Credit Cards
VALUE OF A CREDIT CARD AND ITS WRONG POSITIONING GROUP-8, SEC-B
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Credit Cards: The Basics Positives and Disadvantages of Credit Cards Positioning of credit card in India The Do’s and Don’ts of Credit Cards
What is a Credit Card? It is meant to be used instead of liquid cash. As the name implies it helps in buying goods and services on credit thereby eliminating the cash transaction. It’s a loan allowing you to receive goods and services now and pay for them later. It is a debt, not an income It is an agreement that money borrowed will be paid back. It comes with interest and other charges. Operate on a credit limit and revolving basics.
Credit Card Features • • • • • •
Interest rates Calculating the balance owed Buying money -- the cash advance Grace period Annual fee Additional fees
The Pros of Credit Cards • Convenience or ease of shopping • Emergency use • Allows for consumption before the purchase is fully paid for • Source of interest-free credit • Buyer protection • Source of free benefits • Some protection against vendor
The Cons of Credit Cards • Easy to lose control of spending (It’s only plastic!) • Expensive way to borrow money • Reduce discretionary income in the future
USAGE OF CREDIT CARDS IN DIFERRENT COUNTRIES
Local and foreign banks are aggressively peddling credit card accounts in India, where a fast-growing middle class with disposable income has created the ideal card customer base. But converting Indian consumers to plastic has proved more difficult than expected. After years of hard selling, less than 4 percent of India’s adult population has a credit card, one of the lowest rates in the world. And at a time when foreign banks like Barclays continue to jump into the business, an organized campaign against cards is building. Credit card rates and fees frustrate borrowers around the world, but Indian consumers have something special to complain about. Interest rates average more than 30 percent, and can soar to over 50 percent, while charges tacked on for late payments are sometimes a hefty 20 percent of the overall balance. The result is vocal and heated criticism from card holders, consumer advocates and the government. They accuse the banks of levying unfair fees and nuisance charges and of
Increase in credit card usage is also driven by the perception that items once considered "luxuries" (i.e. cell phones) are now considered "necessities." "Despite the economic downturn and rising unemployment, consumers are still spending by relying on credit," said Silvers. "We see no end in sight to this trend, in part because consumers are unwilling to forgo their needs and
Newly made laws in US regarding Credit Cards: You'll get more notice. Credit card bills must be mailed to cardholders at least 21 days (not 14, which was the old minimum) before payment is due. You'll also get 45 days' notice (bumped up from 15 days) that changes in rates or fees are occurring. Apparently, some cards have already begun doing this, telling cardholders— in refreshingly plain, straightforward language—about increases in rates and fees. You don't have to accept the new terms. Yep, when you get your notice about increased rates or fees, you are allowed to reject them—with the stipulation that you can no longer use the card, and you must pay back any balance, at the old rates, within five year
Credit card use in India lowest in world
Indians are still not sure of the plastic money. Credit cards spend as a proportion of the total expenditure by Indians is one of the lowest in the world. While Indians swiped plastic money worth $6 billion in 2006, credit card users in Korea cumulatively spent $136 billion. Indians spend just 1% of their total purchases through credit cards while the Koreans make one-fifth of their total purchases through credit cards. The world average hovers around 9%.
What is drawing a large number of companies and financial institutions including Life Insurance Corporation of India (LIC) to India is the 61% year-on-year growth being witnessed in retail spending, the highest in the world. Interestingly, even among the rich, credit card ownership in India is the lowest in the world. While 90% of the affluent in Hong Kong have credit cards and the corresponding figure for Sydney stands at 87%, in India, only 28% of the affluent have credit card. Manila, Jakarta, Taipei , Hong Kong have 48-76% of the affluent population owning credit cards, according to Visa research in Asia. Seoul has 84% of its affluent population owning a credit card. Korea, however, has a
Sources in the industry say with such low penetration levels there are at least half a dozen companies that are looking to roll out credit card operations in India. AIG, Barclays, and LIC are some of the companies eager to enter the Indian market. Punjab National Bank (PNB) is also learnt to be in negotiations to launch another credit card. While PNB is still in talks with financial institutions, Barclays has rolled out some of its products even as it continues to negotiate with players for future product offerings. Unlike the retail banking segment where Indian banks dominate the market, in the credit card space, foreign banks have managed to garner a sizeable chunk of the pie. This is largely due to the fact that while the Reserve Bank of India has imposed many restrictions on foreign banks, there are no restrictions on credit card companies. Citibank, ABN Amro, HSBC and Standard Chartered are some of the foreign banks
The negative impact of the economic slowdown is clearly showing on the credit cards segment. The number of outstanding credit cards declined drastically by 28 lakh in the first 11 months of FY 2009. This is according to the Reserve Bank of India’s latest data. Due to increased delinquencies and high interest rate on outstanding balances, the number of outstanding credit cards as of February-end 2009 stood at 2.55 crore as against 2.83 crore as of April-end 2008.
Credit Card Do’s • Limit the number of cards you have • Use a debit card instead of a credit card • Use a card that has no annual fee and lower interest rates • Know all of your card’s fees • Pay your full balance each month or at least pay more than the minimum amount due • Pay on time, all the time
Source: USA Funds Life Skills -Module 1
Credit Card Don’ts • Don’t use them for cash advances • Don’t use them to pay for basics: rent, groceries, etc. • Don’t charge more than you can pay off in a month • Don’t let banks increase your credit limit Source: USA Funds Life Skills -Module 1
Social facts • Between 10 - 20% of students are risking unacceptably high levels of debt • Many students must take on additional jobs to pay their debts • Many cut back on the number of classes or drop out of school all together • Career choices can be limited • Some are forced to file bankruptcy
So… • • • •
Be smart… Be prepared… Be strong… Be safe… Manage your credit before it manages you!!!