plastic_money

8/8/2019 Plastic_Money

1/32

PLASTIC MONEY

Any card issued by a bank ,even a non-

traditional bank, that accesses a customers

financial resources

Includes general purpose and limited purpose

credit cards, ATM cards, debit cards, smart

cards and check guarantee cards.


2/32

TYPES OF CARDS

Credit cards

Form of consumer loan with a revolving creditaccount that has a credit line of a specific amount.

Issued by both traditional and non-traditional banksi.e. financial entities.

Categorized as general purpose or proprietary.

Offer other services like, ,cash advances.,convenience checks, automatic travel insuranceetc.


3/32

TYPES OF CARDS CONTD.

ATM cards

Permits customers to access and transact current

and savings account 24 hrs a day, every day off the

year, through automated teller machines

Offer services like ,dispensing cash, handling

deposits and withdrawals, checking accountbalances, making loan payments ,print transaction

statements etc.


4/32

Debit cards

Directly access the customers saving or current account

Instead of accessing a credit line, funds are deducted from

the cardholders deposit account. Categorized as on the line and off the line

Smart cards

Plastic card into which a tiny computer chip is embedded Filed with a Monetary Value

Also used to store data for informational purposes.


5/32

Check Guarantee card Attached to a line of credit associated with a personal checking

account.

Has largely been replaced by ATM cards.

Private Label Card

Credit is extended by the bank which ahs a contractual

agreement with the retailer

Can be used only in stored designated by the name or label of theretailer that appears on its face.

Underlines a one to one relationship between the retailer and thecustomer.


6/32

Affinity group cards Bank card designed for groups with some form of a common interest or

relationship. For eg:cards for professionals ,alumni of a specific college

etc.


7/32

BENEFITS OF BANK CREDIT CARDS


8/32

BENEFITS TO CARDHOLDERS

No need of checks

No cash to carry

No difficulty in purchasing (mail order)

Wide acceptance

Credit readily available

Delayed payment

No risk

recordkeeping


9/32

BENEFITS TO MERCHANTS

Help in boosting and making impulse sales

Easy to validate

- call bank authorization centre- electronic authorization

No risk in extending credit


10/32

BENEFIT TO BANKS

Easy way to extend credit

Attract diverse and new customers

Role of merchants- offer discounts

- deposits


11/32

FUNCTIONS

National Associations (VISA and MasterCard)

Interchange

Clearing/Settlement

Issuer Bank (Cardholder Bank)

Acquirer Bank (Merchant Bank)


12/32


13/32

ISSUER FUNCTIONS

Administration

Marketing

Credit Processing

Card Issuance

Incoming Interchange

Cardholder Billing

Cardholder

Authorization

Payment Processing

Customer Service

Overlimit

Collections

Fraud Control


14/32

ACQUIRER FUNCTIONS

Center Administration

Proof and Capture

Outgoing Interchange Risk Management

Merchant Sales

Merchant Associations


15/32

BANK OPTIONS IN SERVICE

DELIVERY Stand-Alone

Regional Associations

Outside Service Providers


16/32

CREDIT CARD PROFITABILITY


17/32

ISSUER ECONOMICS

Revenues

Interest Income

Determined by multiplying the annual percentage rate

(APR) by rollover rate and outstanding rupeesLargest entry amongst the revenue items

Interchange Income

Percentage of each dollar of merchant sales thatacquirer is required to pay the issuer

Rates determined by MasterCard and Visa


18/32

ISSUER ECONOMICS (CONTD.)

Revenues (contd.)

Membership fees

Fee that cardholder pays to issuer for the right to carry and

use the bank credit card Fee is reduced or waived for an initial period as a way to

attract new cardholders

Other fees and income Charges and revenues generated by miscellaneous activities

Cash advance fees, balance transfer fees, credit insurance

and revenue from selling merchandise fall under this category


19/32


Expenses

Cost of funds

Interest rate a card issuer pays to finance the

outstanding balances in bank credit card portfolioLargest single expense item

Losses

Includes Bad debt, fraud losses and costs related toinvestigation and prosecution of fraud

Expressed as percentage of outstanding balances


20/32


Expenses (contd.)

Servicing expenses

Refer to front end or customer contact costs

Processing expenses

Represent the sum of the back end costs

Marketing expenses

Include all the costs associated with acquiring new accounts,increasing usage on existing accounts and retaining profitableaccounts


21/32

ACQUIRER ECONOMICS

Revenues

Merchant Discount Fee that the acquirer charges the merchant in return for processing

the transaction and accepting credit risk

Product of average discount rate multiplied by bank card salesvolume

Earning on Deposits Net Interest earned on merchant checking account deposits

Other Income Revenue generated from sale or rental of items such as Point-of-sale

terminals and imprinters, minimum discount fees, monthly fees andapplication fees


22/32

ACQUIRER ECONOMICS

Expenses

Outgoing interchange Percentage of merchant sales that acquirer is required to pay the

issuer

Largest expense item Processing expense

Acquirers cost of supporting the merchant

Includes expenses associated with authorization, merchantaccounting , customer service and supplies

Sales and marketing expense Cost of merchant sales and support staff & services

Credit and fraud losses Bad Debts and expenses incurred in investigation & prosecution


23/32

CREDIT DECISION PROCESS

Prescreening Technique employed to minimize solicitation of

applications that have little chance of getting approved

Determining creditworthiness Judgmental Method

Every application is reviewed by credit analyst

Credit Scoring Method

Defining creditworthiness Setting predictive values

Correlating credit scores to management goals


24/32

COLLECTIONS


25/32

COLLECTIONS

Collection Pressures:

1. Bankruptcy Reform Act of 1978

2. 1984 Amendments to the Bankruptcy Reform Act

3. Bankruptcy Reform Act of 1994

Increase protection for credit card lenders against lenders who load

up their credit card charges on the eve of bankruptcy.

Allow for an expedited hearing on a creditors request for relief.

Contain improved procedures to notify creditors affected by

bankruptcy filings.


26/32

Payment Competition

Portfolio Monitoring :

1. Currently Paid Accounts (Status)

2. Delinquent Accounts ( Status)

3. Total

4. Branch Accounts

5. Distribution of Portfolio Delinquency by Percentage

Collection Authority

Characteristics ofCollectors

COLLECTIONS (CONTD.)


27/32

Collection Tools:- Reminder Notices

- Preprinted follow-up notices and letters

- Telephone calls

- Personalized collection letters- Outside collectors

- Legal action

Collection Techniques:

- Skip Tracer, a person employed to find delinquentdebtors who have vanished to avoid collection attempts.

- Recovery function, the activity involved in trying to collect

the balance owed after an account has been charged off.

COLLECTIONS (CONTD.)


28/32

Collection Productivity :- Number of accounts assigned per collector

- Number of accounts a collector handles in a given period

- Number of accounts charged off

- Number of re-agings

Automation

Collection Assignment Strategies:

- Assignment by Delinquency Cycle

- Assignment by Collectors Experience- Assignment by Account Balance

- Assignment by Geography

- Rotating Assignments

- Assignment by Behavioral Score

Collections (contd)


29/32

BANK CREDIT CARD FRAUD


30/32

Major sources of Fraud Loss:

- Fraudulent applications

- Account take over schemes- Lost, stolen and never received cards

- Counterfeit and altered cards

- Collusive merchants

- True cardholder fraud

- Employee fraud


31/32

Prevention Techniques :1. Restricted Card List A list of cardholder accounts on which

transactions are restricted or blocked because of fraudulent activity.

2. Neural Network Computer predictive models that learn from

examples rather than following an analytical procedure set by the

program.3. Code 10 A universal procedure providing merchants with a way

to notify a card authorization center that a suspicious credit card

transaction is occurring.

4. Other methods :

- Security Holograms

- Tamper evident signature panels

- Card Validation Codes CVC

- Ultraviolet security features


32/32

Liaison with Law Enforcement and Prosecutors :

- Original or copies of sales drafts and merchant receipts

- Authorization Logs that can pinpoint the date and time of

a fraudulent transaction- Cardholder letters and affidavits

- Cardholder billing statements

- Interchange records

- Surveillance cameras at ATMs

plastic_money

Documents