you lose your credit score points. Having a good credit

standing entitles you to higher loans.

7. Cash Advance.You could get some cash from your credit card. Just

stick it into your ATM machine and key in your pin; or go inside the

bank and file a cash advance at the counter.

8. Various Branding offers: Most importantly credit cards offer various

discounts & schemes which are associated with entertainment, travel,

shopping etc. Issuing Credit Card Banks tie up with the reputed

brands to sell products/services at attractive rates which you canbuy

through your credit cards. To check offers running on your credit

card.

9. Emergencies: One of the major credit card advantages is in the case

of emergencies. Unexpected auto repairs, medical bills, natural

disaster damage or other financial crises may arise where individuals

may not have the cash up front. Credit cards can be utilized to cover

these unexpected costs without having to resort to begging family or

neighbors or taking out extremely high-interest loans from payday

lenders.

Weaknesses

There are various features of a credit card that seem to be a gift for the

person using the card. But a little bit of carelessness can change the entire

position and the same factor can end up being a curse for the credit card

user. The cost for this has to be paid in the form of higher interest and

charges that make it a costly way to use fundsif due care is not taken.

1. Interest cost: The interest that a person pays while using a credit

card is the highest among all the options available in the market.

Specific loans come at reasonable rates, for example, a car loan can

be taken at an interest rate of 14%-15% per annum. Similarly,apersonal loan where there is no restriction on the end usage is

available at the rate of 18%-19% per annum but when it comes to a
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credit card the amount paid by a user is anything between 35%-42%

depending upon the exact rate charged. This makes credit cards one

of the costliest ways of borrowing, and hence one has to be extra

vigilant in trying to avoid this high cost.

2. Charges: The payments made by a credit card user do not end with

interest charges because there are a lot of other payments that might

be required to be paid on the credit card. This is mainly in the formof

penalties and charges. For example, inability to pay the required

amount of the credit card in time can lead to a late payment charge

that can be anything between Rs 300-Rs 500. Similarly, making

expense over the credit limit might be permitted by the credit card

company but this comes at a heftyprice in the form of a high charge.

All these can add up to a significant figure, increasing the overall cost

of using the credit card.3. Credit trap: Things are great as faras the usage of thecredit card is

concerned when things are under control. In such a position, there

can be no charge and no interest payment but the moment one falls

into the revolving cycle there are a whole lot of factorsthat impact the

person at the same time. For example, the moment one fullpayment

is missed every single expense is covered by the interest rate and no

credit period is available. Similarly, more and more usage of credit

cards is encouraged which often makes the payback a difficult task

for the user.

4. Multiple credit cards: The other disadvantage is that people

accumulate more and more credit cards as these are issued very

easily by banks. This makes the problem of managing multiple credit

cards a very difficult task. Remembering the payment dates and

amounts for each one along with the other requirements often

become a tough task leading to missing out on some occasions. This

can result in a large amount of charges coming in which is an

additional cost. Using multiple credit cards also leads to lower controlover the overall financesbecause of the large amount of borrowings

thatpile up.

5. Overspending: A credit card is the worst enemy of impulsivebuyers.

A credit card user is always liable to develop a tendency of

overspending. For example, if your salary is Rs 50,000 and the credit

limit on your card is Rs 1,00,000 it doesntmean that you can afford

to spend Rs 1,50,000. The additional Rs 1,00,000 is just a loan

facility provided, and as all loans are repaid this one too needs to be

paid off.
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Threats

Keeping your credit card safe is harder than you think. Security threats

lurk at every corner, and if you happen to be one of the millions that take

your credit card online forpurchasing, your security is compromised with

every click.

1. Smishing is the newest type of security threat, and if refers to

hacking methods through text messaging mediums. There has been

an increase in these types of crimes. Consumers were instructed to

call a number, where a voicemail told them to press 1. Then a

fraudulent agent came on the phone and asked for the consumers

sensitive bank information. Banks dontusually send out mass text

messages; consumers can avoid this type of scam by always calling

the number on the back of their card if there are any issues with their

account. Credit cards are at constant risk. In order to keep it secure,watch out for these basic types of security threats.

2. Exposure to General Economic Trends: For the creditpayment

system to thrive, card holders must continuously and increasingly

consume with their credit cards. A downturn in the economy will

reduce overall transaction volume and in turn the profits of credit

card companies. In addition, downward economic trends may cause

more card holders to default on their payments, thereby forcing

issuing banks to sustainlosses.

3. Credit default: Credit Default is a continual risk to credit card

issuers. They take responsibility for paying the acquiring banks, who

then pay the merchants for the transactions, then bill the card holder

for the balance. If the card holder cannot pay, however, the card

issuer still must pay the acquiring bank. This risk is mitigated,

however, by legal regulation that allows the credit card issuer to

pursue the defaulted borrower for the money owed. Furthermore,

credit card companies actually profit when people don't pay their

credit card bills on time, because they earn interest on the late

payments.

4. Concerns over Interchange Fees: Interchange fees represent

another pressure facing the credit card industry. They have

skyrocketed over recent years to become the second-largest cost after

payroll at some major retailers, such as Wal-Mart

Opportunities: An extensive research and prudent analysis has been done

on the India credit card market to understand factors that will continue to


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serve as growth saviors for the market during the coming years. The report

identified that various factors such as, increasing trend of e-shopping and

changing consumer pattern have resulted into the higher usage of credit

cards in the country.

1. Developing the Rural Market: First of all, farmers are growing

richer, therefore their needs to consume more also expands

accordingly. Also, during busy harvesting seasons, farmers tend to

need more cash to keep up with their operations. But now credit

cards are barely present in the rural area and it is difficultfor farmers

to borrow enough money merely from local governments. Credit cards

are the best answer to their problems

2. Personal Credit Evaluation System and CRM System: Havingbad

debt due to customers

inability to pay back is a major cause of lossin profits for credit card business. But now a personal credit

evaluation system will be implemented. This allows banks to know

better their customersbefore they decide to authorize credit cards to

them.

3. Multi-CobrandedCards: Atthe moment it is mostly the case that one

card is only bound with one co-brander (amerchant offering goods or

services such as shopping website or travel agency).As the variety of

cards keep on growing wider, many customers find it becomingharder to choose one card among all the appealing options. Therefore

some consumers start to demand for multi-cobranded cards.

Besides, it is anticipated that the future prospects of the credit card

industry will remain buoyant owing to the low credit card penetration

coupled with rising income in view of its safety and easy access. There are

several other benefits like reward points and discounts by merchants as

well as bankers, which will lure customers to shop by their credit cards.

Moreover, the increasing trend of e shopping has also provided theimpetus to the growth of this industry. This huge demand for credit cards

is providing tremendous growth opportunities for credit card issuers,

suppliers, and manufacturersin the country.

Conclusion: There has been a huge growth in the number of payment

transaction using debit and credit cards. We have also studied innovations

in terms of offerings and technology in payment card industry which will

bring transparency, ease, and security in the use of these cards.

Increasing trend of online shopping and other benefits, like reward points

and discounts, offered by merchants as well as bankers attract customers


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to shop using payment cards. Despite the financial turmoil and decline in

credit card base, the overall trend will remain positive during the forecast

period backed by increasing transaction volume, innovations, and

guidelines craftedby RBI.

international journal of contemporary practices

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