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Chapter 9 Credit Cards, ATMs Etc

The document discusses credit cards, including their history, features, transaction processing, parties involved, and classification. Credit cards allow customers to borrow credit from banks up to an approved limit and revolve balances. Visa and Mastercard are the largest card networks.

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Muhammad Aamir
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115 views9 pages

Chapter 9 Credit Cards, ATMs Etc

The document discusses credit cards, including their history, features, transaction processing, parties involved, and classification. Credit cards allow customers to borrow credit from banks up to an approved limit and revolve balances. Visa and Mastercard are the largest card networks.

Uploaded by

Muhammad Aamir
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Chapter 9: Credit Cards

CHAPTER - 9

Credit Cards

Credit Cards:
Credit cards include any card, which a
customer can use to borrow credit from a
bank. It is a revolving line of credit
available to the customer upto a
maximum of approved amount. The
customer can avail this amount again
subject to repayments.

SBP Regulations:
According to the PRCF, credit cards include charge cards, debit cards,
Stored Value Cards (SVC), and Balance Transfer Facility (BTF).
Supplementary credit cards are considered part of the principal borrower
according to the Prudential Regulations, whereas Corporate Cards are
not included in this category. Maximum limit of Rs 500,000 is allowed,
however, Rs 2 Million may be approved to prime customers subject to
meeting 50% DBR criteria.

Brief History:
In September 1958, Bank of America launched the BankAmericard in Fresno, California.
BankAmericard became the first successful recognizably modern credit card and with its
overseas affiliates, in 1977 changed its name to Visa.

To compete with BankAmericard a group of banks established Master Charge in 1966


and Citibank launched Everything Card in 1967. In 1969 Citibank merged its Everything
Card into Master Charge. Later Master Charge changed the name to Master Card.

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Chapter 9: Credit Cards

Credit Card Appearance:


Front Back

1. Issuing Bank Logo 1. Magnetic Stripe


2. EMV chip (on "smart cards") 2. Signature Strip
3. Security Hologram 3. Card Security Code
4. Card number
5. Card Network Logo
6. Expiration Date
7. Card Holder Name
8. Contactless Chip

Generally, Credit Card Number is of 16 digits in length. First 6 digits are


Bank Identification Number (BIN) / Issuer Identification Number (IIN)
next 8 digits are Account Number or Account Identifier and last digit is
check digit which is assigned randomly.
EMV, which stands for Europay, MasterCard, and Visa, is a global
standard for inter-operation of integrated circuit cards (IC cards or "chip
cards"), for authenticating credit and debit card transactions.

Contactless Chip is a new feature which is not yet available in Pakistan.


Cards having this chip does not require any contact with POS terminal.

Card Association:

An association of card-issuing banks such as Visa, MasterCard,


American Express, Discover, Diner’s Club, JCB etc. that set transaction
terms for merchants, card-issuing banks, and acquiring banks. These
financial facilitators does not issue cards, extend credit or set rates and fees for
consumers.

Among these companies Visa is the largest in terms of issued cards and
transaction volume. The term Visa was conceived by the company's
founder, Dee Hock. He believed that the word was instantly recognizable
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Chapter 9: Credit Cards
in many languages in many countries, and that it also denoted universal
acceptance. Visa provides financial institutions with Visa-branded
payment products that they then use to offer credit, debit, prepaid and
cash-access programs to their customers. In 2008, according to The
Nilson Report, Visa held a 38.3% market share of the credit card
marketplace and 60.7% of the debit card marketplace in the United
States. In 2009, Visa’s global network (known as VisaNet) processed
62 billion transactions with a total volume of $4.4 trillion.

Billing:
Customer is billed for transactions conducted within a period of one
month and is allowed 19-21 days period to pay the bill in full or partially.
If a customer pays full amount of bill, he is not charged with any markup
or service charges. However, if the customer pays partial or minimum
amount i.e 5% of outstanding amount, only then he is charged with
markup.

General Features:
Applicant/ Borrower: Pakistani Resident

Age: 21-61 years (maturity of loan at 61 yrs.)

Salary/ Income: Salaried: Rs. 30,000/-per month


SEB/SEP: Rs. 40,000/-per month
Employment/Business 1 Year
Tenure:
Limit:  Silver : Rs 25,000 – Rs 149,000
 Gold : Rs 150,000 – Rs 499,000
 Platinum: Rs 500,000 –Rs 2,000,000

Debt Burden: Maximum 50% of the net disposable


income
Tenor: 1 - 5 years

Mark up : Secured Salaried: 3.2% per month


SEB/SEP: 3.45% per month

Parties Involved:
Credit card transaction takes only few seconds to execute but it is a
complex process which involves various parties and steps to complete a
transaction.
 Card Holder: The holder of the card used to make a purchase; the
consumer.
 Card-Issuing Bank: The financial institution or other organization
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.

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Chapter 9: Credit Cards
 Merchant: The individual or business accepting credit card
payments for products or services sold to the cardholder.
 Acquirer: The financial institution accepting payment for the
products or services on behalf of the merchant.
 Merchant account: This could refer to the acquiring bank or the
independent sales organization, but in general is the organization
that the merchant deals with.
 Credit Card Association: An association of card-issuing banks
such as Visa, MasterCard, American Express, Discover, Diner’s
Club, JCB 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.

Classification and Provisioning:

CLASSIFICATION DETERMINANT TREATMENT PROVISION


OF INCOME TO BE MADE*
Loss. Where mark- Unrealized mark- Provision of
up/interest or up/interest to be 100% of the
principal is put in Suspense difference
overdue by 180 Account and not resulting from
days or more from to be credited to the outstanding
the due date. Income Account balance of
except when principal less the
realized in cash. amount of liquid
securities with
the bank/DFI.

Credit Card Transaction Processing:

Credit card is one of the most widely used consumer financing product
all over the world. A credit card transaction only takes a few seconds to
execute, however, a complex system is working behind it. The 4 step
process is illustrated as following.

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Chapter 9: Credit Cards

Step 1 – Authorization

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Chapter 9: Credit Cards
Step 2 – Batching

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Chapter 9: Credit Cards

Step 3 – Clearing

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Chapter 9: Credit Cards

Step 4 – Funding

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Chapter 9: Credit Cards

Consumer Financing Process


Either customer is approached by Bank’s sales staff or
customer himself visits the branch to apply for
Application: consumer financing product, customer is required to fill
in specific application form and submit it alongwith
some required documents.

Upon receiving the application from the customer, the


sales staff forwards it to consumer loan processing unit.
The unit staff screen the application that application
form is correctly filled, all the required documents are
Screening:
attached and the customer is eligible to apply or not as
per bank’s policy. If any discrepancy is found the
application is sent back to sales and qualifying
application is processed further.

Verification of all the provided documents and details


are conducted for genuiness. Customer’s credit
worthiness and repayment behavior is gauged through
Processing: e-CIB report. Customer’s ability to repay the loan is also
assessed, as no customer is allowed to avail loans if,
installment of all loans availed by him exceeds 50% of
his net disposable monthly income.

Loan application of qualifying customer is approved by


Approval:
consumer finance credit committee.

Customer is then required to sign loan agreement


documents and legal documents. After scrutiny of these
Disbursement:
documents, financing amount is disbursed into
customer account as per policy or specified terms.

` 66

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