CREDIT CARDS

"spend now, pay later" 

INTRODUCTION

The credit card lending business experiences rapid change, but not just in the technology environment. New competitors continue to emerge from not only the banking industry, but from phone companies, retailers and others. At the same time, consolidation among credit card issuers has also increased.

A credit card generally operates as a substitute for cash or a check and most often provides an unsecured revolving line of credit.

MEANING OF CREDIT CARD

A credit card is a type of credit facility, provided by banks that allow customers to borrow funds within a pre-approved credit limit. It enables customers to make purchase transactions on goods and services. The credit card limit is determined by the credit card issuer based on factors such as income and credit score, which also decides the credit limit. 

ORIGIN OF CREDIT CARD IN INDIA

The evolution of credit cards began in the late 1980s when public sector banks like the Central Bank of India embraced the trend of promoting Visa cards. Vijaya Bank, in a strategic move, countered Visa's dominance by introducing Mastercard in 1988. This period coincided with India's economic liberalisation, fostering a growing middle class with increased disposable incomes. 

CREDIT CARDS INDIAN CONTEXT

In India, in the past decade, there has been a surge in the number of credit card users, with private and public banks ranging from Kotak Mahindra Bank to the State Bank of India offering various types of cards. With an improvement in technology, the usage of credit cards has increased rapidly. In addition, payments for almost everything are now online.

Due to demonetization, which led to insufficient currency flow, citizens turned to cards to keep up with monthly purchases. In January 2018, according to the Reserve Bank of India, 36.2 million credit cards were being used.

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HOW CREDIT CARD LOOKS?

In physical form, a credit card traditionally is a thin, rectangular plastic card. The front of the card contains a series of numbers that are representative of various items such as the applicable network, bank, and account. These numbers are generally referred to in aggregate as the account number or card number. A magnetic stripe, often called a magstripe, runs across the back of the card and contains some of the account’s information electronically. The back of the card also contains a cardholder signature box. There are many other physical attributes to a credit card; however, as technologies progress, their physical form is morphing. For example, multi-application cards (sometimes referred to as smart cards) involve aspects of cryptography (secret codes) and, in place of the magstripe, have a microprocessor, or chip, built into the card.

HOW CREDIT CARD LOOKS?

CREDIT CARDS PROCESSING

EXAMPLES OF CREDIT CARDS

BENEFITS OR FEATURES OF CREDIT CARDS

Welcome Gift

Many of the banks and other financial institutions are offering exciting welcome gifts to the new credit card applicants at the time of issuing a credit card to them. The welcome gift could be discounts, vouchers, or reward points.

Reward Program

All credit cards generally have a reward program that allows the card users to make some reward points on each transaction they are making using a credit card.

Fuel Surcharge waiver

The credit card provider is offering a fuel surcharge waiver to the cardholders on spending a specific amount on fuel each day.

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BENEFITS OR FEATURES OF CREDIT CARDS

Cashback benefits

Credit card users get certain cashback benefits on making purchases at certain places like spending groceries or doing online transactions using a credit card.

Lifestyle Benefits

The cardholders can enjoy numerous lifestyle benefits on their credit cards like offers on shopping, wellness, dining, entertainment, etc.

Travel Benefits

The main travel benefits offered for using the Credit Card are Airmiles, airport lounge access, travel insurance, airline offers, hotel bookings, etc.

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BENEFITS OR FEATURES OF CREDIT CARDS

Airport Lounge Access:

Some of the credit cards offer complimentary airport lounge access to the cardholders that varies from one card issuer to other.

Add-on Cards:

Many banks offering cardholders an add-on facility. It means they can add the names of their immediate family member to their credit card account.

Insurance Coverage

Some of the premier cards provide a comprehensive insurance policy that is giving coverage against credit card outstanding, lost baggage, air accident, lost card, etc.

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BENEFITS OR FEATURES OF CREDIT CARDS

Balance Transfer Credit Card

Credit card holders can transfer the outstanding balance of their existing cards issued by one bank to another credit card account.

Global acceptance

Most credit cards issued in India are International Credit Cards and are accepted by various merchants all over the world.

EMI conversions

The feature allows credit card members to convert their credit card transactions into easy monthly installments (EMI).

Credit Score

Owning a credit card helps you build a healthy CIBIL score. By making timely payments on your card and in full, you receive a positive credit score from a credit bureau, CIBIL.

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DISADVANTAGES OF CREDIT CARDS

Overspending�Since credit cards offer you credit to a huge extent, there may be instances where you make unnecessary purchases of the available limit and fall in debt trap later.

Fraudulence�Even though credit cards are considered one of the safest financial tools, they may still be susceptible to online frauds. Fraudsters or thieves may also steal your credit card information and make improper use of the same. Additionally, if the fraudulent transaction is made by any third party, it becomes the cardholder’s responsibility to inform the bank within three days of occurrence of the transaction.

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DISADVANTAGES OF CREDIT CARDS

High Interest Charges�There is a very high interest rate applicable on the billed amount using a credit card, which may eventually lead you to high debts. However, this interest is applicable only in case of late payments of the credit amount.

Surcharges�Upon making a certain specific payment using a credit card, you might have to incur an additional fee known as surcharge. This fee, is however, generally applicable on expenses made on fuel and railway bookings.

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DISADVANTAGES OF CREDIT CARDS

Limited Cash Withdrawal�Unlike debit cards, cash withdrawals from credit cards charge a fee. There is an applicable annual interest rate of around 40% (3.35% per month) on withdrawing cash using a credit card.

Minimum Due

One of the major disadvantages of a credit card is the minimum due amount mentioned at the top of the credit card statement. A lot of credit card holders, especially the new ones, mistake the minimum due amount for the total credit card bill amount and do not pay the bill amount in full. Due to this, users believe that their credit card bill is actually low and eventually end up spending a higher amount and paying high interest charges.

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PRECAUTIONS WHILE USING CREDIT CARDS

• Keep your card safe – That means storing it in a secure location and being careful not to lose it. In case you lose it, you need to report it to the bank immediately so that they can block it and ensure that the card is not misused.
• Use strong passwords and PINs – Ensure that the passwords and PINs are strong. They should not be easily guessed like your name or your date of birth.
• Online shopping – Shop only at reputed websites that use secure payment gateways. You should also avoid making purchases on public Wi-fi networks as they are not secure and can be hacked.
• Get your credit card token – RBI has recently asked all banks to create tokens for card details. That means that while paying at an e-commerce website, the customer will not punch in the 16-digit card number. Instead, the bank will issue a token which would link the card to the specific website. Hence sensitive details like card number, expiry date, and CVV would not be shared with the merchant and will be safe.���

DIFFERENCE BETWEEN CREDIT AND DEBIT CARD

• Using a credit card responsibly can help build credit, unlike a debit card.
• Credit cards can add to your debt if the statement balance isn’t paid off on time. Debit cards don’t grow your debt—you can only spend money you already have.
• If a credit balance goes unpaid, it may accrue interest—which can add up over time. Since you’re not borrowing money with a debit card, you don’t have to worry about interest charges.
• Some credit cards have an annual fee. Most debit cards don’t come with annual fees, although issuers may charge for other things like overdraft fees or ATM withdrawal fees.
• Many credit cards offer rewards, like cash back or miles. But debit cards typically don’t earn rewards.

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CONCLUSION

To conclude, it can be clearly inferred that irrespective of all the credit card advantages and disadvantages, you should go for buying a credit card for yourself. As you do so, include habits like paying your credit card bills well in time, and handling your credit card expenses responsibly in your financial routine, which will eventually lead you to availing the maximum benefits that a credit card has to offer.