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Thursday, May 28, 2009
Hidden Payments
Merchants who accept credit cards must pay a processing fee ranging from 1- 6 % of the purchase price. These hidden costs and hidden payments are transferred to the consumer in various ways.
The first method is the most commonly accepted one of a surcharge on the payment, leading to the price being higher than the marked price. The problem has been compounded in India, where the credit card companies have not asked for “merchant agreements”, which provide that the processing charges will not be added on by the merchant. This has led to credit cards being used less frequently than they might be, a disadvantage to the issuer as well as the merchant.
A second method is simply marking up of the prices of all items in the shop, leading to the surcharge being hidden in the retail price. While the MRP does restrict this to some extent, the net result is that people who pay in cash are paying as if they were using a credit card. Thus, a part of the revenue earned by the credit card companies comes from people who do not even own a credit card!
The flip side is, with the boom in the credit card market in India, greater volume of credit card sales allow the merchants to keep their existing price structure, and still not lose any profit on paying the processing fee, since the credit card companies have relaxed their rates, as a measure to boost sales and increase the acceptability net. . Credit cards also allow for convenience in repeat sales, and the processing fee is greatly offset by the increased convenience. Also, the processing fee is simply an equivalent payment to the costs incurred in counting, transporting and depositing the cash payments.
Whichever way you look at it, using a credit card can entail certain hidden payments consequences of which must be closely examined before using a credit card.
Source:
Wikipedia
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/08/AR2007030802178.html
Statutory Instrument 1990 No. 2159: The Credit Cards (Price Discrimination) Order 1990
http://rbifinance.com
http://kingcreditweb.com
The first method is the most commonly accepted one of a surcharge on the payment, leading to the price being higher than the marked price. The problem has been compounded in India, where the credit card companies have not asked for “merchant agreements”, which provide that the processing charges will not be added on by the merchant. This has led to credit cards being used less frequently than they might be, a disadvantage to the issuer as well as the merchant.
A second method is simply marking up of the prices of all items in the shop, leading to the surcharge being hidden in the retail price. While the MRP does restrict this to some extent, the net result is that people who pay in cash are paying as if they were using a credit card. Thus, a part of the revenue earned by the credit card companies comes from people who do not even own a credit card!
The flip side is, with the boom in the credit card market in India, greater volume of credit card sales allow the merchants to keep their existing price structure, and still not lose any profit on paying the processing fee, since the credit card companies have relaxed their rates, as a measure to boost sales and increase the acceptability net. . Credit cards also allow for convenience in repeat sales, and the processing fee is greatly offset by the increased convenience. Also, the processing fee is simply an equivalent payment to the costs incurred in counting, transporting and depositing the cash payments.
Whichever way you look at it, using a credit card can entail certain hidden payments consequences of which must be closely examined before using a credit card.
Source:
Wikipedia
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/08/AR2007030802178.html
Statutory Instrument 1990 No. 2159: The Credit Cards (Price Discrimination) Order 1990
http://rbifinance.com
http://kingcreditweb.com
Common Credit Card Mistakes
The following article highlights some common mistakes made by credit card holders before, after and during getting a credit card issued. Before getting the card: Procuring multiple cards An extremely common mistake made by most inexperienced cardholders, lured by the attractive initial rates of an add-on card or a special discount scheme offered during peak season, they often find themselves in twice as much debt as before.
Not shopping around for the best interest rate
Credit card rates and terms vary greatly. Always ask your issuing bank for all the credit card rates they charge like fuel surcharge, late fees, revolving credit charge etc. The bank’s website or customer care service can be used for this function. Choosing a card for the wrong reasons
Cardholders often get a card issued because of the fringe benefits and reward schemes on offer, even though the rates are higher. A credit card is there to make purchases, not to earn reward points. They should be treated as a bonus, after getting a card with the best rates.
Being misled by introductory rates
Some credit cards, especially of the low-end variety, often have a low or waived initial fee and a modest annual fee for the initial period. However, after the period is over, the rates spiral and increase significantly. The paperwork and forms must be scrutinized carefully by the cardholder for such tricks.
Not reading the SMALL print
Before you sign up, be sure you know the card's interest rate and how it is calculated, the grace period, fee schedule, and other terms. After getting a card issued, pay attention to any updates or notifications sent to you by the bank or the card company.
After getting the card:
Applying for a card and limit you cannot afford to repay and paying the minimum repayment
The most publicized feature of the credit card is that of the minimum amount due. What is not advertised is that interest is charged on the amount spent, not the amount outstanding. So use this feature only as a last resort.
Maxing out the card
This implies that the holder has overspent, and the debt becomes crippling. Often the cardholder is stuck paying off the interest alone, and cannot make any inroads into the principal.
Using the cash advance function
Check on the terms and conditions of the cash advance function very carefully. The interest rates are often steep and there is no interest-free period. If you must use it, repay the money at the earliest.
Late payments
Late payments subject you to extortionate interest rates and set fees. The charge is extremely high and proportional to your bill. The late payments are one of the main revenue-earners of the companies.
Not checking your statement and not keeping your receipts
A common error when we start to feel the pressure of a debt burden is to start to ignore the fact that the debt exists in the first place. A downward trend starts that will leave you hopelessly in debt. Also keep your receipts from purchases to cross-check with your monthly bill.
Adding a secondary user
Although some may not consider this a mistake, if you add a secondary user to your credit card account you’ve suddenly lost control over the spending on your card. The interest rates and payments you will have to make will also increase, and the fraud risk multiplies.
Using your card overseas
Overseas purchases are charged with a large fee and a higher exchange rate than the current one. It’s much safer and cheaper to carry travellers’ cheques or cash. There are also special deals which certain global banks offer, one among them being the offer to convert your card to the foreign country’s currency, provided the bank does business there.
http://rbifinance.com
Not shopping around for the best interest rate
Credit card rates and terms vary greatly. Always ask your issuing bank for all the credit card rates they charge like fuel surcharge, late fees, revolving credit charge etc. The bank’s website or customer care service can be used for this function. Choosing a card for the wrong reasons
Cardholders often get a card issued because of the fringe benefits and reward schemes on offer, even though the rates are higher. A credit card is there to make purchases, not to earn reward points. They should be treated as a bonus, after getting a card with the best rates.
Being misled by introductory rates
Some credit cards, especially of the low-end variety, often have a low or waived initial fee and a modest annual fee for the initial period. However, after the period is over, the rates spiral and increase significantly. The paperwork and forms must be scrutinized carefully by the cardholder for such tricks.
Not reading the SMALL print
Before you sign up, be sure you know the card's interest rate and how it is calculated, the grace period, fee schedule, and other terms. After getting a card issued, pay attention to any updates or notifications sent to you by the bank or the card company.
After getting the card:
Applying for a card and limit you cannot afford to repay and paying the minimum repayment
The most publicized feature of the credit card is that of the minimum amount due. What is not advertised is that interest is charged on the amount spent, not the amount outstanding. So use this feature only as a last resort.
Maxing out the card
This implies that the holder has overspent, and the debt becomes crippling. Often the cardholder is stuck paying off the interest alone, and cannot make any inroads into the principal.
Using the cash advance function
Check on the terms and conditions of the cash advance function very carefully. The interest rates are often steep and there is no interest-free period. If you must use it, repay the money at the earliest.
Late payments
Late payments subject you to extortionate interest rates and set fees. The charge is extremely high and proportional to your bill. The late payments are one of the main revenue-earners of the companies.
Not checking your statement and not keeping your receipts
A common error when we start to feel the pressure of a debt burden is to start to ignore the fact that the debt exists in the first place. A downward trend starts that will leave you hopelessly in debt. Also keep your receipts from purchases to cross-check with your monthly bill.
Adding a secondary user
Although some may not consider this a mistake, if you add a secondary user to your credit card account you’ve suddenly lost control over the spending on your card. The interest rates and payments you will have to make will also increase, and the fraud risk multiplies.
Using your card overseas
Overseas purchases are charged with a large fee and a higher exchange rate than the current one. It’s much safer and cheaper to carry travellers’ cheques or cash. There are also special deals which certain global banks offer, one among them being the offer to convert your card to the foreign country’s currency, provided the bank does business there.
http://rbifinance.com
Credit Cards for Students
The credit card market today is expanding to include undergraduate and post-graduate students under its umbrella. There aren’t many options for this type of card at present; many of the banks have been adapting their low-interest and lower-end cards for students’ use. The student credit card market is a fledgling one at present, with banks using models from the USA for their own adapted cards.
Features:
The most important feature of a student credit card is that there is no lower income eligibility limit, which allows even a person who doesn’t earn money to obtain a credit card.
Such credit cards are simpler to obtain than normal credit cards, with no income tax returns required. The only documents required are proof of residence and proof of enrollment at any institute.
A second major feature of most student credit cards is that they offer a lower cash limit and revolving credit limit, along with a lower service charge on the revolving credit limit.
Finally, there is no joining or annual fee, and the car is generally valid for a period of 5 years, and eligible to students who are 18 and above.
Warning:
A problem with student credit cards that has arisen in the USA, and which we would do well not to emulate is when credit card companies encourage students to use the student card to pay off their student loans. This plunges them deeper into debt, and often students are unable to pay back the loans on the credit card. The credit card companies compensate for a low monthly interest fees with an unusually high annual percentage rate, so the bills on a student card should be paid on time and in full.
NextGen Gold Visa Card:
A good example of a student credit is the Bank of Baroda’s NextGen Gold Visa Card, which is a card exclusively for students offering low interest rates as well as the primary features of their standard Gold card. The card is a prime example of a characteristic student credit card; 1.5% revolving credit service charge as opposed to 2.5%, and a higher APR.
Reminder:
Three things that a student must remember before obtaining a student card:
The card should be used for small purchases, not for any extravagant items.
The bill should be paid in full before the end of the year, otherwise the high APR kicks in.
The details and offers of the card should be studied in full before a card is purchased, with special emphasis on the APR and the late payment charge.
Features:
The most important feature of a student credit card is that there is no lower income eligibility limit, which allows even a person who doesn’t earn money to obtain a credit card.
Such credit cards are simpler to obtain than normal credit cards, with no income tax returns required. The only documents required are proof of residence and proof of enrollment at any institute.
A second major feature of most student credit cards is that they offer a lower cash limit and revolving credit limit, along with a lower service charge on the revolving credit limit.
Finally, there is no joining or annual fee, and the car is generally valid for a period of 5 years, and eligible to students who are 18 and above.
Warning:
A problem with student credit cards that has arisen in the USA, and which we would do well not to emulate is when credit card companies encourage students to use the student card to pay off their student loans. This plunges them deeper into debt, and often students are unable to pay back the loans on the credit card. The credit card companies compensate for a low monthly interest fees with an unusually high annual percentage rate, so the bills on a student card should be paid on time and in full.
NextGen Gold Visa Card:
A good example of a student credit is the Bank of Baroda’s NextGen Gold Visa Card, which is a card exclusively for students offering low interest rates as well as the primary features of their standard Gold card. The card is a prime example of a characteristic student credit card; 1.5% revolving credit service charge as opposed to 2.5%, and a higher APR.
Reminder:
Three things that a student must remember before obtaining a student card:
The card should be used for small purchases, not for any extravagant items.
The bill should be paid in full before the end of the year, otherwise the high APR kicks in.
The details and offers of the card should be studied in full before a card is purchased, with special emphasis on the APR and the late payment charge.
Debit Cards vs Credit Cards
This article highlights the differences and comparative advantages and disadvantages of the two types of popular plastic money on offer in India.
The basic difference between the two is the fact that a credit card takes the form of a personal loan from the issuing bank to the consumer, while a debit card is more like a cheque: money is directly deducted from a person’s bank account to pay for transaction.
Some advantages of a credit card over a debit card are:
With a flexile spending limit, a cardholder can take advantage of the easy loan facility of a credit card, and can use it to purchase items or spend money that he expects in the near future, not just money that he presently has in his account.
Most of the major features of a debit card such as withdrawal of cash from ATMs are available on credit cards as well.
A credit card has a wider acceptance and recognition, especially in online transactions.
A credit card has greater security measures ad checks than a debit card.
Credit cards allow for cash back and bonus points schemes that a debit card is not eligible for.
A credit card can be used as a convenient way to check and record your spending.
Since there is a fixed credit limit, a cardholder cannot overstretch his purchases.
The disadvantages of using a credit card: Following are the disadvantages of Credit card
The major one is the hidden costs of a credit card in the form of late payments, transaction fees, fuel surcharge. The consumer must take all of this into account before getting a card issued.
It is not compulsory for the entire balance to be paid, but the interest is charged on the entire amount, regardless of the part paid. This causes a debt trap for the cardholder.
The security of a card is not total and cases of fraud are extremely common even today.
Credit cards can be used at ATM cards, but there is a considerable processing fee required.
All in all, a credit card should be used responsibly and the amount due should be paid in full.
Debit cards provide access to ready money in a more convenient and less invasive form than cheques, and allow for a faster withdrawal of cash.
They can be used by people who do not qualify for a credit card, and the major advantage is that a person spends money that he actually possesses from his bank account.
A debit card can be used to withdraw money from an ATM with no processing charge. A debit card is a more convenient way of carrying cash around.
The disadvantages of the debit card:
There are almost no security measures and a person can use a debit card to clean out the cardholder’s account, if he knows the PIN.
A debit card does not prevent the account from being overdrawn, and has less affordability than a credit card.
A debit card also has a narrower acceptable area in India, with many merchants not accepting it since they are charged a fee every time they do.
The major problems of a debit card are negated by instant notifications of transactions via sms and emails. A credit card or a debit card are both useful tools that must be used carefully and sparingly to maximize your advantage.
The basic difference between the two is the fact that a credit card takes the form of a personal loan from the issuing bank to the consumer, while a debit card is more like a cheque: money is directly deducted from a person’s bank account to pay for transaction.
Some advantages of a credit card over a debit card are:
With a flexile spending limit, a cardholder can take advantage of the easy loan facility of a credit card, and can use it to purchase items or spend money that he expects in the near future, not just money that he presently has in his account.
Most of the major features of a debit card such as withdrawal of cash from ATMs are available on credit cards as well.
A credit card has a wider acceptance and recognition, especially in online transactions.
A credit card has greater security measures ad checks than a debit card.
Credit cards allow for cash back and bonus points schemes that a debit card is not eligible for.
A credit card can be used as a convenient way to check and record your spending.
Since there is a fixed credit limit, a cardholder cannot overstretch his purchases.
The disadvantages of using a credit card: Following are the disadvantages of Credit card
The major one is the hidden costs of a credit card in the form of late payments, transaction fees, fuel surcharge. The consumer must take all of this into account before getting a card issued.
It is not compulsory for the entire balance to be paid, but the interest is charged on the entire amount, regardless of the part paid. This causes a debt trap for the cardholder.
The security of a card is not total and cases of fraud are extremely common even today.
Credit cards can be used at ATM cards, but there is a considerable processing fee required.
All in all, a credit card should be used responsibly and the amount due should be paid in full.
Debit cards provide access to ready money in a more convenient and less invasive form than cheques, and allow for a faster withdrawal of cash.
They can be used by people who do not qualify for a credit card, and the major advantage is that a person spends money that he actually possesses from his bank account.
A debit card can be used to withdraw money from an ATM with no processing charge. A debit card is a more convenient way of carrying cash around.
The disadvantages of the debit card:
There are almost no security measures and a person can use a debit card to clean out the cardholder’s account, if he knows the PIN.
A debit card does not prevent the account from being overdrawn, and has less affordability than a credit card.
A debit card also has a narrower acceptable area in India, with many merchants not accepting it since they are charged a fee every time they do.
The major problems of a debit card are negated by instant notifications of transactions via sms and emails. A credit card or a debit card are both useful tools that must be used carefully and sparingly to maximize your advantage.
Credit Card Hijacking by Identity Theft
Identity theft is the stealing of another person’s identity and using it as your own. Personal information is stolen by identity thieves through various sources, and used to make credit cards and other identity documents. Fraudulent credit cards are the most common result of identity theft. There are various ways in which thieves gather details of someone’s identity. The most common methods are listed below:
Retrieving information from redundant equipment which has been disposed of carelessly, e.g. at public dump sites, information given away without proper sanitizing etc.
Stealing payment or identification cards, either by pick-pocketing or surreptitiously by skimming through a compromised card reader
Eavesdropping on public transactions to obtain personal data
Stealing personal information in computer databases
Advertising bogus job offers (either full-time or work from home based) to which the victims will reply with their full name, address, CVs, telephone numbers, and banking details
Browsing social network sites, online for personal details that have been posted by users.
These methods allow thieves to gather a surprising amount of information and get a credit card issued in your name. The net results of such a measure are disastrous. Vigilance and discretion must be exercised in keeping personal details from being stolen.
Credit Card Hijacking by Cancellation Barrier
Another common form of credit card hijacking is used by subscription companies, the payments for whom are routed through a credit card. The organization creates certain barriers that make it difficult for a credit card user to cancel his subscription easily, and as such continue to charge him for services he no longer desires or needs. This is in direct contrast to the traditional method of subscriptions, where the subscriptions have to be proactively renewed, and are cancelled or suspended if payments are not on time. The credit card makes the user’s money more easily accessible to the subscription company, and the liability resulting from inactivity falls on the user’s shoulders, rather than the company that is providing the service.
Also, since the general monthly cost is low, such practices can go unnoticed for months at a time. Hence, the user must maintain a close eye on his monthly bills.
Credit Card Hijacking by Negative Option Billing
Negative option billing is a business practice in which goods or services are provided automatically, and the customer must either pay for the service or specifically decline it in advance of billing. Thus, if the user makes no response to the bill sent by the company, he is assumed to have agreed with the transaction and the amount is debited from his credit card. This is a practice which is not illegal yet, and many credit card users have been exploited because of such tactics.
Sources:
http://en.wikipedia.org/wiki/Credit_card_hijacking
http://en.wikipedia.org/wiki/Identity_theft
Retrieving information from redundant equipment which has been disposed of carelessly, e.g. at public dump sites, information given away without proper sanitizing etc.
Stealing payment or identification cards, either by pick-pocketing or surreptitiously by skimming through a compromised card reader
Eavesdropping on public transactions to obtain personal data
Stealing personal information in computer databases
Advertising bogus job offers (either full-time or work from home based) to which the victims will reply with their full name, address, CVs, telephone numbers, and banking details
Browsing social network sites, online for personal details that have been posted by users.
These methods allow thieves to gather a surprising amount of information and get a credit card issued in your name. The net results of such a measure are disastrous. Vigilance and discretion must be exercised in keeping personal details from being stolen.
Credit Card Hijacking by Cancellation Barrier
Another common form of credit card hijacking is used by subscription companies, the payments for whom are routed through a credit card. The organization creates certain barriers that make it difficult for a credit card user to cancel his subscription easily, and as such continue to charge him for services he no longer desires or needs. This is in direct contrast to the traditional method of subscriptions, where the subscriptions have to be proactively renewed, and are cancelled or suspended if payments are not on time. The credit card makes the user’s money more easily accessible to the subscription company, and the liability resulting from inactivity falls on the user’s shoulders, rather than the company that is providing the service.
Also, since the general monthly cost is low, such practices can go unnoticed for months at a time. Hence, the user must maintain a close eye on his monthly bills.
Credit Card Hijacking by Negative Option Billing
Negative option billing is a business practice in which goods or services are provided automatically, and the customer must either pay for the service or specifically decline it in advance of billing. Thus, if the user makes no response to the bill sent by the company, he is assumed to have agreed with the transaction and the amount is debited from his credit card. This is a practice which is not illegal yet, and many credit card users have been exploited because of such tactics.
Sources:
http://en.wikipedia.org/wiki/Credit_card_hijacking
http://en.wikipedia.org/wiki/Identity_theft
Credit Cards for Small Businesses
Small business owners who need a quick cash inflow, but are unsure where to borrow from, should consider using a credit card. Business credit cards represent an easily accessible source for a loan, although the availability is offset by the high risk incurred in doing so. However, despite the dangers, there are countless examples of a credit card being used as a financing source.
Larry Page and Sergey Brin's start up of Google was financed by credit cards to buy the necessary computers and office equipment and a terabyte of memory, to start the search engine. Filmmaker Robert Townsend and Director Kevin Smith have used credit cards to finance various movies. Famed hedge fund manager Bruce Kovner began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his credit card.
Taking note of such trends, credit card companies offer business credit cards that can be used for financing various projects, and also for the day-to-day running of the business. Visa and MasterCard both offer credit cards that allow business expenses to be charged to them, and easy access to secondary and add-on cards with the same features. Such cards offer reward points, air miles and other fringe benefits as an incentive for using them. They have low-interest rates, to increase sales and offer small businesses a way to cut down on operating costs, as well as providing a speedy method of emergency cash injection.
Another advantage of business cards is that they allow the owner to track his employees’ spending, and also makes his accounting more efficient and easier to manage.
However, business owners who borrow on plastic should strive to use their business credit card for monthly expenses and pay off their balance in full each month. Also, they should make sure to check their account summaries regularly. They should also generally use only one business card at a time, as it sometimes becomes difficult to pay off several balances.
Business owners and administrators should consult issuing banks or financial institutions about the feasibility of a credit card for their business.
Source
http://www.businesscreditcardsite.com/why-business-credit-cards-are-useful-to-your-business/
http://www.businesscreditcardsite.com/10-valuable-tips-about-business-credit-cards/
www.creditorweb.com/categories/business-credit-cards.html
Larry Page and Sergey Brin's start up of Google was financed by credit cards to buy the necessary computers and office equipment and a terabyte of memory, to start the search engine. Filmmaker Robert Townsend and Director Kevin Smith have used credit cards to finance various movies. Famed hedge fund manager Bruce Kovner began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his credit card.
Taking note of such trends, credit card companies offer business credit cards that can be used for financing various projects, and also for the day-to-day running of the business. Visa and MasterCard both offer credit cards that allow business expenses to be charged to them, and easy access to secondary and add-on cards with the same features. Such cards offer reward points, air miles and other fringe benefits as an incentive for using them. They have low-interest rates, to increase sales and offer small businesses a way to cut down on operating costs, as well as providing a speedy method of emergency cash injection.
Another advantage of business cards is that they allow the owner to track his employees’ spending, and also makes his accounting more efficient and easier to manage.
However, business owners who borrow on plastic should strive to use their business credit card for monthly expenses and pay off their balance in full each month. Also, they should make sure to check their account summaries regularly. They should also generally use only one business card at a time, as it sometimes becomes difficult to pay off several balances.
Business owners and administrators should consult issuing banks or financial institutions about the feasibility of a credit card for their business.
Source
http://www.businesscreditcardsite.com/why-business-credit-cards-are-useful-to-your-business/
http://www.businesscreditcardsite.com/10-valuable-tips-about-business-credit-cards/
www.creditorweb.com/categories/business-credit-cards.html
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