[Regi *, Vol.4 (Iss.

9: SE): September, 2016] ISSN- 2350-0530(O) ISSN- 2394-3629(P)

IF: 4.321 (CosmosImpactFactor), 2.532 (I2OR)

Management

CREDIT CARD - A WAY TO GENERATE LEGITIMATE MONEY FOR

PAYMENTS
S.Bulomine Regi. *1
(M.Com., M.Phil., MBA(HR)., PGDBA., M.Sc (Psy))
*1
Asst. Professor, Department of Business Administration (BBA), St.Xavier’s College
(Autonomous), Palayamkottai, Tirunelveli, Tamilnadu- 627002, INDIA

DOI: 10.5281/zenodo.151671

ABSTRACT
This paper discusses on credit card features, advantages and disadvantages. It helps the reader
to enrich themselves in knowing about credit card in detail. Credit cards enable an individual
to purchase products or services without paying immediately. The buyer only needs to present
the credit cards at the cash counter and sign the bill. Credit card can, therefore, be considered
as a good substitute for cash or cheques. A Credit card is a card or mechanism which enables
cardholders to purchase goods, travel and dine in a hotel without making immediate
payments. The main objective of this paper is to identify and study the advantages and
disadvantages of using credit card. From this paper, it is observed that credit card is boon if
the credit cardholder used with special care, otherwise the cardholder has to face deficit in
their course of time.

Keywords:
Credit Card, Advantages, Disadvantages, Features, Operation Cycle, Description about Credit Card.

Cite This Article: S.Bulomine Regi., “CREDIT CARD - A WAY TO GENERATE

LEGITIMATE MONEY FOR PAYMENTS”, International Journal of Research –
Granthaalayah, Vol. 4, No. 9: SE (2016): 1-8.

1. INTRODUCTION

The credit card business got momentum in the sixties and a number of banks entered the field in
a big way. Credit card culture is an old hat in western countries. In India, it is relatively a new
concept that is fast catching on. The present trend indicates that the coming years will witness a
burgeoning growth of credit cards which will lead to a cashless society. Credit has become an
important vehicle of trade promotion. Credit cards provide convenience and safety to the buying
process. One of the important reasons for the popularity of credit cards is the sea change
witnessed in consumer behaviour. Credit cards enable an individual to purchase products or
services without paying immediately. The buyer only needs to present the credit cards at the cash

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counter and sign the bill. Credit card can, therefore, be considered as a good substitute for cash
or cheques.1

A Credit card is a card or mechanism which enables cardholders to purchase goods, travel and
dine in a hotel without making immediate payments. The holders can use the cards to get credit
from banks up to 50 days free of cost. The credit card relieves the consumers from botheration of
the carrying cash and ensures safety. It is a convenience of extended credit without formality.
Thus credit card is a passport to, “safety, convenience, prestige and credit.”2A credit card is a
plastic card having a magnetic strip, issued by a bank or business authorizing the holder to buy
goods or services on credit. Any card, plate or coupon book that may be used repeatedly to
borrow money or buy goods and services on credit is called credit card issued to charge bills. 3
Most retail firms accept credit cards. Credit cards allow consumers to make purchases without
paying cash immediately or establishing credit with individual stores. They eliminate the need to
check credit ratings and to collect cash from individual customers. The issuing institution
establishes the card’s terms, including the interest rate, annual fees, penalties, the grace period,
and other features. Credit card debt is typically an unsecured debt. Repossession is not easily
accomplished by the lender to ensure payment. Banks have often priced the product assuming
maximum risk exposure4.

A credit card is a device which enables the holder to obtain goods on credit from specified
supplies. The holder of the card, in some cases, has to pay the yearly subscription and the
suppliers also have to pay commission on sales to the bank or the body issuing the card. The
suppliers are paid promptly and so are protected against bad debts, while the holder makes a
single monthly payment to cover all the purchases for that period. Credit cards are issued only
after the applicant’s credit worthiness has been accepted as satisfactory. According to credit
rating, holder of the credit card may be allowed a specified amount of credit from one month to
another.5

A credit card, as the name indicates, enables the cardholder to enjoy credit from the issuing bank
for a specific period after the purchases. During this intervening period, the cardholder is allowed
to use the card for incurring further expenses.6A bankcard is used to make an electronic
withdrawal from funds on deposit in a bank, as in purchasing goods or obtaining cash advances.
Credit cards are one of the most popular forms of payment for consumer goods and services in
the United States.

1
S. Gurusamy (2007). Merchant Banking and Financial Services. Chennai: Vijay Nicole Imprints Private
Limited, p.344.
2
E. Gordon and K. Natarajan (2006). Financial Markets and Services. New Delhi: Himalaya Publishing
House, pp.414.
3
http://www.advfn.com/money-words_term_1199_credit_card.html.
4
C.J. Woelfel (1994). Encyclopaedia of Banking and Finance. New Delhi: S. Chand and Company Limited,
pp.267.
5
J.L. Hamson (1970). The Structure of Modern Commerce. London: The English Language Boom Society
and Maclonaled and Evans Ltd., p.170.
6
RBI (1994). Report of the Committee on Technology Issues Relating to Payment System, Cheque Clearing
and Security Settlement in the Banking Industry, Mumbai: RBI, pp.75.

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2. FEATURES OF CREDIT CARD

The features of modern credit cards such as owner identification, credit limit for its cardholders
and floor limit for its merchant establishments, convenience and safety to add value of cards,
wider usage or popularity all over the world and dependence on technology to keep operating
cost to the minimum, have been a runaway success for credit cards.7

Along with convenient, accessible credit, credit cards offer consumers an easy way to track
expenses, which is necessary for both monitoring personal expenditures and the tracking of
work-related expenses for taxation and reimbursement. Credit cards are accepted worldwide, and
are available with a large variety of credit limits, repayment arrangement, and other perks (such
as rewards schemes in which points earned by purchasing goods with the card can be redeemed
for further goods and services or credit card cash back). Some countries, such as the United
States, the United Kingdom, and France, limit the amount for which a consumer can be held
liable due to fraudulent transactions as a result of a consumer's credit card being lost or stolen. A
credit card is part of a system of payments named after the small plastic card issued to users of
the system. The issuer of the card grants a line of credit to the consumer (or the user) from which
the user can borrow money for payment to a merchant or as a cash advance to the user. A credit
card is different from a charge card, which requires the balance to be paid in full each month. In
contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest
charged. Most credit cards are issued by local banks or credit unions, and have the same shape
and size, as specified by the ISO 7810 standard.8

3. OPERATION CYCLE OF CREDIT CARD

The credit card operation comprises the following steps as follows:9

i. Credit purchases: A Cardholder purchases goods/services and gives the credit card.
ii. Processing of credit card: A Merchant establishment delivers goods after taking an
authenticated credit card and noting the number and taking signatures on certain forms.
iii. Raising of bill: The Merchant establishment raises the bill for the purchase and sends it
to the credit card issuing bank for payment.
iv. Marking payment: The issuing bank pays the amount to the merchant establishment.
v. Bill to cardholder: The issuing bank raises bill on the credit cardholder and sends it for
payment.
vi. Card Payment: The credit cardholder makes the payment to the issuing bank.

4. FEES CHARGED TO CUSTOMERS

Interest free credit period is applicable only on retail purchases and if previous months balance
outstanding is paid in full. It may vary from banks for 20-50 days.
The major fees are for:10

7
S. Gurusamy (2007). op. cit., p.343
8
http://en.wikipedia.org/wiki/credicard.
9
S.Gurusamy (2007), op.cit. p.340.
10
www.icicibank.com

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 No joining fees, annual fees and renewal fees are applicable on the primary and
secondary card member unless indicated by the banks.
 Late payments or overdue payments (30% of minimum amount due, subject to minimum
of 400 and maximum of 600)
 Charges that result in exceeding the credit limit on the card (whether done deliberately or
by mistake), called over limit fees (2.5% of over limit amount, subject to a minimum of
500)
 Returned cheque fees or payment processing fees ( 250 )
 Cash advances and transaction fees (2.50% on advanced amount, subject to a minimum
of 300) on Easy deposit card – NIL for ICICI Bank ATM cash withdrawals fees.
 Transactions in a foreign currency (3.5% of the amount).
 Outstation Cheque Processing Fee (1% of the cheque value, subject to minimum of
100)
 Dial-a-Draft – Transaction Fee (3% of the draft value amount subject to a minimum of
300).
 Railway Booking Surcharge (1.80% for Internet transactions and 2.5% for other
bookings)
 Fee on Cash payment at Branches ( 100)
 Interest will be charged if cardholder do not pay back the previous bills is full, and also
on all cash advances from the data of transaction until date of settlement.

5. DESCRIPTION ABOUT CREDIT CARD

The below figure clearly explain the description about credit card.

Figure 1: Front side of credit card11

11
http://blog.groundlabs.com/wp-content/uploads/2013/05/creditcard.png

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Figure 2: Back side of credit card12

6. DEBIT AND CREDIT CARD COMPLAINTS

Bank As on 2013-14
State Bank of India 4994*
Canara Bank 402
ICICI 1823*
AXIS 925
*Highest number of complaints among Public and Private sector banks in India

7. NUMBER OF OUTSTANDING CREDIT CARD ISSUED IN INDIA

Banks As on Dec 201513

State Bank of India 181510063
Canara Bank 30400318
ICICI 31440440
AXIS 15421431

8. ADVANTAGES OF CREDIT CARDS

Convenience
Credit cards can save time and trouble--no searching for an ATM or keeping cash on-hand.

Record keeping
Credit card statements can help the customer to track the expenses. Some cards even provide
year-end summaries that really help out at tax time.
12
http://www.jagoinvestor.com/wp-content/uploads/files/credit-card-signature-cvv.png
13
https://rbidocs.rbi.org.in/rdocs/ATM/PDFs/ATM15032016927415422E6849EC8CFB2DD40E1939D3.PDF

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Incentives
Some providers will offer incentives for using plastic cards, such as loyalty points, cash back or
donations to charity.

Flexible credit
Most cards offer an interest-free period, the customer can benefit from free, short-term credit if
the customer is clear about the balance in full by the due date. They offer flexibility and
convenience, allowing making emergency purchases or paying for more expensive items by
instalments.

Low-cost loans
The customer can use revolving credit to save today (e.g., at a one-day sale), when available cash
is a week away.

Instant cash
Cash advances are quick and convenient, putting cash in hand when there is need of it.

Perks
From frequent flier miles to discounts on automobiles, there is a program out there for everyone.
Many credit card companies offer incentive programs based on the amount of purchases make by
the customer.

Build positive credit

Controlled use of a credit card can help to establish credit for the first time or rebuild credit if
had problems in the past, as long as to stay within the means and pay bills on time.

Purchase protection
Most credit card companies will handle disputes made by the customer. If a merchant won't take
back a defective product, check with the credit card company.

Balance surfing
Many credit card companies offer low introductory interest rates. These offers allow their
customers to move balances to lower-rate cards.

9. DISADVANTAGES OF CREDIT CARDS

Overuse
Revolving credit makes it easy to spend beyond the means.

Paperwork
It is needed to save the receipts and check them against the account statement for each month.
This is a good way to ensure that it haven't been overcharged.

High-cost fees
The purchase will suddenly become much more expensive if carry a balance or failed to settle a
payment.

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Unexpected fees
Typically, pay between 2 and 4 per cent just to get the cash advance; also cash advances usually
carry high interest rates.

No free lunch
The high interest rates and annual fees associated with credit cards often are more important than
the benefits received. Savings offered by credit cards can often be obtained elsewhere.

Homework
It's up to make sure to receive proper credit for incorrect or fraudulent charges.

Deepening the debt

Consumers are using credit more than ever before. If charge freely, it may quickly find in over
the head, as the balance increases, so do the monthly minimum payments regularly. Whilst it's
easy to run up a large debt on plastic, it can be much harder to repay it, and this can take a
considerable amount of time.

Teaser rates
Low introductory rates may be an attractive option, but it last only for a limited time. When the
teaser rate expires, the interest rate charged on the balance can jump dramatically.

Interest charges
If interest charges incurred, it can take longer to clear the balance, and will probably end up
costing more.

No interest-free period for cash advances

Interest rates for withdrawing cash are significantly higher than for balance transfers or
purchases and there's no interest-free period, interest is charged from the date of the withdrawal,
regardless of whether to clear the balance in full or not.

10. CONCLUSION

Most often credit cards can provide convenience but it can also land in debt through unwise
choices or through no fault of the own, such as an emergency. In order to overcome the risks of
credit card use, avoid accumulating too many and pay the debt off on time, read terms and
conditions carefully and take measures to avoid fraud. Credit card which is my product has a
negative impact on people because on the way they used their credit card. consumers think that
using their credit cards for online shopping or other necessary things they might need to buy is a
good thing, but they are actually wrong because is bad thing. They might not know if someone is
taking their money and then might have to pay the overdrew of the credit card they have. Some
other negative impacts are that consumers may continuously roll over the balance for several
months. Also when consumers default on credit card payments, it’s charged with late fees and
interest increasing the debt load.

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