Credit cards

What is a Credit Card?

• A credit card, in physical terms, is a plastic card issued by a bank or a financial institution. The
card issuer, either a bank or a financial institution, provides a credit card to eligible individuals
with a maximum credit limit.

• Cardholders can make purchases using the card within the specified limit on credit. The used
amount should be paid back at a later date, typically within 30 to 45 days, called grace period or
interest-free period, from the date of purchase.

• If the used credit on the card is cleared on-time, banks will not charge any interest. Whereas
unpaid dues on card will attract finance charges till they are cleared in full.
 Anatomy of a Credit Card

• Each and every element imprinted on a credit card has a role to play in
making the card work.

• The front side of a credit card have some components, while its back side will
have others.
 Elements on the front side of a credit card

• Credit card number

• Card issuer logo
• Credit card name
• Credit card network
• Cardholder’s name
• Chip on the card
• Valid from and Valid thru
• Contactless card icon
 Elements on the back side of a credit card

• Magnetic strip
• CVV security code
• Signature box
• Hologram
• Customer helpline numbers
 Credit Card Number
Credit Card 1st Digit Representing Industry

1 and 2 Airlines

3 Travel and Entertainment

4 and 5 Banking and Financial

6 Banking or Financial and Merchandising

7 Petroleum

8 Telecommunications and Health Care

9 For assignment by national standards bodies

 Credit Card Number

• The 16-digit credit card number printed at the center of a credit card is not
just a system generated random number.

• Each digit or a set of digits of the number provide specific information about
the type of card, card issuer, and others.
 Credit Card Number

Digit 1 of a credit card number – Major Industry Identifier(MII)

• The first digit of a credit card number is called Major Industry Identifier (MII)
and represents a particular industry that issued the card.

• Each digit from 1-9 represent a different industry.

 Credit Card Number

• Since, card networks come under banking and financial category, the digits 4
and 5 are assigned to the two popular card networks – VISA and MasterCard.

• Hence, those two cards begin with 4 and 5 respectively. Amex cards, on the
other hand, begin with 3.
 Credit Card Number

Credit Card 1st Digit Representing Card Network

3 Amex Credit Cards

4 Visa Cards

5 MasterCard
 Credit Card Number

• There are other network providers outside India, whose cards begin with
different digits.

• The remaining digits, 2-6 represent a particular institution.

 Credit Card Number

Digits 1-6 of a credit card number – Issuer Identification Number(IIN)

• The first 6 digits of a credit card number including the first digit are called Issuer Identification
Number or Bank Identification Number (BIN). They represent the card’s issuing bank.

• Each bank in India follows a different sequence of IIN numbers. For example, one of the three IIN
numbers used by HDFC for its MasterCard credit cards is 531831.

• Thus, by looking at the first 6 digits of a credit card, one can identify the industry, card network
and the issuing bank.
 Credit Card Number

Digits 7-15 of a credit card number – Account number of card holder

• The next 8 digits of a credit card number from 7 to 15 contain the primary account
number (PAN) of the credit cardholder. PAN is a unique number assigned by the
issuing bank to identify the cardholder, hence is a critical part of the credit card
number.

• These digits are often masked in all the communications by the bank.
 Credit Card Number
Digit 16 of a credit card number – The check digit
• The last digit of a credit card number is called check digit because it is used to check
accuracy of card numbers.

• The number is typically generated by applying a mathematical formula called the

Luhn Algorithm, which uses the previous digits in a credit card number to get a
single digit. The number thus helps to validate that all the digits in a credit card
number are correctly entered during a transaction.
 Card Issuer Logo

• The next component of a credit card that is predominantly displayed either

on the top left or top right side of a credit card is the card issuer’s name.

• If the card is issued by HDFC, the bank’s logo along with its name will be
printed on the card.
 Credit Card Name

• Just on the opposite side to the bank’s name is the credit card name. Each
credit card these days come with a different name.

• The same name will be printed either on the top left or top right side of a
credit card. For instance, Premium Card, Diner’s Delight card, etc., are names
of a few credit cards.
 Credit Card Network

• At the bottom right corner of a credit card, the logo of credit card network
provider will be printed.

• In India VISA, MasterCard, Amex and RuPay are popular network providers.
The networks are responsible for processing payments made with the card.
 Cardholder’s name

• Most credit cards have the cardholder’s name imprinted on the bottom right
side of the card.
 Chip on the card

• The chip embedded on a credit card holds cardholder’s information. Powered by EMV
(Europay, MasterCard, Visa) technology, the chip-enabled credit cards offer an efficient way
to store information and provide protection against fraud compared to the traditional
magnetic strip-based cards.

• The chip-based cards are dipped in to the swipe machine instead of swiping the magnetic
strip, until the transaction is processed.

• If the merchant terminal is not updated to the chip-based technology, the cards can still be
swiped using the magnetic stripe present on the back side.
 Valid From and Valid Thru

• Right below the credit card number, one can find two different dates in MM/YY
format.

• The first date typically is the account opening date and the next date is the card
expiry date. Card expiry date doesn’t mean the account will expire on that date but
reminds the cardholder to get a new card before the card expires.

• The dates are typically used during some online credit card transactions. Some cards
only have card expiration date
 Contactless card icon

• Contactless payment technology is the latest entrant in card payments.

Credit cards enabled with contactless payment technology will display a
symbol similar to volume symbol on the front side of the card.

• The symbol represents radio waves using which the technology makes card
payment without swiping or dipping the card at the point of sale terminal
 Contactless card icon

• Cardholders just need to tap or wave the card near the card reader to make
the payment.

• However, the terminal should be technology enabled to accept such cards. In

absence of such terminals, the cards can be dipped or swiped through the
reader.
 Magnetic strip
• The black magnetic strip behind a credit card is made of millions of tiny magnetic
particles and carries all of the account information.

• That is the reason the card is typically swiped across the magnetic strip using the
card reader. Once the card is swiped, the machine reads all the account
information and processes the transaction.

• If the magnetic strip is scratched or dirty, it becomes hard for the card reader to
read the account information.
 CVV security code

• Below the magnetic strip is the CVV (Card Verification Value) security code which
actually is a fraud-prevention tool.

• The numeric code is typically required for card-not-present transactions such as

online purchases.

• For MasterCard and VISA cards, the CVV is typically 3 digits whereas for Amex cards
it is 4 digits.
 Signature box

• Another fraud prevention tool on a credit card is the signature box. However, the
feature is hardly used. Cardholder’s must sign in the box to make the card legally
valid.

• In case of suspicious card present transaction, the signature on the card will be
matched with the one on the cardholder’s signature proof such as PAN card.

• The signature is typically used to check whether or not the person using the card is
owner of the card.
 Hologram

• The glittering little sticker below the magnetic strip is a hologram security feature. It
prevents the card from physical copying.

• The hologram contains various layers of images at different angles. Some images are
also hidden within these layers. The design of the hologram, with multiple images in
different layers, makes it difficult to copy the card with a scanner.

• One cannot make a copy of the card as it’s difficult to capture the hologram.
 Customer helpline numbers

• Most credit card issuers print customer care numbers on the back side of the
credit card.

• They are typically printed either at the top or bottom of the card.
Cardholders should make a note of the same and use them when they have
specific queries related to their credit card.
 Credit Card PIN

• Credit Card PIN or personal identification number is a numeric code that provides additional
security for a credit card. The PIN is required to process a transaction at a point-of-sale
(POS) terminal and for ATM related transactions.

• A credit card PIN typically ranges from four to six digits and is generated by the card issuing
bank using a coding system that makes every code unique for each customer.

• The PIN acts as an additional security layer for POS transactions as it is mandatory to
process the transaction.
 How is a credit card PIN issued?

• Earlier banks used to send credit card PINs through PIN mailers. The mailers used to hide
the PIN number with scratch-off panels, which used to further reveal any attempts of
tampering.

• Now it’s the era of green PINs. Banks no more send credit card PINs through post, instead
they are allowing cardholders to generate the PIN on their own.

• Credit cardholders are now supposed to generate their card PIN once they receive the
card using various channels including net banking account, bank ATM, through SMS or by
contacting customer care helplines.
 How to Use a Credit Card?

• The basic design of the credit card allows the cardholders to conduct card
only transactions. Which means the primary functionality of a credit card is
to use it to make card-based purchases.

• However, many credit cards come with cash advance feature, which allows
the cardholders to withdraw cash from the card within specified cash limit.
 How to Use a Credit Card?

Using credit card for online transactions: While making online purchases, credit card
holders need to provide card details on the payment page.
• On the payment page, choose ‘Credit Card’ as the preferred payment method
• Select the card issuing bank
• Enter the card details such as name on the card, card number and expiration date.
• Once the details are validated, on the payment gateway page you need to provide credit card
PIN or CVV or other password you have set for your card.
• Once the details are authenticated, the credit card payment will be processed.
 How to Use a Credit Card?

Using credit card at POS or merchant terminals:

Once your items are billed, tell the cashier that you want to make card payment
• The cashier enters your bill amount in the card reader and asks for your card. Based on your
card type, he will either swipe or dip or tap the card through the reader
• You will then be asked to enter your credit card PIN number. Check the entered bill amount is
correct and enter your PIN
• Once the PIN is verified, your transaction will be processed and your card will be handed over
back to you.
 How to Use a Credit Card?

Using credit card for ATM cash withdrawal : If your credit card permits cash withdrawal, you can use your card to
withdraw cash at an ATM.
• Visit any of the bank ATMs
• Dip or swipe your card in the card slot
• Select preferred language
• Enter the PIN
• Enter the amount you wish to withdrawn in the multiples of 100 and click on ‘Confirm’
• Select ‘Yes’ if you want receipt for the transaction or ‘No’ if you don’t need
• Collect the cash from the cash slot without delay.
• Don’t forget to take your card from the machine.
Mechanics of a credit card transaction
Authorization
Mechanics of a credit card transaction
Authentication
 What is Credit Card Limit?

• Credit card limit is the purchase limit set by the credit card company or a
bank on a particular credit card. The limit, which is usually in terms of money,
is the maximum amount the user can spend using a credit card.

• The credit limit is different for different cards and is determined based on the
customer’s eligibility.
 What is total credit limit?

• Total credit limit is the maximum credit available on your card at the time of
issuance. Banks will inform you the total limit on your card once it is issued.

• Total credit limit on a credit card remains the same until the limit on the card
is revised.
 What is available credit limit?

• Available credit limit is the amount available for spending on a card at a given point of time.
It is the difference between total credit limit and the amount spent on the card.

• Cardholders should follow the available credit limit to check how much amount is available
to spend on their card. The available credit limit on a card keeps varying with the spending
and repayments made on the card. It decreases with every purchase made on the card and
increases when a payment is made towards the card.

• It becomes equal to total credit limit when the entire dues on the card are cleared.
 What is cash limit?

• A part of credit limit on a credit card is typically allotted for cash withdrawal. Cash
limit is thus the maximum amount a cardholder can withdraw using a credit card.

• Again, there is total cash limit and available cash limit, similar to total and available
credit limits.

• All the aforementioned amounts including total credit limit, available credit limit,
and cash limit can be found in the credit card monthly statement or credit card net
banking account. Cardholders can also call the customer care to find the same.
 Basic Features Offered On A Credit Card

• Besides allowing cardholders to spend on credit within the specified limit,

credit cards also offer various features that are in most cases beneficial for
the user.

• Listed below are a few basic features offered by credit cards. The features are
offered on most of the credit cards.
 Cash withdrawal

• Credit card issuers allot a certain amount of credit limit as cash limit. Cardholders can withdraw
cash using the credit card within the specified limit.

• Withdrawing cash using a credit card is similar to withdrawing cash using a debit card from an ATM.
However, before withdrawing cash, cardholders should make sure the cash withdrawal facility is
available on their credit card. The feature is also referred as credit card cash advance.

• Cash advances, however, are charged differently from credit card-based transactions. Each credit
card withdrawal attracts a transaction fee, typically 2 to 2.5% of the transaction amount.

• Further, there is no interest-free period for cash advances meaning interest on the withdrawn
amount will be charged from the date of transaction till it is paid back in full
 Revolving credit

• Credit card issuers usually provide an interest free period for the users, typically between 30 to 45 days,
post which the dues on the card should be paid to avoid finance charges.

• If for some reason, a cardholder is not able to pay the entire outstanding due on a credit card, he can
avail the revolving credit option. It allows the cardholder to pay a minimum amount due (MAD), typically
5% of the outstanding, and carry forward the remaining outstanding balance to subsequent statements.

• The carried forward balance will attract finance charge at the rate decided by the bank till the amount is
paid back in full. By availing the revolving credit facility, cardholders can avoid late payment fee,
provided they pay the MAD before the due date.
 Reward points

• Another interesting feature offered by credit cards is the reward points program.

• To encourage cardholders to spend more on the cards, banks offer the rewards
program through which users can earn points for every Rs.100 spent on the card.
Customers can earn reward points on most of the purchases except for gold
purchases, fuel transactions, insurance payments, etc.

Once a minimum number of points are accrued by a cardholder, the same can be
redeemed for various gifts and coupons offered in bank’s rewards catalogue.
 Add on credit cards

• Many credit cards companies allow the cardholders to avail 3-4 add-on or supplementary cards
on the primary card.

• The add-on cards share similar limits, features and benefits like a primary card and will be issued
to immediate family members of the primary cardholder. Spouse, parents, children and siblings
above 18 years of age of the primary cardholder are eligible to apply for an add-on card.

• The purchases made on the add-on cards are, however, billed to the primary account and the
accountholder holds the responsibility of clearing all the dues related to all the add-on cards
associated with the account.
 Fees And Charges Associated With Credit
Cards

• How do credit card companies make money?

• Joining fee: Joining fee is the fee charged on a few credit cards, especially
premium cards. Cardholders need to pay the fee to avail the card. The joining
fee typically varies from the annual fee or renewal fee on the card.
 Fees And Charges Associated With Credit
Cards
• Annual or renewal fee: Most of the credit cards have annual fee, except those which are offered
on zero annual fee. The fee should be paid once the cardholder completes one membership year.

• The fee is mandatory for the first year and for the subsequent years, it should be paid only when
the cardholder wishes to renew the membership.

• Interest rate: Interest rate or finance charges are the charges levied by the card issuer in case the
cardholder opts for revolving credit or fails to pay even the minimum amount due on the card. The
interest rate is different for different banks and cards and is charged at a monthly percentage rate.

• In case a cardholder chooses not to pay the outstanding in full, interest will be levied on the due
amount from the date of transaction till it is paid in full.

• For cash advances, finance charges are applicable from the date of withdrawal till the payment is
made in full
 Fees And Charges Associated With Credit
Cards

• Outstanding due on a card carried forward from previous month and cash
advances will attract finance charges calculated by average daily balance
method. The same is also applied to all new bills on the card.

• In case, the cardholder opts to pay an amount less than MAD, finance
charges are applicable to the entire outstanding amount and all the new
transactions till the previous due is cleared in full.
 Fees And Charges Associated With Credit
Cards

• Interest-free period: Interest-free period or grace period is applicable only to card

transactions but not to cash withdrawals.

• The interest-free period varies from bank to bank and could range from 20 to 50 days
subject to the date of transaction.

• Interest-free period is not available if previous dues are not cleared and if the unpaid
balance from previous months is carried forward to the current month
 Fees And Charges Associated With Credit
Cards

• GST: Goods and services tax or GST is applicable on all fees, interest
transactions, and other charges levied on a credit card.

• Currently, a GST of 18% is applicable on all the aforementioned credit card

fees and charges.
 Fees And Charges Associated With Credit
Cards

• Late payment fee: Late payment fee on credit card payment is applicable only
when the minimum amount due is not paid on time. The late payment fee ranges
from Rs.100 to Rs.750 depending on the amount of statement balance.

• Cash advance fee: Every time a credit card is used to withdraw cash at an ATM, a
cash advance fee or transaction fee of about 2.5% of the withdrawn amount will
be charged. The fee will reflect in the next billing statement
 Fees And Charges Associated With Credit
Cards

• Over limit fee: The fee is applicable on credit cards that allow over limit meaning
cardholder will be able to use an amount above the credit limit on a card. In such
cases, an over limit fee of over 2.5% of the total outstanding amount exceeding
the credit limit will be charged to the account.

• Card re-issuance: In case of lost or stolen card, the bank will issue a new card. It
will charge a nominal fee towards card re-issuance.
 Credit Card Billing Cycle

• Credit card billing cycle is something which every credit card user needs to
know to make the most of the card.

• Knowing the cycle would help them make purchases in a timely manner so
that they can enjoy more number of interest-free days.
 Credit Card Billing Cycle

• Credit card billing cycle is the period of time between two monthly statements or
bills. A billing cycle for a credit card may start on 1st of every month or it may
begin from 15th of the month. If it starts on the 1st of the month, it will end on
30th or 31st of the same month.

• In case it begins on 15th, it will end on 15th of next month. The billing cycle of
each credit card varies in length and ranges from 20 to 45 days depending on the
credit card provider.
 How are credit card purchases billed?

• All the purchases and transactions done on a credit card during a particular billing
cycle will be posted, either added or subtracted, from the total credit balance.

• At the end of the billing cycle, all the unpaid charges along with the associated fees,
charges and finance charges, during the cycle will be billed and a statement will be
generated.

• Any purchase/transaction post the billing cycle will be carried forward to the next
billing statement.
 What is credit card payment due date?

• Credit card payment due date is the last date to make credit card bill payment for a
particular month. It is typically about 21 to 25 days after the billing cycle ends.

• The time between the billing cycle end date and bill due date is nothing but the grace period
or interest-free period. Credit card due date typically remains the same for all the months.

• Cardholders can find it in the monthly credit card statement or call the customer service to
know the same.
 What is credit card monthly statement?

• The credit card monthly statement is the bill generated at the end of every
billing cycle. It essentials contains all the transactions, both debit and credit,
made on the card during a particular billing cycle.

• It further includes the outstanding due for the month, due date, total credit
limit, available credit limit, cash limit and other components that are
necessary for a cardholder.
 What is credit card e-statement?

• Credit card e-statement is similar to regular credit card statement but in

electronic form. It is typically sent over an e-mail to the cardholders who
opted for the e-statement facility.

• However, some banks have completely migrated to e-statements and

stopped generating regular statements. E-statement contains all the
elements similar to a regular statement. It is typically sent as a PDF to the
cardholder’s e-mail ID and will be password protected.
 How to pay credit card bill?

Credit card companies provide more than a couple of avenues, both online and offline, to pay credit
card bill. Mentioned below are multiple channels offered by various banks.
• Credit card bill payment through net banking
• Pay credit card bill from an ATM
• Pay bill through phone banking
• Through standing instruction facility
• Payment through NEFT fund transfer
• Through VISA money transfer facility
• Payment through Bill Desk using other banks net banking accounts
• Payment through cheque or draft
• Cash payment at bank branches
 Advanced Features On Credit Cards

• While the basic credit card features are offered on most of the credit cards,
there are some other features offered by a few cards.

• Mentioned below is a list of all such advanced features offered by credit

cards.
 Advanced Features On Credit Cards

• Cash on EMI/ EMI on Call : Cash on EMI / EMI on Call allows the cardholders to convert
the total outstanding on their credit card into equated monthly installments (EMI).
However, the minimum amount eligible for EMI conversion is typically Rs.3,000.

• Once the cardholder applies for cash on EMI / EMI on Call, based on the repayment
tenure, interest rate and transaction fee will be added to the total outstanding on the card
and the same will be divided equally along the tenure. The EMI for each month will be
added to the minimum amount due on the card till the due is cleared in full.
 Advanced Features On Credit Cards

• Credit card Balance transfer --- Credit cardholders can transfer the
outstanding balance on one credit card to another using the balance transfer
facility.

• The feature is more beneficial when one finds a bank offering lower interest
rate compared to the existing bank. Some banks do offer balance transfer on
EMI, in which the transferred amount can be converted into equated
monthly instalments.
 Advanced Features On Credit Cards

• Fuel surcharge waiver: Another common feature offered on most of the cards these days is the fuel
surcharge waiver facility.

• Using the cards that offer the facility would enable cardholders to make fuel related purchases without
paying a fuel surcharge, which is typically levied on all card transactions conducted at petrol stations.

• Credit card for Airport lounge access : Some credit cards, particularly those related to lifestyle, provide
complimentary access to airport lounges at both domestic and international airports.

• The visits will be limited to 1 per quarter and in most cases valid only for the primary accountholder.
 Advanced Features On Credit Cards

• Insurance coverage: Some credit cards, especially those related to travel, come with
insurance coverage. They typically offer accidental insurance cover, coverage for lost
baggage and passport, etc.

• Cashback: The cash back feature on a credit card allows cardholder to get a certain
percentage of transaction amount as cash back.

• The cash back offer is typically offered on a particular category of spends, which the credit
card company wants to promote or have partnered with.
 Advanced Features On Credit Cards

• Dining discounts: Another common feature offered on credit cards is the

offers and discounts related to dining. By just having a few credit cards,
cardholders become eligible for dining offers, discounts and special privileges
at select restaurants.
 Branding
Branding Strategies
Co-branding (dual branding or co-partnering)
• Significance of co-branding
• Enhances the brand reputation through synergies (BOB and BPCL)
• Influences the potential customer at a psychological level. (LG-SBI, SBI with Hero
Honda)
• Co- branding increases brand awareness
• Co branding helps in bringing new customers
• Co-branding helps in reducing costs of operations.
 Brand Measurement

Key brand metrics

• Customer experience
• Customer retention
• Customer loyalty
 Pricing

• Factors influencing Pricing Decisions

• Consumer Price awareness
• Perceived price value
 Pricing Issues

1. Risk based pricing

2. Use of APRs (Annual Percentage Rate)

3. Fees
• Annual fee
• Joining fee
• Cash advance fee
• Balance transfer fee
• Late payment fee
• Over the credit limit fee
• Credit limit increase fee
 Promotional Mix

• Promotional Mix components viz. advertising, sales promotion, personal

selling and public relation are given due importance in the credit card
industry.
 Credit card advertising

• Advertising objectives depending on specific marketing goals

 Advertising appeals

Rational appeal
Price appeal
Quality appeal
Feature appeal
Emotional appeal
Humour appeal
Fear appeal
Music appeal
 Sales Promotion

• Introductory offers
• Cash back schemes
• Reward programs
• Cause related marketing (Citibank introduced CRY related credit card CRY--
Child Rights and You)
 Personal Selling

• Direct Sales force

• Direct mail
• Direct selling agents
• Call centres
 Distribution

• Branch Network
• Online through internet
• Direct Selling agents
• Merchant Establishments
 The Current Scenario

• Credit card usage

• Technology
• Credit cards for Corporate use
• Fraudulent Practices
 Fraudulent Practices

• Application fraud
• Lost and stolen cards
• Non receipt (mail intercept)
• Counterfeit card (fake cards)
• Account takeover
 CRM in Credit Card Marketing

1. Customer Service challenge (Training, Billing and payment)

2. Customer retention
• Market structure definition
• Segmentation
• Recognising service needs
• Segmented service strategy