Group – 2 Credit

Cards
POST GRADUATE DIPLOMA IN MANAGEMENT

(INTERNATIONAL BUSINESS)

2008-2010

SUBMITTED TO PROF. L. SURENDRA

Submitted By:-

Vamsi Kanth (24)

Rigin (42)

Irisha (22)

Sumit Sharma (56)

 Group – 2 Credit Cards

Introduction

A Credit Card is a mode of cash-less transaction that allows the user to pay for goods or
services with the actual payment being made in installments, over a period of time.

Most of the credit cards in the market belong to either MasterCard or Visa. For principal services
to the industry they are typically paid 0.025% of the transaction by the issuing bank:

HSBC wants to launch their Visa Card.

Credit Card

A credit card is part of a system of payments named after the small plastic card issued to users of
the system. It is a card entitling its holder to buy goods and services based on the holders promise
to pay for these goods and services. The issuer of the card grants a line of credit to the consumer
(or the user) from which the user can borrow money for payment to a merchant or as a cash
advance to the user. A credit card is different from a charge card, where a charge card requires the
balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve'
their balance, at the cost of having interest charged. Most credit cards are issued by local banks or
credit unions, and are the same shape and size as specified by the ISO7810 standard.

Credit cards are issued after an account has been approved by the credit provider, after which
cardholders can use it to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder
indicates his/her consent to pay, by signing a receipt with a record of the card details and
indicating the amount to be paid or by entering a Personal Identification Number (PIN). Also,
many merchants now accept verbal authorizations via telephone and electronic authorization
using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.
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 Group – 2 Credit Cards

Electronic Verification systems allow merchants to verify that the card is valid and the credit card
customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to
happen at time of purchase. The verification is performed using a credit card payment terminal or
Point of Sale (POS) system with a communications link to the merchant's. Acquiring bank Data
from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the
United Kingdom and Ireland commonly known as Chip and Pin, but is more technically an EMV
card.

Other variations of verification systems are used by ecommerce merchants to determine if the
user's account is valid and able to accept the charge. These will typically involve the cardholder
providing additional information, such as the security code printed on the back of the card, or the
address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the
card, any outstanding fees, and the total amount owed. After receiving the statement, the
cardholder may dispute any charges that he or she thinks are incorrect Fair Credit Billing Act for
details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion
of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed.
The credit provider charges interest on the amount owed if the balance is not paid in full
(typically at a much higher rate than most other forms of debt). Some financial institutions can
arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late
payment altogether as long as the cardholder has sufficient funds.

Interest charges

Credit card issuers usually waive interest charges if the balance is paid in full each month, but
typically will charge full interest on the entire outstanding balance from the date of each purchase
if the total balance is not paid.

For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there
would be no interest charged. If, however, even $1.00 of the total amount remained unpaid,
interest would be charged on the $1,000 from the date of purchase until the payment is received.
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The precise manner in which interest is charged is usually detailed in a cardholder agreement
 Group – 2 Credit Cards

which may be summarized on the back of the monthly statement. The general calculation formula
most financial institutions use to determine the amount of interest to be charged is APR/100 x
ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100
then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this
total and multiply by the total number of days the amount revolved before payment was made on
the account. Financial institutions refer to interest charged back to the original time of the
transaction and up to the time a payment was made, if not in full, as RRFC or residual retail
finance charge. Thus after an amount has revolved and a payment has been made, the user of the
card will still receive interest charges on their statement after paying the next statement in full (in
fact the statement may only have a charge for interest that collected up until the date the full
balance was paid...i.e. when the balance stopped revolving).

The credit card may simply serve as a form of revolving credit, or it may become a complicated
financial instrument with multiple balance segments each at a different interest rate, possibly with
a single umbrella credit limit, or with separate credit limits applicable to the various balance
segments. Usually this compartmentalization is the result of special incentive offers from the
issuing bank, to encourage Balance transfer from cards of other issuers. In the event that several
interest rates apply to various balance segments, payment allocation is generally at the discretion
of the issuing bank, and payments will therefore usually be allocated towards the lowest rate
balances until paid in full before any money is paid towards higher rate balances. Interest Rate
can vary considerably from card to card, and the interest rate on a particular card may jump
dramatically if the card user is late with a payment on that card or any other credit instrument, or
even if the issuing bank decides to raise its revenue.

Benefits to customers

Because of intense competition in the credit card industry, credit card providers often offer
incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent
based on total purchases) to try to attract customers to their programs. However it should be
noted that the incentive is insignificant to the interest charged for carrying a balance.
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 Group – 2 Credit Cards

Low interest credit cards or even 0% interest credit cards are available. However, services are
available which alert credit card holders when their low interest period is due to expire. Most
such services charge a monthly or annual fee.

Detriments to customers

Credit cards with low introductory rates are limited to a fixed term, usually between 6 and 12
months after which a higher rate is charged. As all credit cards assess fees and interest, some
customers become so encumbered with their credit debt service that they are driven to
bankruptcy. Credit cards will often stipulate a default rate of 20 to 30 percent in the event a
payment is missed. That is if a consumer misses a payment the rate will automatically increase to
a very burdensome level. This can lead to a snowball affect in which the consumer is drowned by
unexpectedly high interest rates. Further most card holder agreements enable the issuer to
arbitrarily raise the interest rate for any reason they see fit.

Grace period

A credit card's grace period is the time the customer has to pay the balance before interest is
charged to the balance. Grace periods vary, but usually range from 20 to 40 days depending on
the type of credit card and the issuing bank. Some policies allow for reinstatement after certain
conditions are met.

Usually, if a customer is late paying the balance, finance charges will be calculated and the grace
period does not apply. Finance charges incurred depend on the grace period and balance; with
most credit cards there is no grace period if there is any outstanding balance from the previous
billing cycle or statement (i.e. interest is applied on both the previous balance and new
transactions). However, there are some credit cards that will only apply finance charge on the
previous or old balance, excluding new transactions.

Benefits to merchants

An example of street markets accepting credit cards. Most simply display the logos (shown in the
upper-left corner of the sign) of all the cards they accept.
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 Group – 2 Credit Cards

For merchants, a credit card transaction is often more secure than other forms of payment, such
as checks, because the issuing bank commits to pay the merchant the moment the transaction is
authorized, regardless of whether the consumer defaults on the credit card payment (except for
legitimate disputes, which are discussed below, and can result in charges back to the merchant).
In most cases, cards are even more secure than cash, because they discourage theft by the
merchant's employees and reduce the amount of cash on the premises. Prior to credit cards, each
merchant had to evaluate each customer's credit history before extending credit. That task is now
performed by the banks which assume the credit risk.

For each purchase, the bank charges the merchant a commission (discount fee) for this service
and there may be a certain delay before the agreed payment is received by the merchant. The
commission is often a percentage of the transaction amount, plus a fixed fee. In addition, a
merchant may be penalized or have their ability to receive payment using that credit card
restricted if there are too many cancellations or reversals of charges as a result of disputes. Some
small merchants require credit purchases to have a minimum amount (usually between $5 and
$10) to compensate for the transaction costs, though this is strictly prohibited by credit card
companies and must be reported to the consumer's credit card issuer.

In some countries, for example the Nordic countries, banks guarantee payment on stolen cards
only if an ID Card is checked and the ID card number/civic registration number is written down
on the receipt together with the signature. In these countries merchants therefore usually ask for
ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will
instead have to show their passport, and the passport number will be written down on the receipt,
sometimes together with other information. Some shops use the card's PIN for identification, and
in that case showing an ID card is not necessary.

Costs to merchants

Merchants are charged many fees for the privilege of accepting credit cards. The merchant may
be charged a discount rate of 1%-3%+ of each transaction obtained through a credit card. Usually,
the merchant will also pay a flat per-item charge of $0.05 - $0.50 for each transaction. Thus in
some instances of very low value transactions, use of credit cards may actually cause the
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 Group – 2 Credit Cards

merchant to lose money on the transaction. Merchants choose to pay these costs in exchange for
the increased profitable sales they can create. Thus, they are considering part of the overall cost
of marketing. Merchants with very low average transaction prices or very high average
transaction prices are more averse to accepting credit cards. But rates are often reduced in an
attempt to include more of these types of merchants.

Costs to merchants

Merchants are charged many fees for the privilege of accepting credit cards. The merchant may
be charged a discount rate of 1%-3%+ of each transaction obtained through a credit card. Usually,
the merchant will also pay a flat per-item charge of $0.05 - $0.50 for each transaction. Thus in
some instances of very low value transactions, use of credit cards may actually cause the
merchant to lose money on the transaction. Merchants choose to pay these costs in exchange for
the increased profitable sales they can create. Thus, they are considering part of the overall cost
of marketing. Merchants with very low average transaction prices or very high average
transaction prices are more averse to accepting credit cards. But rates are often reduced in an
attempt to include more of these types of merchants.

Parties involved

• Cardholder: The holder of the card used to make a purchase; the consumer
• Card-issuing bank: The financial institution or other organization that issued the credit
card to the cardholder. This bank bills the consumer for repayment and bears the risk that
the card is used fraudulently. American Express and Discover were previously the only
card-issuing banks for their respective brands, but as of 2007, this is no longer the case.
Cards issued by banks to cardholders in a different country are known as offshore credit
cards
• Merchant: The individual or business accepting credit card payments for products or
services sold to the cardholder
• Acquiring Bank: The financial institution accepting payment for the products or services
on behalf of the merchant.
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 Group – 2 Credit Cards

• Independent sales organization: Resellers (to merchants) of the services of the acquiring
bank.
• Merchant account: This could refer to the acquiring bank or the independent sales
organization, but in general is the organization that the merchant deals with.
• Credit Card association: An association of card-issuing banks such as Visa, Master Card,
Discover, American Express , etc. that set transaction terms for merchants, card-issuing
banks, and acquiring banks.
• Transaction network: The system that implements the mechanics of the electronic
transactions. May be operated by an independent company, and one company may operate
multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha,
Paymentech, NDC Atlanta, Nova, TSYS, Concord EFSnet, and VisaNet.
• Affinity partner: Some institutions lend their names to an issuer to attract customers that
have a strong relationship with that institution, and get paid a fee or a percentage of the
balance for each card issued using their name. Examples of typical affinity partners are
sports teams, universities, charities, professional organizations, and major retailers.

The flow of information and money between these parties — always through the card
associations — is known as the interchange, and it consists of a few steps.

Transaction steps

• Authorization: The cardholder pays for the purchase and the merchant submits the
transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number,
the transaction type and the amount with the issuer (Card-issuing bank) and reserves that
amount of the cardholder's credit limit for the merchant. An authorization will generate an
approval code, which the merchant stores with the transaction.

• Batching: Authorized transactions are stored in "batches", which are sent to the acquirer.
Batches are typically submitted once per day at the end of the business day. If a
transaction is not submitted in the batch, the authorization will stay valid for a period
determined by the issuer, after which the held amount will be returned back to the
cardholder's available credit (authorization hold). Some transactions may be submitted in
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 Group – 2 Credit Cards

the batch without prior authorizations; these are either transaction falling under the
merchant's floor limit or ones where the authorization was unsuccessful but the merchant
still attempts to force the transaction through. (Such may be the case when the cardholder
is not present but owes the merchant additional money, such as extending a hotel stay or
car rental.)

• Clearing and Settlement: The acquirer sends the batch transactions through the credit card
association, which debits the issuers for payment and credits the acquirer. Essentially, the
issuer pays the acquirer for the transaction.

• Funding: Once the acquirer has been paid, the acquirer pays the merchant. The merchant
receives the amount totaling the funds in the batch minus the "discount rate," which is the
fee the merchant pays the acquirer for processing the transactions.

• Chargebacks: A chargeback is an event in which money in a merchant account is held due

to a dispute relating to the transaction. Chargeback’s are typically initiated by the
cardholder. In the event of a chargeback, the issuer returns the transaction to the acquirer
for resolution. The acquirer then forwards the chargeback to the merchant, who must
either accept the chargeback or contest it.

Fees charged to customers

The major fees are for:

• Late payments or overdue payments

• Charges that result in exceeding the credit limit on the card (whether done deliberately or
by mistake), called overlimit fees
• Returned cheque fees or payment processing fees (eg phone payment fee)
• Cash advances and convenience cheques (often 3% of the amount). Transactions in a
foreign currency (as much as 3% of the amount). A few financial institutions do not
charge a fee for this.
• Membership fees (annual or monthly), sometimes a percentage of the credit limit.
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 Group – 2 Credit Cards

• Exchange rate loading fees (these may sometimes not be reported on the customer's
statement, even when they are applied)

History

The concept of using a card for purchases was described in 1887 by Edward Bellamy in his
utopian novel Looking Backward. Bellamy used the term credit card eleven times in this novel.

The modern credit card was the successor of a variety of merchant credit schemes. It was first
used in the 1920s, in the United States, specifically to sell fuel to a growing number of a Master
Card came to being in 1966 when a group of credit-issuing banks established MasterCharge; it
received a significant boost when Citibank merged its proprietary Everything card, launched in
1967, into Master Charge in 1969. The fractured nature of the U.S. banking system meant that
credit cards became an effective way for those who were traveling around the country to move
their credit to places where they could not directly use their banking facilities. In 1966
Barclaycard in the UK launched the first credit card outside of the U.S.

There are now countless variations on the basic concept of revolving credit for individuals (as
issued by banks and honored by a network of financial institutions), including organization-
branded credit cards, corporate-user credit cards, store cards and so on.

In contrast, although having reached very high adoption levels in the US, Canada and the UK, it
is important to note that many cultures were much more cash-oriented in the latter half of the
twentieth century, or had developed alternative forms of cash-less payments, such as Carte bleue
or the Eurocard (Germany, France, Switzerland, and others). In these places, the take-up of credit
cards was initially much slower. It took until the 1990s to reach anything like the percentage
market-penetration levels achieved in the US, Canada, or the UK. In many countries acceptance
still remains poor as the use of a credit card system depends on the banking system being
perceived as reliable.

In contrast, because of the legislative framework surrounding banking system overdrafts, some
countries, France in particular, were much faster to develop and adopt chip-based credit cards
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which are now seen as major anti-fraud credit devices.

 Group – 2 Credit Cards

The design of the credit card itself has become a major selling point in recent years. The value of
the card to the issuer is often related to the customer's usage of the card, or to the customer's
financial worth. This has led to the rise of Co-Brand and Affinity cards - where the card design is
related to the "affinity" (a university, for example) leading to higher card usage. In most cases a
percentage of the value of the card is returned to the affinity group.

Major Credit Card Providers in India

Following are major credit card providers in India:

 ABN Amro
 HDFC
 American Express
 ICICI Bank
 Axis Bank
 SBI
 Bank of Baroda
 Canara Bank
 Citibank
 Visa
 HSBC
 MasterCard
 Deutsche Bank
 Amex
 Barclays Bank
 Diners Club
 Standard Chartered
 Kotak Mahindra

TARGET AUDIENCE
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a) Customer Segments:

The segmentation of the card industry can be done on the basis of income. Further research can
only be conducted after preliminary secondary research of the income profiles in the country.

The Indian market reflects considerable diversities in income levels and lifestyles. A World Bank
estimate places average annual household incomes (in terms of purchasing power) at US $6452.
But there are large segments of people, whose income levels are significantly higher, growing
faster and spurring a consumer revolution. It is difficult to obtain correct estimates of this group,
as there is a very small percentage of India’s ‘rich’ who pay income tax and their income levels
are correctly reported. Therefore to conduct this segmentation, we shall have to make use of
National Council of Applied Economic Research (NCAER) data and not the estimates from the
income tax department.

The segment which have been identified are as follows:

Segments Income Group (Rs.)

Very Rich 2,15,000+

Consuming Class 45,000 – 2,15,000
Climbers 22,000 – 45,000
Aspirants 16,000 – 22,000
Destitute < 16,000

According to NCAER reports:

 The Very Rich (annual income over Rs 215,000) will increase form 1 million to 6.2
million households by 2006-7.
 The Consuming Class (annual income of Rs 45,000-215,000) will grow from 28.6 million
to 90.9 million households by 2006-7.
 The number of households in the Aspirants (Rs 16,000-22,000/year) and Destitute (less
than Rs 16,000/year) groups will decrease significantly.
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Segments with high unrealized potential

 Mid-Size cities in India have low credit card penetration. The residents of such cities are
affluent and they are good markets for Citibank cards. This low penetration is due to
comparatively low acceptance of credit cards.
 Rich farmers who live in the rural belt but also spend quite some time in the nearby towns
can be tapped. A product can be introduced to serve their specialized needs.
 The growing number of netizens represents a segment with high-unrealized potential.

Customers Motivations

Preliminary qualitative research has identified certain motivators differentiated on the basis of the
income segments. Further quantitative research shall be conducted keeping this in mind to arrive
upon the ideal positioning.

Segments Motivations

Very Rich Convenience and acceptability, Level of service, Credit Limit Consuming
Class ‘Prestige’, Convenience and acceptability, Level of service, Charges
Climbers ‘Prestige’, Charges

Charges include all commissions, interest rate, annual fees, which are to be paid to the bank. The
motivational factor has been derived from the credit card holder behavior and income levels. This
shows differentiation as we move along the various segments. Fee charges are not at all important
for the ‘Very Rich’ but they assume a fair degree of importance as we move down the segments.
In case of ‘Climbers’, Level of service has very little motivation to offer. This segment primarily
has either the non-premium cards or cards issued by the nationalized banks. In both the scenarios,
level of service is not very high. The other segments have not been considered since they do not
fall into the potential customer category. However, with the introduction of ‘Kisan’ Cards (The
major issuing banks are: Dena Bank, Punjab National Bank, State Bank of India Benegal Circle,
State Bank of Indore, Vijaya Bank), these segments are also being brought into purview of credit
card users (assumption: 65% of low-income households are associated with agriculture).
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Target market:
 Group – 2 Credit Cards

- Card issuers target teens for latest plastic attacks

Your 16-year-old has just received a major credit card with his name on it and a $1,000 spending
limit. If you dropped him off at the mall, or left him home alone to shop online, would he have
the knowledge and maturity to use it wisely? If that scenario makes you nervous, like giving him
the car keys the first time, he might not be ready to charge forth into the tricky world of plastic
money. Many teens don't know enough about borrowing to use a credit card, but issuers know a
lot about them, and they want their business.

Credit card companies, which keep a hawk's eye on demographics, are swooping down on young
consumers. Initiating the quest for kids under age 18 is Capital One, one of the nation's leading
issuers. The Virginia-based company is targeting high school juniors and seniors with a co-signed
MasterCard that is solicited through the Internet and mailings addressed to their parents. The
card has a stiff 19.8 percent fixed annual percentage rate and no annual fee. Credit limits range
from $200 to $1,000. The child gets the card -- and the bill -- in his or her name, but the parents
are legally responsible for the account.

"We've had the program for a long time and it's done really, really well," says spokeswoman
Diana Don. "A lot of people in this age range already have an income and a credit bureau report."

Market is ripe for picking

The minor-age market is ripe for the picking. The number of teenagers is growing and they're
spending more money. There are 31.3 million kids between the ages of 12 and 19 in the United
States -- about 11 percent of the population -- according to Teen Research Unlimited of
Northbrook, Ill. Their numbers are expected to increase until at least 2010. More teens are
working full- or part-time jobs and spending their own money -- as well as a little more of mom
and dad's. In 2006, youngsters shelled out $195 billion of their own green, compared with $94
billion in 1999, according to a Harris Group survey.

A lot of that money is being spent online. Jupiter Communications estimates that teens accounted
for $1.2 billion in Internet spending by 2002. "Teens are becoming increasingly powerful
consumers and are trusted more and more by their parents to make family purchase decisions,"
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Teen Research's president Peter Zollo said when the survey was released last October. "Teens
know what they want and are savvy when it comes to efforts to market to them."

Encouraged by those numbers, and the fact they have saturated the adult card market, issuers are
eyeing post-pubescent, Internet-savvy consumers. "It was college students and now it's getting
younger," says Dara Duguay, executive director of the Jumpstart Coalition for Personal Financial
Literacy. "I've noticed it within the last year really heavily."

Are teens ready for plastic?

Jumpstart, a nonprofit organization based in Washington, D.C., says these fresh young things
aren't ready for plastic. Every other year, the group quizzes 12th-graders in public schools around
the country on topics such as paying taxes, using credit cards and retirement savings. On average
in 2006, participants answered only 52.4 percent of the questions correctly, a failing grade. This
was marginally better than the results of the 2004 survey (52.3 percent). The lowest was in 2000,
when students scored an average of 50.2 percent.

Duguay blames the failure on the lack of personal finance teaching in schools. Jumpstart’s goal is
to ensure that students are financially competent by the time they graduate from high school. She
says parents have to get involved if they are going to allow their children to use credit cards. "It
takes supervision. If a parent has a co-signed card, they need to sit down with them and show
them what interest rates are. "Credit cards can be a useful thing as long as they're monitored.
They can be an opportunity to learn before going into the adult world."

A learning opportunity

Jumpstart, along with myvesta.org, formerly Debt Counselors of America, helped Capital One
develop brochures that are stuffed into their teen customers' monthly credit card statements. The
inserts explain subjects such as introductory rates, understanding the card statement, how
compounding interest works and managing finances.

"We get letters all the time from parents saying the card is a really good tool," says Don. Other
issuers seem to be watching and waiting before they jump into the teen segment. "We do perceive
it as an interesting market," says Deborah J. Pulver, spokeswoman for Fleet Financial, another
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top card issuer. "That's not to say we won't do something in the future. We need to make sure
there is an educational component with that as well."

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Issuers such as Capital One who are reaching out to minors with major credit cards must follow
the same federal disclosure laws they do for marketing to adults. Whether they are selling by
mail, telephone or the Internet, banks are required to reveal costs such as annual fees and finance
charges. "Before the customer pays, the seller has to disclose who they represent, the nature of
the goods and services and the total cost," says Carole Danielson, an investigator in the Federal
Trade Commission's division of marketing practices. Usually school districts have control other
rules -- such as whether card companies can visit high school campuses the way they do colleges
-- fall to the states. States, in turn, usually give that authority to local school districts.

If the policies of two of the nation's largest districts are any indication, parents don't have to
worry about card companies setting up sales tables at their kids' high schools. "If it's flat-out
solicitation, we don't allow it," says Janet Cass, who works for the Broward County School
District, which includes the greater Fort Lauderdale-Hollywood, Fla., area and is the nation's fifth
largest. "If the sole purpose is to come in and sell a product, such as signing up kids for credit
cards, there is no educational value in that."

The Los Angeles Unified School District, the nation's second largest, also prohibits solicitation
on school grounds. "We do not allow commercial ventures to come on to our campuses," says
Dan Isaacs, assistant superintendent for school operations.

Cass says a lender might be allowed to talk to students about credit card use and financial
management, but those requests are carefully screened by a committee that scrutinizes lecture
outlines and materials. Card companies still have ways of branding their names on young brains.
Many schools work with corporations to sponsor events. As a result, the lender might be allowed
to hang a banner in the gym or stadium. Cass, who works in the Broward district's partnership
division, says they are approached by all sorts of interests. "You see companies just drooling over
the large market of kids," she says. "They are a captive audience."

She says American Express is very involved with the district, paying for luncheons and other
events. "It's a public relations move to get their name in front of kids and parents," she says.
Isaacs says credit card companies can advertise in the school newspaper "just like they would in
any paper."
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Most credit card forms stipulate that the applicant must be 18 years old, but just as there is no
way to ensure a mischievous minor won't sneak away to puff a cigarette or swig alcohol, there is
no guarantee a credit card won't fall into the wrong hands. "A few years ago, I had a 6-year-old
cousin who found a credit card application," relates Cass. "He took it upon himself to fill it out
and mail it in. They sent him a credit card in his name. "He's 13 now and his mom still has it
taped to the refrigerator," she says. "I guess he had a pretty clean credit report."
Segment Performance

Credit cards have been in India for well over two decades. Over the last five years though, they
have literally taken over the market. The credit card segment has registered an impressive growth
rate of around 40 per cent this year.
The credit card subscriber base - over 141 lakh - itself has grown at a phenomenal rate of 30-35
percent a year over the last few years. The rapid growth in the subscriber base can be attributed to
the aggressive issuance of credit cards by top 5 players in the industry. The industry has seen the
private sector player, ICICI Bank, surge aggressively ahead, surpassing the established MNC
banks like Citibank and Standard Chartered. Now there are 5 banks with a portfolio of over 10
lakh credit cards each.

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Market Share

ICICI Bank emerged as the leader in the credit card issuance category for the year, with its
continued aggressive strategy, registering a 62 percent growth rate. ICICI Bank crossed the 36
lakh mark in terms of credit cards, galloping ahead (within four years of its launch) of pioneer
Citibank (27 lakh cards), the global leader in credit cards.
ICICI Bank holds 27% market share followed by Citibank with 19% market share. SBI-GE
occupies the third slot with 14 % market share. Estimates for the year 2005-06 indicate a similar
surge and aggressiveness. The credit card numbers are expected to cross 208 lakh by March
2006. For the year 2004-05, no new bank forayed in credit card market. However some of the key
banks like UTI Bank, J&K Bank, Union Bank of India, PNB etc. announced their decision to
launch their cards in the year 2005-06.
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Industry Spend
With over 141 lakh credit cards in use in India, the pattern of usage is also undergoing a sea
change. The total spends in the payment industry for the year 2004-05 crossed Rs. 33,000 crores
at the POS. This reflects a growth of 53% over the previous year. ICICI Bank is the leader in
capturing maximum spends with 32% market share, followed by Citibank at 20% market share.
The combined share in terms of spends of the MNC Banks is about 43%.
ICICI Bank saw its spends shoot up since 2004 end, pointing out that a combination of factors are
responsible for the jump - the high spending festival season and three simultaneous promotional
programmes. India currently has over 141 lakh credit cardholders, who make purchases totaling
Rs. 33,000 crores per annum. Compared to the Asian market, the card market in India is at a
nascent stage. Total card spending in India is only at around 1.22% of Asian spending.
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Characteristics of the Indian Market

The credit card market in India is about 3 million with a value turnover of around Rs.2500 crores.
The market is expected to grow by 30% p.a. This would still be a very low penetration of a
potential market of 60 million cardholders. The credit card business is a low-margin, high volume
business.

Thus, given the low income per card and the high initial investments by the bank, large volumes
in terms of cards issued and the transactions financed are required to make the operations
profitable.

SALES DISTRIBUTION CHANNEL

Distribution (or "Place") is the fourth traditional element of the marketing mix. The other three
are Product, Price and Promotion.

The Nature of Distribution Channels

Most businesses use third parties or intermediaries to bring their products to market. They try to
forge a "distribution channel" which can be defined as

"All the organizations through which a product must pass between its point of production
and consumption"

Why does a business give the job of selling its products to intermediaries? After all, using
intermediaries’ means giving up some control over how products are sold and who they are sold
to.

The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They
have the contacts, experience and scale of operation which means that greater sales can be
achieved than if the producing business tried run a sales operation itself.

Functions of a Distribution Channel

The main function of a distribution channel is to provide a link between production and
consumption. Organizations that form any particular distribution channel perform many key
functions:

Information Gathering and distributing market research and intelligence - important

for marketing planning
Promotion Developing and spreading communications about offers
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Contact Finding and communicating with prospective buyers

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Matching Adjusting the offer to fit a buyer's needs, including grading, assembling
and packaging
Negotiation Reaching agreement on price and other terms of the offer
Physical distribution Transporting and storing goods
Financing Acquiring and using funds to cover the costs of the distribution channel
Risk taking Assuming some commercial risks by operating the channel (e.g. holding
stock)
All of the above functions need to be undertaken in any market. The question is - who performs
them and how many levels there need to be in the distribution channel in order to make it cost
effective.

Numbers of Distribution Channel Levels

Each layer of marketing intermediaries that performs some work in bringing the product to its
final buyer is a "channel level". The figure below shows some examples of channel levels for
consumer marketing channels:

In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no intermediary
levels. In this case the manufacturer sells directly to customers. An example of a direct marketing
channel would be a factory outlet store. Many holiday companies also market direct to
consumers, bypassing a traditional retail intermediary - the travel agent.
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The remaining channels are "indirect-marketing channels".

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Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The
consumer electrical goods market in the UK is typical of this arrangement whereby producers
such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet,
Dixons and Currys which then sell the goods to the final consumers.

Channel 3 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically
buys and stores large quantities of several producers goods and then breaks into the bulk
deliveries to supply retailers with smaller quantities. For small retailers with limited order
quantities, the use of wholesalers makes economic sense. This arrangement tends to work best
where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful
retailers who have an incentive to cut out the wholesaler. A good example of this channel
arrangement in the UK is the distribution of drugs.

SKILL SETS REQUIRED IN THE SALES FORCE

1. To think well. Businesses expect that a college graduate can think well. At all times you
are expected to think clearly, logically, creatively and ethically about business (in general)
and marketing (in particular).

2. Ability to make decisions. Decision-making skills are always in demand in business.

Expected to apply decision-making skills to the analysis and solution of marketing
problems.

3. Ability to speak and to write. Good speaking and writing skills are essential to the career
advancement of business people. Opportunity to practice communicating marketing ideas
through presentation of oral and written marketing strategies.

4. Ability to apply your marketing knowledge and skills. Businesses expect that a marketing
college graduate can apply the marketing knowledge and skills learned in college to real
situations.
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5. To strengthen your ability to ask questions. Good business people learn to ask good
questions. Asking good questions hones the mind. It may also help avoid disastrous
marketing strategies.
6. Ability to use business technology effectively. In particular, this includes communications
and computer technologies.

7. Ability to be passionately persistent. Success doesn’t just happen. It is made by those so

passionately persistent that they will not accept failure. Passion is a learned attitude and
persistence is a learned behavior.

8. Ability to work in a team. Teamwork is essential to the success of businesses. Even one-
owner businesses must team with other businesses to succeed. Teamwork will also be
essential to success.

9 Ability to report to a boss. Virtually every businessperson has a boss and must work hard
to meet the expectations of the boss. In marketing, the customer is always our boss. As
your professor in this class, I am your boss and I have high expectations!

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Conclusion:

Issuing credit cards can be a profitable business for banks and other outfits—that’s why the
marketplace is so crowded with brochures screaming about great offers. If you take your time and
review these offers, you can find some good deals.

Know, from the start, that almost all issuers—including big, legitimate ones—hide fees and high
interest rates in the small print of their disclosure forms and agreements. Take the time to read
these.

Frankly, some credit card issuers play sleazy games when it comes to telling consumers about
conditions, terms and rates. In 2001, the Office of the Comptroller of the Currency settled case
against the First National Bank of Marin (based, oddly, in Las Vegas), involving misleading and
deceptive marketing of secured credit cards.

That clearly defeats the purpose of having or carrying a credit card.

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