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L-11.IBFS.A - CA(IBFS L-11 Credit Cards This lesson deals...

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CA (IBFS) L-11: Credit Cards This lesson deals with: - 1. The Concept of Credit Cards 2. Parties to Credit Cards 3. Features of Credit Cards (Credit/Charge/Debit Cards) 4. Operational Aspects of Credit Cards 5. Credit Cards Business in India: The Emerging Scenario 6. Issues/Problems of Credit Cards 1. The Concept of Credit Cards : Credit Cards or Plastic Money refers to the substitution of the usage of currency money at the time when the transaction of buy and sell is taking place by usage of a plastic card representing such substitution, which may either be due to postponement of payment or because of purchase on the card that is issued. Plastic money protects the user from the risks of carrying cash. It is the exclusive property of the cardholder. Thus Credit Card is a ‘Pay Later Product” along the dimension of time for settlement/payment. These cards are a form of consumer loans, revolving credit account that has a credit line of a specific amount that can be borrowed against in part or in full. As the outstanding balance is paid, the available credit line is restored for use again. 2 . Parties to Credit Cards : 1. Card Issuers: Mainly Banks like Citi, HSBC, HDFC, SBI, Standard Chartered, ANZ Grindlay’s, etc., who generally offer a credit period of 30-45 days at 2.5% on outstanding amount remaining unpaid on expiry of credit period; 2. Cardholders : These are individuals and business organizations based on gross and net income levels; 3. Member Establishments (MEs) : These are the well established and reputed establishments with standing and reputation enlisted by the Card Issuer who accepts valid credit cards towards payment for the goods sold or services rendered by them to the cardholders in lieu of cash. They are retail outlets, departmental stores, restaurants, railways, airlines, hotels, travel agencies, gas stations, etc. MEs will have to pay to the Card Issuers a certain percentage of discounts on the credit card transactions; 4. Member Affiliates (MAs) : The Card Issuers may sometimes enter into a tie-up of credit card with MAs- for interbank tie ups, both Foreign and Indian Banks - whose names and logos would be printed on the cards, which arrangement enlarges the scope and operations of the plastic cards (e.g. Master Card International, Visa International, American Express, etc). 5. Clearing Agencies : A card issuer affiliates itself with Master Card International or Visa International which act 1
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as clearing agencies, enabling the cardholder of one affiliate to use his card at the MEs of another affiliate.
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