MBA(FT) 4 T H SEMESTER

SUBJECT – FINANCIAL SERVICES

SUBMITTED BY: - SHRUTI PENDHARKAR

CONSUMER CREDIT

CONTENTS

• Consumer Credit

• Credit Cards

• Debit Cards

• Difference between credit and debit cards

CONSUMER CREDIT

(a) Defined as “money, goods or services provided to an individual in lieu of payment.”

(b) The amount of credit used by consumers to purchase non–investment goods or services that are consumed and whose value depreciates quickly.

(c) This includes automobile, recreational vehicles (RVs), education, boat and trailer loans but excludes debts taken out to purchase real estate or margin on investment accounts.

(d) Home Mortgage is not consumer credit.

CREDIT CARDS

DEFINITION

(a) Defined as “a small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit.”

(b) It allows the cardholder to pay for goods and services based on the holder’s promise to pay for them.

(c) The issuer of the card creates a revolving account and 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.

TYPES OF CREDIT CARD

Balanced Credit cards

Rewards Credit Cards

Business Credit Cards

Standard Credit Cards

Charged Credit Cards

Secured Credit Cards

Standard Credit Card

Also called “plain-vanilla” credit cards because they offer no frills or rewards.

The standard credit card allows you to have a revolving balance up to a certain credit limit.

Credit is used up when you make a purchase and made available again once you've made a payment.

A finance charge is applied to outstanding balances at the end of each month.

Credit cards have a minimum payment that must be paid by a certain due date to avoid late-payment penalties.

Balanced Credit Card Many credit cards come with the ability to transfer

balances, a balance transfer credit card is one that offers a low introductory rate on balance transfers for a period of time.

Rewards Credit Cards

As the name indicates, rewards cards are those that offer rewards on credit card purchases. Three basic types of rewards cards:

cash back points travel

Some people prefer the flexibility of cash back rewards, while others like points that can be redeemed for cash or other merchandise. Travel rewards cards remain a favorite among frequent travelers because of the ability to earn free flights, hotel stays, and other travel perks. Charge Cards

Do not have a preset spending limit and balances must be paid in full at the end of each month.

Charge cards typically do not have a finance charge or minimum payment since the balance is to be paid in full.

Late payments are subject to a fee, charge restrictions, or card cancellation depending on your card agreement

Secured Credit Cards

An option for people who don't have a credit history or who have damaged credit.

Secured cards require a security deposit to be placed on the card.

The credit limit on a secured credit card is typically equal to the deposit made on the card, but it could be more in some cases.

You're still expected to make monthly payments on your secured credit card balance.

Business Credit Cards

Designed specifically for business use. They provide business owners with an easy method of

keeping business and personal transactions separate.

MECHANISM OF CREDIT CARDS

A credit card issuing company, such as a bank or credit union, would enter into agreements with merchants for them to accept their credit cards.

The credit card issuer would issue a credit card to a customer at the time or after an account has been approved by the credit provider, which need not be the same entity as the card issuer. 

The cardholders can then use it to make purchases at merchants accepting that card. 

When a purchase is made, the cardholder agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN).

Electronic verification systems allow merchants to verify in a few seconds that the card is valid and the cardholder has sufficient credit to cover the purchase, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or point-of-sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is called Chip and PIN in the United Kingdom and Ireland, and is implemented as an EMV card.

Each month, the cardholder is sent a statement indicating the purchases made with the card, any outstanding fees, and the total amount owed.

ADVANTAGES DISADVANTAGES

ConvenienceRecord keepingInstant cashBuild positive creditPurchase protection

OveruseHigh-cost feesUnexpected feesDeepening your debtTeaser rates

ADVEANTAGES & DISADVANTAGES

DEBIT CARDS

DEFINITION

(a) Defined as “A card issued by a bank allowing the holder to transfer money electronically to another bank account when making a purchase.”

(b) A debit card is a plastic payment card that provides the cardholder electronics access to their bank account at a financial institution.

(c) Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash.

TYPES OF DEBIT CARD

PIN only cards

Dual Cards

EBT cards

Prepaid Cards

PIN-only cards PIN-only debit cards are linked to your bank or credit union

account. You can use a PIN-only card to get cash from an ATM, make

deposits, transfer funds between accounts, buy goods or services from retailer and pay certain bills online or by phone.

Dual – use cards Dual-use debit cards are both signature- and PIN-enabled,

and are tied directly to your financial institution account. Prepaid Cards

Prepaid cards are not associated with any specific account, but instead provide access to funds deposited directly on the card by you or a third party – like a store, friend or family member. When you make a purchase with a prepaid card, funds are taken directly from the actual balance on the card.

EBT cards Electronic Benefits Transfer (EBT) cards are provided by

many state or federal government agencies to people who qualify for cash payments, food stamps or other benefits.

MECHANISM OF DEBIT CARDS

Debit cards give you a fast, easy and secure way to make a purchase or withdraw cash.

When you use your debit card to buy something or withdraw money from an ATM, the transaction usually takes three important steps:

(a) The transaction is forwarded through what is called a payment processor.

(b) The processor routes the transaction to an ATM/debit network.

(c) The network then sends the transaction to your bank or credit union. Your financial institution verifies the availability of funds and then approves or declines the transaction.

When a purchase is made, the cardholder agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN).

Electronic verification systems allow merchants to verify in a few seconds that the card is valid and the cardholder has sufficient credit to cover the purchase, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or point-of-sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is called Chip and PIN in the United Kingdom and Ireland, and is implemented as an EMV card.

Each month, the cardholder is sent a statement indicating the purchases made with the card, any outstanding fees, and the total amount owed.

ADVANTAGES DISADVANTAGES

Prepaid cardAlternative to cashImmediate transfer of

fundsInstant withdrawal of

cashControl Limit

Record keeping is mandatory

Convenience is not always guaranteed

Hidden fees are everywhere

Internet scams are commonplace

Safety

ADVEANTAGES & DISADVANTAGES

Difference between Credit and Debit card