CREDIT CARD

ORGANIZATIONS

Rohit Pandey
Lecturer Finance
IMS Ghazibad
The Issuer(imp. aspects to issuing side):

• Sales and Marketing

• Customer Service
• Authorizations
• Administrative support functions
• Application processing, verification process and
credit decision
• Card issuance and other production functions
(e.g. : production of cards, setting up of
accounts and dispatch, etc.)
• Collections
 Sales and Marketing
• The credit card market – Competitive and
Multiplicity of cards available
• Efforts to increase the customer base
• Increased customer base in itself is not
enough
“Increasing customer base along with
increased usage of the cards must be the
goal”
 Sales and Marketing cont.
• Increased usage is assured by innovative
and creative ideas of Marketing, namely
by running customer loyalty programmes
(e.g. : use of “lock in”, other examples)
 Sales and Marketing cont.
• Various channels through which banks sells
their cards:
Cross selling to existing customers
Bank’s in-house sales force targeting corporate
customers (Bank managed accounts)
Use of Direct Selling Agents (DSAs)
Advertising and endorsement by celebrities
Special programmes during special events like
World Cup, etc.
 Other channels like internet and direct mail offers
• The four P’s of Marketing (Product, Price, Place
and Promotions)
 Customer Service
“ It is almost ten times more expensive to
get a new customer then to retain an old
one”
• Ideal strategy inside an organization must
be to serve the present customer base and
expand the customer base
 Customer Service cont.
• Channels for communication available to
customers are:
– Emails and websites on internet
– Post office mails
– Telephone contact with branch
– Customer service centre
– Drop boxes and suggestion boxes
– Direct contact with the designated contact officer
(esp. applicable in case of corporate customers)
 Customer Service cont.
2 Options with the
bank

BOTH
• Inhouse for
imp. Clients
• Outsourcing
of
Customer
Service centre
1. In house service • Use of IVS 2. Outsourced Service
(Interactive
Voice System)
for routine and
simple
customer
interactions
 Authorizations
“ Authorization refers to a decision process in
which the issuing bank informs the merchant via
the Acquiring bank’s system that the card the
customer desires to use, is in good standing and
has enough balance/limit to make transactions”
Autho
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Authori
zation
Authorizations (Various Ways)
• Process Flow
• Offline transactions
• Referrals
 Authorizations ( Process Flow)
• Card Swiped on the EDC (Electronic Data
Capture) machine
• Request from the Merchant to the Issuing bank via
Acquiring bank and Clearing Network
• Issuing bank checks the account status of the
customer and grants or rejects the request
• Issuing bank makes an Authorization number,
which also appears on the Pay slip – the issuing
bank deducts the balance from the customers
account as soon as it accepts the request
 Authorizations ( Process Flow)
• The remaining part of Credit balance is on
which the customers can make purchases
is known as OTB (Open To Buy)
 Process Flow
Authorization

Accepted Rejected Process taking

Stolen Card
“Pay-slip: “ Declined/Do- more than 7-13
“ Hot listed card,
Authorization not seconds “time
please pick up”
No.” accept/honor” out”
 Pick Up Card Reward
Credit cards

  International Domestic Cards

Visa USD 150+15 Rs. 425

Master Card USD 150 Rs. 225

ATM Cards

Visa USD 5+15 Rs. 60 per card

Master Card USD 5 Nil

 Authorizations (Offline transactions)
• Merchant EDC is not working, network between banks
snapped and online mode not available – Manual
Authorization
• Merchant calls his bank (Acquiring Bank – AB), AB gets in
touch with Issuing bank via phone/fax/telex and gives
details
• Issuing bank checks the customers account manually and
gives authorization code
• Immediately after authorization the OTB has to be changed
manually
• Some checks needs to be conducted to verify bona fides of a
customer
 Some common detail checks
• Full name of the customer as it appears on the card
• Customer’s mothers maiden name
• Last three digits on the backside of card, which is unique
• Date of birth
• Billing address
• Date on which last payment was made
• Mode of last payment
• Credit limit on the card
• Last two transactions
• Any other details that the bank may know about the
customer
 Authorizations (Offline transactions)
• The above mentioned checks helps bank to safeguard
against losses before committing itself to the Acquiring
Bank
• Generally frauds are seen in cases of high transaction
amounts
• The VISA and MASTER CARD guidelines state that the
merchants need not seek authorization for amounts
smaller than a certain sum. The details are as under:
Floor limit Amount
VISA Rs. 3,000 per transaction per day

Master Card Rs. 2600 per transaction per day

 Authorizations
(Offline transactions-hot list bulletin)

• This bulletin is the compilation of all the cards

which are reported as stolen or lost by the
banks’ customers
• This bulletin is updated every 15 days and hence
the acquiring bank is supposed to give this
information to the merchant
• If the merchant accepts a card from this bulletin
he will not be reimbursed the charge of
goods/services sold
 Authorizations (Referrals)
• Monitored transactions which require
both electronic as well as manual
authorization
• These are done to prevent fraudulent
transactions
• Both electronic and manual authorization
follow the steps already discussed before
 Referrals
• The following are the transaction that needs to be
tracked on a regular basis:
 Cash withdrawal
 Purchase of Jewels and precious stones
 Purchase of Antiques
 Purchase of highly valued electronic goods which are not bulky
in nature
 An unusual flurry of activities, say 8 to 10 transactions in a day,
when the previous records reflect that the customer used his
card only once a week
 Any single purchase which happens to cross a certain
percentage of the overall credit limit, for example any single
transaction valued at more than 60% of the credit limit
 Code 10
• This is referred to as the case under which the
merchant feels that the customer who is with
him is fraudulent
• The merchant calls up the acquiring bank and
requests for Code 10
• Then he is asked 10 standard questions to which
he is supposed to reply only in “yes or no”
• Upon getting the answers the bank decides to
allow for the transaction or ask for pick up.
 Temporary Credit Increases
• They are processed in the same way as the
referrals are processed
• Once the bank is satisfied about the
creditworthiness of the customer the
approval maybe granted to the customer
to purchase beyond the limit
Administrative support functions

Other Administrative support functions

Systems Department Chargeback Team

 Management of Incoming and
Outgoing files
• A Bank is both issuer and acquirer
• If the bank is a acquirer it will collect all the charges
from the merchant and send it to respective banks via
interchange
• Merchants periodically settle with the banks (which
means the data captured on EDC is transferred to the
banks Mainframe)
• This is followed by bank having to make payment to
the merchant on next working day
• The bank will have to forego the funds till the issuer
bank remits them the funds
Management of Incoming and Outgoing
files
• The bank may ideally take around 3 days from the
time the bank receives data files from the merchants
to such time that it receives funds from the issuers
• The banks have to be efficient and quick at sorting
and formatting the data as per the rules of VISA and
MASTER CARD networks, else they will suffer
revenue loss
• Any delay indicates that the bank will have to
borrow funds from outside to repay money to
merchants
 DAY 2
Funds given to
merchants
DAY 1 DAY 3
Files screened,
Files received Amount settled
processed and
from merchants Money received
formatted
Files send for
settlement
 Management of Credit Card account

Unsatisfied customer and revenue loss

details

“Real time update is the key”….???

1. Case of Lost 2. Case of wrong OTB

cards…increased position which can be due to
frauds several reasons like…

Recent ATM
Purchases not withdrawal/deposits
updated not updated
 Provision of Online facilities
• Cost reduction strategy used by banks
• It saves per customer service time of the
employees – thus increasing operational
effectiveness
• Customers can avail various facilities 24 x
7
 Chargeback Team
• This team concentrates on “exceptional transactions”
• Normal transaction: Customer willing to pay, merchant
gets his payment, Acquirer Bank is paid by Issuer Bank
• Exceptional transaction =……?...It starts mostly with
customer deciding to dispute the transaction..so here
some party who is wrong has to take the hit.
• When the dispute is raised from the customer, the entire
payback process is put on hold till Chargeback team
produces its report
• If customer is found to be wrong, he will be charged a
fees for it
 Nine Steps for Chargeback Team
STEP 2 STEP 3
Two Issuing Bank
possibility “Charges the STEP 4
a. Customer transaction Acquiring Bank
is right back” against has to submit
(temporary the Acquiring the details
STEP 1 relief on Bank. This is within a
Charge slip payment) via the stipulated
taken from b. Customer clearing period of time.
the customer is wrong, he network They seek the
has to bear through merchant for
fee for which the the same
retrieving settlement (Merchant may
the charge was done take the hit!!)
slip previously.
 STEP 5
If
merchant STEP 6
STEP 7
has other Acquirer
If IB is
document Bank
convince STEP 8
s to prove makes
d by the If IB is not
that the “represen STEP 9
documen convinced
billing tation of Arbitratio
ts, they they can go
amount is charges” n decision
accept for
correct, and gives is final
the arbitration
then he issuing and is
represent with VISA
has to bank the conveyed
ation and or
produce it additional to both of
matter is MasterCard
in a fixed document the banks
closed
time s
frame
Thank You
 Customer loyalty
• Discounts on annual fees
• Free cards
• Chances to win lottery
• Co-branded cards
• Air miles
• Bonus points
• Affinity Cards
• Special Cards
BACK
 Where IVS can be used ?
• Information of balance outstanding
• Location of ATM to draw cash
• Various types of charges and fees like late fee,
fee for breaching credit limit, etc.
• Latest promotions and schemes
• Procedure for increasing credit limit
• Bonus points and means for redeeming the same
• Various types of availability of cards and
eligibility criteria, etc.
BACK
 Credit Card Transaction Cycle
Clearing
Network
Acquiring
Bank
Makes payment
to retailer
Issuing
bank
Sells goods

Charge- slip(Payment)
Merchant
Swipes Card
Customer

BACK