CREDIT CARD ORGANIZATIONS

Rohit PandeyLecturer FinanceIMS 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 customersBank’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

1. In house service2. Outsourced

Service

BOTH• Inhouse for imp. Clients• Outsourcing

of Customer Service centre

• Use of IVS (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”

Authorization

Authorization

Authorization

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 FlowAuthorization

Accepted“Pay-slip: Authorization No.”

Rejected“

Declined/Do-not

accept/honor”

Stolen Card“ Hot listed card,

please pick up”

Process taking more

than 7-13 seconds

“time out”

Pick Up Card Reward

Credit cards

  International Domestic Cards

Visa USD 150+15 Rs. 425Master Card USD 150 Rs. 225

ATM Cards

Visa USD 5+15 Rs. 60 per cardMaster 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

• 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

(Offline transactions-hot list bulletin)

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 functionsOther Administrative support functions

Systems Department1. Management. of incoming & outgoing

files

2. Management. Of Credit Card A/c details (Authorization, Collection & Customer

Services)

3. Linkage Between ATM & Credit Cards

4. Monitoring exceptional charges

5. Provision of various online facilities and information to Customers

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 1• Files received

from merchants

DAY 2• Funds given to

merchants• Files screened,

processed and formatted

• Files send for settlement

DAY 3• Amount settled• Money received

Management of Credit Card account details

“Real time update is the key”….???

1. Case of Lost cards…

increased frauds

2. Case of wrong OTB position which can be due to several reasons

like…

Recent Purchases

not updated

ATM withdrawal/deposits

not updated

Unsati

sfied customer and revenue loss

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

STEP 1 Charge slip taken from

the customer

STEP 2Two

possibility a.

Customer is right

(temporary relief on

payment)b.

Customer is wrong, he has to

bear fee for retrieving the charge

slip

STEP 3Issuing Bank

“Charges the

transaction back”

against the Acquiring Bank. This is via the clearing network through

which the settlement was done previously.

STEP 4Acquiring

Bank has to submit the

details within a stipulated

period of time. They seek the

merchant for the same (Merchant

may take the hit!!)

Nine Steps for Chargeback Team

STEP 5If

merchant has other

documents to prove

that the billing

amount is

correct, then he has to

produce it in a fixed time

frame

STEP 6Acquirer

Bank makes

“representation

of charges”

and gives

issuing bank the addition

al docume

nts

STEP 7If IB is convinced by the

documents, they

accept the

representation and

matter is closed

STEP 9Arbitrati

on decision is final and is

conveyed to

both of the

banks

STEP 8If IB is not convinced they can

go for arbitration with VISA

or MasterCa

rd

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 CycleClearing Network

Issuing bank

CustomerMercha

nt

Acquiring Bank

Sells goods

Charge- slip(Payment)

Swipes Card

Makes payment to retailer

BACK