Prime Bank limited is a fast growing private sector bank and the bank has focused for providing high quality.

view with charts and images

Prime Bank limited is a fast growing private sector bank and the bank has focused for providing high quality.

Introduction:

Prime Bank limited is a fast growing private sector bank and the bank has focused for providing high quality customer service at a very competitive price. PBL efforts are directed at diversification of products and services. Offering customers a wide variety of choices and options have remained cornerstone of their business strategy.

In this backdrop, PBL has launched credit card business in collaboration with a global player like Master card. MasterCard is one of the top 20 brands in the world. An alliance with these as its principal member is definitely a big advantage from marketing point of view. The policy planners have found a showing growth of card market with the increasing acceptability of plastic money in many outlets; the business has become intensely competitive. More players had entered into the market and some others were preparing for entry into the same. As increasing number of customers were turning to the convenient features of credit card usage, PBL had steeped up marketing efforts to retain and enhance their market.

This report is basically deals with “A Competitive Analysis of Prime Bank Credit Card with the Credit Cards offered by Standard Chartered Bank and National Bank Limited and its contribution towards the company growth”.

Overview of the problem:

This paper emphasize that all tasks assigned to a marketing research manager, none is more critical that analysis competitors activities, performance and potentially in credit card market in Banking area that effect the projection in the future periods are fundamentals to architectonic a long term strategic plan and designing appropriate marketing strategies.

In a research project is has been identified that the sales growth become negative for the last few months. Through this research proposal like to identify the factors, which affect large in consumer preference at the time of selecting a particular companies credit card and find out prospective solution to overcome those shortcomings. At the same time in this exercise, it is tried best to identify the variables that are significantly collateral in competitive advantage and by distinguished cardholders and merchant effect in performance.

Objective of the study:

The main objective of the study is it explore and examine the underlying issues critical to developing and maintaining long term exchange relationship with the customers of the PBL. More specifically through this study like to find out the lacking of PBL in terms of its competitive competitors.

1. To identify the competitors of the PBL.

2. Identify the customer (cardholders) preference that differentiates the services of PBL Card with the competitor in the market.

3. Identify the merchant preference in credit card transaction.

4. Identify the share of heart of cardholders in charging credit card.

5. To identify the share of dollars in credit and changing in total expenses.

6. Identify the different changes, interest and service fees that give the competitive advantage in credit card market.

7. The preference of merchant in credit card transaction.

8. Potentiality of credit card.

9. Find the variables that act as competitive advantage in credit card market.

Research Questions:

To achieve the objectives the following major research questions are identified:

1. What are the factors affect customers at the time of evaluation of the offerings of credit card of different competitors?

2. Who are the competitors of PBL Credit Card and their performance comparing with Prime Bank Credit Card?

3. What type of benefits do consumers expect from credit card and what type of difficulties they face at the time of using it?

4. What type of differentiations exists in the competitive of credit card according to its interest, service charge and fees?

Methodology:

Once the research objectives are finalized the next logical step to achieve the objectives is to decide the methodology to be followed. In order to achieve the primary objective, quantitative method, in particular case study approach, appear more appropriate in collecting necessary data. Survey method can be use for research purpose through using a structured questionnaire that will be prepared both for cardholders and merchants.

Data Collection: Both the primary and secondary form of information and also requires a depth observation of the phenomenon to be investigated is used to achieve a report which is more meaningful and presentable. But most of the data are primary. The details of these sources are given below:

Primary Sources:

· Major source of collecting information is questionnaire, which will be prepared both for cardholders as well as for merchant.

· Another source of information may be discussions with the officers of credit card division through in depth interview of the competitive companies.

· Practical work exposure in the credit card division may consider another source of information.

Secondary Sources:

· Brochures of different banks, their annual report, research publications, annual report of BIBM on Bank Management can be the secondary sources for collecting information.

· Dhaka Commercial bank Management.

· Dhaka Security and Exchange Commission who store information of all the banks operating in our country.

Layout: All necessary parts of conventional formal report have been followed. The readers are expected to get a different taste from this report.

Time and Budget Schedule:

For the proposed research we need to set a time set and required budget schedule, which may help to determine for further research step:

Time Schedule

Total 12 Weeks

Project Budget

Total Tk. 20,000.00

CHAPTER-1

THEORITICAL BACKGROUND

Every firm competing in an industry has a competitive strategy, whether explicit or implicit. This strategy may have been developed explicitly through appalling process or it may have evolved implicitly through the activities of the various functional departments of the firm. Left to its own devices, each functional department will inevitably pursue approaches dictated by its professional orientation and the incentives of those in charge. However, the sum of these departmental approaches really equals the best strategy.

Competition

Competition includes al the actual and potential rival offerings and substitutes that a buyer might consider.

We can broaden the picture further by distinguishing four levels of competition, based on degree of product substitutability:

1. Industry competition: A company sees its competitors as all companies making the same product or class of products. Volkswagen would see itself as competing against all other automobile manufacturers.

2. Form competition: A company sees its competitors as all companies manufacturing products that supply the same service. Volkswagen would see itself competing against not only other automobile manufacturers but also against manufacturers of motorcycles, bicycles, and trucks.

3. Generic competition: A company sees its competitors as all companies that compete for the same consumer dollars. Volkswagen would see itself competing with companies that sell major consumer durables, foreign vacations, and new homes.

Essentially developing a competitive strategy is developing a broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals.

Process for Formulating a Competitive Strategy

A. What is the Business Doing Now?

1. Identification

What is the implicit or explicit current strategy?

2. Implied Assumptions

What assumptions about the companies’ relative position, strengths and weaknesses, competitors and industry trends must be made for the current strategy to make sense?

B. What is happening in the Environment?

1. Industry Analysis

The key factors for competitive success and the important industry opportunities and threats?

2. Competitors Analysis

What are the capabilities and limitations of existing and potential competitors, and their probable future moves?

1. Societal Analysis

What important governmental, social, and political factors will present opportunities or threats?

2. Strengths and Weaknesses

Given an-analysis of industry and competitors what are the company strengths and weaknesses relative to present and future competitors?

C. What should the business be doing?

1. Tests of Assumptions -an strategy

How do- the assumptions embodied in the current strategy compare with the analysis in B above?

2. Strategy Alternatives

What are the feasible strategy alternatives given the analysis above? Is the current strategy one of these?

3. Strategy Choice

Which alternative best relates the company’s situation to external opportunities and threats?

STRUCTURAL ANALYSIS AND COMPETITIVE STRATEGY:

An effective competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces. Broadly, this involves a number of possible approaches.

· Positioning the firm so that its capabilities provide the best defense against the existing array of competitive forces.

· Influencing the balance offered through strategic, thereby improving the firm’s relative position; or

· Anticipating shifts in the factors underlying the forces and responding to them, thereby exploiting change by choosing a strategy appropriate to the new competitive balance before rivals recognize it

The Structural Analysis of Industry:

The intensity of competition in an industry is neither a matter of confidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes beyond the behavior of current competitors. The state of competition in an industry depends on five basic competitive forces, which are show in Figure:

Fig: Driving Forces Industry Competition

Generic Competitive Strategies:

Three Generic Strategies:

In coping with five competitive forces, there are there potentially successful generic strategic approaches to outperforming other firms in an industry.

1. Overall cost leadership

2. Differentiation

3. Focus

OVERALL COST LEADERSHIP

The first strategy an increasingly common one in the 1970s because of popularization of the experience curve concept, is to achieve overall cost leadership in an industry through a set of functional policies aimed at this basic objective. Cost leadership requires aggressive construction of efficient -scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on.

DIFFERENTIATION

The second generic strategy is one of differentiating the product or service offering of the firm. Creating something that is perceived industry wide as being unique. Approaches to differentiating can take many forms: design or brand image (Fieldcrest in top of the line towels and linens: Mercedes in automobiles) technology) Hysteria in lift trucks Macintosh in stereo companions Coleman in camping equipment) features (Jennie air in electric ranges); customer service Crown cork and seal in metal cans) dealer network (Caterpillar Tractor in construction equipment,) or other dimensions.

Table: Differentiation variables

FOCUS

The final generic strategy is focusing on a particular buyer group, segment of product line, or geographic market; as with differentiation focus may take many forms, Although the cost and differentiation strategies are aimed at achieving their objectives industry wide, the entire focus strategy is built around serving a particular target very well and each functional policy is developed with this in mind.

Strategic Advantage

Uniqueness Perceived

By the Customer Low Cost Position

Industry Wide

Strategic Target

Particular

Segment only

Fig: Three Strategic Strategies

A FRAMEWORK OF COMPETITOR ANALYSIS:

Competitive strategy involves positioning abusiveness to maximize the value of the capabilities that distinguish it from its competitors. It follows that accentual aspect of strategy formulation is perceptive competitor analysis. The objective of competitor analysis is to develop a profile of the n attune and success of the likely strategy changes each competitor might make, each competitors probable response to the range of feasible strategic moves other firms could initiate, and each competitors probable reaction to the array of industry changes and broader environmental shafts that might occur.

Fig: Components of a Competitor Analysis

Areas Competitor Strengths and Weakness

Products

· Standing of products, from the user’s point of view, in each market segment

· Breadth and depth of the production

Dealer/Distribution

· Channel coverage and quality

· Strength of channel relationships

· Ability to service the channel

Marketing and Selling

· Skills in each aspect of the marketing mix

· Skills in market research and new product development

· Training and skills if the sales force

Operations

· Manufacturing cost position-economies of scale, learning curve of equipment etc.

· Technological sophistication of facilities and equipment

· Flexibility of facilities and equipment

· Proprietary know-how and unique patent or cost advantages

· Skills in capacity addition, quality control, tooling, etc.

· Location, including labor and transportation cost

· Labor force climate, unionization situation.

· Access to and cost of raw materials

· Degree of vertical integration

Research and Engineering

· Patents and copyrights

· In house capability in the research and development process (product research, process, research, development, imitation, etc)

· R&D staff skills in terms of creatively, simplicity, quality reliability etc.

· Access to loused sources of research and engineering.

Overall Costs

· Overall relative costs

· Shared costs or activities with other business units

· Where the competitors is generating the scale or other factors that are key to its cost position.

Financial strength

· Cash flow

· Short and long term borrowing capacity (relative debt equity aeration)

· New equity capacity over the foreseeable future

· Financial management ability, including negotiation raising capital, credit in venturous and accounts receivable

Organization

· Unity of values and clarity of purpose in the organization

· Organizational fatigue based on recent requirements placed on it

· Consistency of organizational arrangements with strategy

General Managerial Ability

· Leadership qualities of CEO; ability of CEO to motivate

· Ability to coordinate particular functions or groups of functions (e g manufacturing with resource coordination)

· Age training and functional orientation of management Depth of management

· Flexibility and adaptability of management

Corporate portfolio

· Ability of corporation to support planned changes in all business units in terms of financial and other resources

· Ability of corporation to supplement or reinforce business unit strengths

Others

· Special treatment by or access to government bodies

· Personnel turnover

Value chain:

To diagnose competitive advantage it is necessary to define a firm’s value chain for competition in a particular industry. Starting with the generic chain, individual value activities are identified in the particular firm. Each generic category can be divided into discrete activities, as illustrate for one generic category in the following figure

Fig: The generic Value chain.

STRUCTURAL ANALYSIS WITHIN INDUSTRIES

Dimensions of Competitive Strategy

Companies’ strategies for competing in an industry can differ in as wide variety of ways. However the following strategic dimension usually capture the possible differences among a company s strategic options in a given industry:

· Specialization: the degree to which to which it focuses its efforts in terms of the width of its line the target customer segments an the geographic markets served;

· Brand identification: the degree to which it seeks brand identification rather than competitors based mainly price or other variables. Brand identification can be as sieved inverting sales force or variety of other means.

· Push versus pull: the degree to which it seeks to develop brand identification with the ultimate consumer directly versus the support of distribution channels in selling its product.

· Channel selection: the choice of distribution channel ranging from company owned channels to specialty outlets to broad line outlets.

· Product quality: its level of product quality in terms of raw materials specifications, adherence to tolerances, features, and so on;

· Technological leadership: the degree to which it seeks important to note that a firm could be a technological leader but deliberately not produce the highest quality product in the market quality and technological leadership do not necessarily go together;

· Vertical integration: the extent of value added as reflected in th level of forward and backward interruption adopted in clouding whether th firm has captive distribution exclusive or owned retail outlets an in house service network and so on;

· Cost position: the extent to which it seeks the low cost position in manufacturing and distribution through investment in cost minimizing facilities and equipment;

· Service: the degree to which it provides ancillary services with its predict line such as engineering assistance and in house service network credit and so forth. This aspect of strategy could be viewed as part of vertical integration but of vertical integration be is usefully separated for analytical purposes;

· Price policy: its relative price position in the market. Price position will usually be related to the relationship between a unit and its parent such other variables as cost position and product quality but price is a distinct strategic variable that must be treated separately;

· Leverage: the amount of financial leverage and operating leverage it bears;

· Relationship with parent company: requirements on the behavior of the unit based on the relationship between a unit and its parent company. The firm could be a highly diversified conglomerate, one of a vertical chain of businesses part of a cluster of related businesses in general sector a subsidiary o foreign company an dos no. The gnarr of the relationship with the parent will influence the objectives with which the firm is managed the resources available to it and perhaps determine some operations or functions that it shares with other units;

· Relationship to home an host government: in international industries the relationship the firm has developed or is subject to with its home government as well as host governments in foreign countries where it is operating.

Competitive Advantage

Marketing Mix

Marketers use numerous tools to elicit desired responses from their target markets. These tools constitute a marketing mix. Marketing Mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market.

McCarthy classified these tools into four broad groups that he called the four Ps of marketing: product, price, place, and promotion.

Robert Lauterborn suggested that the sellers four Ps correspond to the customers four Cs.

Four Ps Four Cs

Product Customer solution

Price Customer cost

Place Convenience for customer

Promotion Communication with customer

Winning companies will be those who can meet customer needs economically and conveniently and with effective communication will get advantage against competitor.

Marketer Responses and Adjustments

Marketers also are rethinking their philosophies, concepts, and tools. Here are the major marketing themes as the millennium approaches:

· Relationship marketing: from focusing on transactions to building long-term, profitable customer relationships. Companies focus on their most profitable customers, products, and channels.

· Customer lifetime value: From making a profit on each sale to making profits by managing customer lifetime value some companies offer to deliver a constantly needed product on a regular basis at lower price per unit because they will enjoy the customer’s business for a longer period.

· Customer share: from a focus on gaining market share to a focus on building customer share. Companies build customer share by offering a larger variety of goods to their existing customers. They train their employees in cross selling and up selling.

· Target marketing: from selling to everyone to trying to be the best firm serving well defined target markets. Target marketing is being facilitated by the proliferation of special-interest magazines, TV channels, and Internet newsgroups.

· Individualization: From selling the same offer in he same way to everyone in the target market to individualizing and customizing messages and offerings. Customers will be able to design their own product features on the company’s Web page.

· Customer database: from collecting sales data to building a rich data warehouse of information about individual customers’ purchases, preferences, demographics, and profitability. Companies can “Data mine” their proprietary databases to detect different customer need clusters and make differentiated offerings to each cluster.

· Integrated marketing communications: from heavy reliance on one communication tool such as advertising or sales force to blending several tools to deliver a consistent brand image to customers at every brand contact.

· Channels as Partners: From thinking of intermediaries as customers to treating them as partners in delivering value to final customers.

· Every employee a marketer: From thinking that marketing is done only by marketing, sales, and customer support personnel to recognizing that every employee must be customer-focused.

· Model-based decision-making: from making decisions on intuition or slim data to basing decisions on models and facts on how the marketplace works.

These major themes will be examined throughout this book to help marketers and companies sail safely through the rough but promising waters ahead. Successful companies will be those who can keep their marketing changing as fast as their market place and market space.

Tools for Tracing and Measuring Customer Satisfaction:

· Complaint and suggestion systems:

A customer-centered organization makes it easy for its customers to deliver suggestions and complaints. These information flows provide companies with many good ideas and enable them to act quickly to resolve problems.

· Customer satisfaction surveys:

Studies show that although customers are dissatisfied customers will complain. Most customers will buy less or switch suppliers. Complaint levels are thus not a good measure of customer satisfaction. Responsive companies measure customer satisfaction directly by conducting periodic surveys.

· Ghost shopping:

Companies can hire persons to pose as potential buyers to report on strong and weak points experienced in buying the company’s and competitors’ products. These mystery shoppers can even test whether the company’s sales personnel handle various situations well.

· Lost customer analysis:

companies should contact customers who have stopped buying or who have switched to another supplier to learn why this happened. Not only is it important to conduct exit interviews when customers first stop buying, but it is also necessary to monitor the customer loss rate. If it is increasing, this clearly indicates that the company is failing to satisfy customers.

Today, more and more companies are recognizing the importance of satisfying and retaining current customers. Here are some interesting facts bearing on customer retention:

• Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current customers. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers.
• The average company loses 10 percent of its customers each year.
• A 5 percent reduction in the customer defection rate can increase profits by 25 percent to 85 percent, depending on the industry.
• The customer profit rate tends to increase over the life of the retained customer.
• A satisfied customer tells about the company or product to 5/6 people, but on the other hand a dissatisfied customer tells to 15 to 18 people from his experience.

Adding Financial Benefits:

Two financial benefits that companies can offer are frequency marketing programs and club marketing programs. Frequency marketing programs (FMPs) are designed to provide rewards to customers who buy frequently and / or in substantial amounts. Frequency marketing is an acknowledgment of the fact that 20 percent of a company’s customers might account for 80 percent of its business.

Adding social Benefits:

Here company personnel work on increasing their social bonds with customers by individualizing and personalizing customer relationships. Following table contrasts a socially sensitive approach with a socially insensitive approach to customers.

Adding Structural Ties:

The company may supply customers with special equipment or computer linkages that help customers manage their orders, payroll, inventory, and so on.

CHAPTER -2

ANALYSIS OF GENERIC COMPETITION

· Cash

· Cheque

· Different Types of card

· Credit Card

CASH

The present day in convertible paper money and other credit instruments, which serve, as close substitutes for money called near money are only a recent development. The paper money (Cash) was not used circulation before the French Revolution; paper money (Cash) is a competitor of modern invention plastic money (credit card). People today are not habituated in plastic money. The main reason is to use Cash in transactions are easy acceptability, Government circulation, easily accessible, store value, social preference and reluctant of change new medium (credit card) rather than cash.

CHEQUE

A cheque is an unconditional written order, advanced by a customer to his bank, to pay on demand a specified sum of money to or to he order of the person named therein or the bearer of the instrument. A cheque is defined by Negotiable Instrument Act as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise that on demand. Cheques came into use in 1875. Crossed Cheque, Bearer and Order cheque are the different form of cheque, hi selling of goods; cheque is used in large transaction like industrial market.

DIFFERENT TYPES OF CARD

Bank Card:

Transactions card giving a bank’s customers’ ability to pay for goods and services at retail merchant, and get cash at bank teller window or at ATMs. A bankcard may be a credit cad, tied to a pre-approved line of credit or a Debit Card, drawing funds from the holder’s checking or saving accounts. A bankcard is also used as identification when cashing a check.

Debit Card/Assert Card:

A plastic card used to initiate a debit transaction. In general, these transactions are used primary to purchase goods and services and to obtain cash, for which the cardholder’s asset account is debit by the issuer.

There are two types of Debit cards currently is use in USA: national Debit Cards, such as -the Visa Debit difference is that the national debit cards were designed specifically as retail payment cards; bank debit card were issued first as ATM access cards and later as general purpose transaction cards.

Travel and entertainment (T & E) Cards:

Charge cards used to pay for hotel, airlines and others business related expense. Diners Club, followed by American Express in 1958, issued the first travel card in 1950. Travel Card differs from bank credit cards in several ways. They typically are 30-day charge accounts, with payment due in full before the next billing cycle, the accountholder receives copies of the original sales drafts (called Country Club billing) with the monthly billing statement, and some T & e card plans, usually corporate cards, gibe the C/H a quarterly summary of charges to the card.

Smart Card:

Bank card containing a computer chip for identification, special purposes processing and data storage. The computer ship has the ability top perform various computations, such as validating the C/H’s PIN, authorizing retail purchases, verifying account balances and storing personal records. A smart card’s internal memory may also store pertinent information on a consumer’s relationship with a bank, brokers, insurance company or medical history time the card is used. Also called chip card or memory card.

ATM card:

An unattended self-service terminal activated by a card and cardholder validation method (CVM) that providing cash withdrawal. It also may perform other functions including basic banking functions such as accepting deposits, ordering transfers among accounts, accepting, loan payments and answering account balance inquiries.

CREDIT CARD:

Physically, credit card is a layered piece of hard plastic with holograms and security features. It also carries a strip of magnetic tape on the back, which is loaded with electronic data including the cardholder details. The strip in read electronically by specialized machines called Point of Sale (POS) Terminals at merchants or Automatic Teller Machines (ATM) in bank premises or elsewhere.

It is developed on the technology of microchips and cryptography, which have bred a new generation of payment system. It is only today that the revolution in information technology has folly hit the area of retail payments. The Card is rectangular, looking rather like the familiar phone card. Its distinguishing feature is that it acts as cash, may be large account being only a small piece of documented plastic. This is why it is popularly called ‘Plastic Money’.

HISTORY OF CREDIT CARD:

Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of exchange – the forerunner of banknotes – was established in the 14th century. Debts were settled by one-third cash and two-thirds bill of exchange. Paper money followed only in the 17th century. Christopher Thornton, who offered furniture that could be paid off weekly, placed the first advertisement for credit in 1730.

From the 18th century until the early part of the 20th, tallymen sold clothes in return for small weekly payments. They were called “tallymen” because they kept a record or tally of what people had bought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In the 1920s, a shopper’s plate – a “buy now, pay later” system – was introduced in the USA. It could only be used in the shops that issued it.

In 1950, Diners Club and American Express launched their charge cards in the USA, the first “plastic money”. In 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants in New York. But it was only until the establishment of standards for the magnetic strip in 1970 that the credit card became part of the information age.

In the late 1940s, a number of U.S. banks started issuing their customers scrip that could be used like cash in local shops. The Franklin National Bank (New York)- now EAB (European American Bank) – formalized the practice by introducing the first modern credit card in 1951.

California-based Bank of America extended the idea throughout the United States by introducing the Bank Americard (now Visa) in 1960 and franchising a single bank in each major city as its local affiliate. These affiliates were responsible for signing contracts with merchants to accept cards as payment, as well as enrolling cardholders in their respective areas.

At this time, a group of enterprising U.S. bankers who were not “franchises” of Bank Americard created their own network by accepting one another’s local credit cards. On August 16, 1966, the group formed the Interbank Card Association(ICA) which later became MasterCard International.

Functions:

(i) Single Money

Credit card can be used in world wide as a Single money in transaction with safety. A MasterCard can easily be accessible in sub-Sahara or in Siberia.

(ii) Emergency situation:

In emergency situation (2am) when there is no money at home credit card can be charge for transaction or cash withdrawal from ATM booth.

(iii) E-commerce:

E-commerce is a new business arena in modern world. Buyer and seller can transact in online and sell goods in terms of credit card.

(iv) Late Payment in Transaction:

if there is no money at hand now, one can charge credit card. But the amount such transactions have to pay to the bank within a future time context.

(v) Cash advance facilities:

Credit card can be used to withdraw ATM booth or cash advance facilities from the bank within the credit limit.

(vi) Security:

It gives more security rather than carrying cash.

(vii) 24 hours transaction:

Credit card is accessible in transaction within any time of the day

(viii) Social status:

Anybody can pay bill by credit card and it relief him from money counting hassle.

(ix) Traveling:

In traveling credit card is the best friend. In some constrains it is not possible to endorse sufficient amount foreign currency. In such situation credit card is the best option.

(x) Money is the second God:

It is said that money is the second God. In crisis situation whenever anybody lost his all things in a new place, credit card can relief his hassle because others cannot use it. So it cannot be robbed.

Parties related to Credit Card:

There are four parties related to credit Card.

1. Card Holder

2. Issuer.

3. Acquirer.

4. Merchant.

Cardholder:

The Cardholder is solicited, screened and approved by the issuer, which establishes a line of credit for the customer and issues the credit card.

The Cardholder uses Credit Card either to purchase goods and services from a merchant or to obtain a cash advance from a member for which the cardholder receives a monthly bill from the issuer.

Issuer:

The Cardholder’s financial institution (usually called the issuing member or issuer) is a licensed member of Master Card and/or Visa. The Issuer:

· Issues the card to the approved cardholder

· Receives and pays for transactions from Master Card and/or Visa

· Bills and collects from the cardholder

The issuer may also benefit from the services of a third party and/or association in processing information and payments.

Agent Banks

Managing a credit program is expensive and some small financial institutions prefer to offer credit cards to their customers without taking on the complications and responsibilities of becoming an issuing member.

These small financial institutions can contract to become an issuing agent of an issuing member. The issuing agent solicits cardholder applicants for the issuer generally through take-ones made available at its branches. The issuer, in turn, issues the card its name, has the cardholder relationship makes all of the Credit Decisions, completely manages the card program. It the agent banks name appears on the card, then the agent bank must be in foliate/associate member of Master Card/Visa Int’ 1.

The issuer usually keeps most the income from the cardholder account the agent member may or may receive a small compensation for providing the application.

While the issuing agents income this from arrangement is small, it does, retain customers who might take their business else-where if a Credit Card Program were not available at their local financial institution. When the issuing agents name appears on the card it tends to preserve the financial institution-Cardholder relationship.

Acquiring

The acquiring member or acquirer solicits, screens, and accepts merchants into its Credit Card Program.

The acquirer is a member of Master Card and/or Visa, and holds a written agreement with the merchant to.

· Accept the merchant’s sales slips

· Provide the merchant with credit card authorization terminals, instructions, and contracted support services

· Handle and process the credit

The acquirer usually charges the merchant a merchant discount for handling the transactions. The acquirer is licensed by Master Card and/or Visa and agrees to follow the operating rules and regulations of the two associations.

MasterCard and Visa provide various services to the acquirer including authorization and settlement processing, interchange and resolution of member disputes.

Many financial institutions are both issuers and acquirer. As issuer they maintain the cardholder relationship. As acquirers they maintain the merchant relationship.

Merchant

The Merchant can be virtually any company, which meets the qualification standards of MasterCard and/or Visa and an acquirer. Typical merchant business includes retail stores, restaurant, airlines, mail order companies, and health plans to name a few.

MasterCard and Visa both require that the merchant be financially responsible and of good repute. The merchant has a written agreement with the acquirer to accept the Credit Cards as payment and to abide by the terms of the agreement.

Definition of Various Credit Card and Terms:

Gold Card

Visa or MasterCard Credit Card with a maximum credit limit of USD 5000/-, and frequently higher. These cards have a higher annual fee than standard bank credit card, and are marketed to consumers with above average incomes. Sometimes called prestige card or premium cards.

Also, American Gold Card, which differs from bank, issued cards. American Express issues the card, but the credit line is arranged separately, by a bank acting as an agent for the card issuer, and varies among banks. American Express travel Related Services Co. issued the first gold cards in 1966 and has claimed a proprietary right to the name, a claim the court have not upheld.

Secured Credit Card

A Credit card backed by a deposit account is issued to marginally qualified borrowers.

Affinity Card

Credit Card promoted under a sponsoring agreement between an organization and a card-issuing bank. In exchange for making available its membership list, the sponsor receives some compensation from the issuing bank, usually part of issuer’s net interest income. The issuer may waive annual fees for affinity cardholders, or even offer the card at a lower rate than ordinary bankcards.

Co-branded Card

Visa or MasterCard Credit card jointly sponsored by a bank and a retail merchant, such as departmental store. Co-branded cards may be issued at less cost than conventional retail private label cards, and give issuing bank access to new customers. Cardholders may be given incentives, such as discount on merchandise, rebates, or discounts off purchases. A co-branded card has a tie-in with a specific merchant rather than an association or professional group. It also can be used at other merchant. Contrast with Affinity cards.

Islamic credit card

Shariah laws of contract Three fundamental principles

1. Principles of Justice

2. Principles of transparency

3. Principles of Maslah

Why Islamic credit card?

· An alternative mode of payment for Muslims to make retail purchases.

· To broaden the product offering of Islamic banks

· To capture customer and niche market segment.

· To compete with conventional banking products

Definitions: –

· Debit card: A card issued to a customer with available balance in his

account.

· Charge card: A card that provides a credit facility up to a ceiling but not

revolving.

· Credit card: Revolving credit.

Benefits

To customer To the Bank

-Convenience -Customer satisfaction

-Cash advance -Profit Mechanism

-Grace period -Network acceptance

[Source: Seminar-Dhaka Sheraton, August 20, 2001]

DEFINITIONS

1. Affinity and Co-Branded Card Program

A program created to offer the issuers the opportunity to issue affinity or co-branded cards as well as life-style or specialized custom-feature cards targeted at potential cardholders having common interests or membership in an organization.

2. Affiliate Member

A type of MasterCard member that participates indirectly through an association of member or a Principal member in the activities of this corporation (for example: by issuing MasterCard cards or by accepting transaction records from merchants).

4. Bank Identification Number

A unique number, of which the first position is 5, assigned by MasterCard international to identify member transactions and accounts. The BIN is the first six digits of a cardholder account number, and it is the second through seventh position of the 23-digit acquirer’s reference number. Also known as the prefix.

4. Banknet Telecommunication Network

The MasterCard worldwide telecommunication network. The primary “data transport” communications facility that links all MasterCard customers and MasterCard data processing centers into a single online financial network.

5. Card Validation Code

A two-part security feature. CVC 1 is a 3-digit value encoded on tracks 1 and 2 in three contiguous positions in the “discretionary data” field of a magnetic stripe on a MasterCard. CVC2 differs from CVC1 and is indent-printed into the tamper-evident signature panel on the card. The CVC is intended to inhibit the alteration or misuse of card data and enhance the authentication of card.

5. Check Digit Routine

An algorithm that is performed on the primary account number (PAN) to ensure that the numbers were not transposed or miss keyed. The result is the last position of the account number, or check digit.

6. Counterfeit Card

An instrument or device embossed, printed, or otherwise bearing MasterCard marks, so as to purport to be a MasterCard card issued by a member or affiliate. But that is not a MasterCard card because the embossing or printing thereon was not authorized, or because the MasterCard card has been altered or re-fabricated, even though it was validly issued initially.

7. Chip

A piece of silicon etched with electronic circuits. The microprocessor chip has an operating, a programming, and a data memory that allows internal processing to take place and provides additional storage capacity.

9. Chip Card (Smart Card)

A Card with logic capabilities and data storage capabilities to enhance card functionality and security (for example pay telephone cards)

10. EMV

A joint project started in 1993. To define global specification for chip-based credit and debit cards. The EMV specifications are divided into three parts- card specification, terminal specification, and application specification. The latest version of EMV is known as EMV2000, Integrated Circuit Card Specification for Payment System, Version 4.0 December 2000.

Business Card In America:

Below are credit cards tailored especially for businesses?

· Fleet Platinum Visa Business Credit Card

Save with a 0% introductory APR on purchases and balance transfers for up to six months, and a low variable rate, currently 10.99%, on purchases and balance transfers thereafter. Generous credit line up to $50,000, online account access, discounts on business products and services, free additional cards for employees, and more.

· Advanta Platinum Business MasterCard

No annual fee credit card especially for small businesses. Offers credit lines up $100,000. Get a 0% APR on purchases and balance transfers for the first 9 months you have the card.

· Blue for Business from American Express(r)

Blue for Business from American Express works much like a traditional credit card with revolving credit line. It offers a 2.9% introductory APR for 6 months, then a fixed 11.99% fixed rate afterwards. Unlike most Amex cards, there is no annual fee, and you can extend payments over time. Also offers business discounts at FedEx, Hertz, Hilton Hotels, Mobil and more. Of course, it also extends the perks American Express is known for, such as travel accident insurance, car rental insurance, baggage loss insurance and more.

· American Express(r) Business Gold Card

This card offers basically the same features as the Blue for Business card above, although it has a little different payment arrangement. Like most American Express cards, you pay off your balance monthly, unless you use the Business Flex program, which lets you draw out payments over time, but at a higher APR than the card above.

FEATURES OF AN IDEAL CREDIT CARDHOLDER

From the point of view of the bank an ideal credit cardholder is the one having following features:

· Uses the card extensively for purchasing merchandise and services, thus generating service charge revenue.

· Makes use of the credit aspect of the card ideally by perpetually keeping his or her credit limit near maximum, thus generating interest.

· Makes large infrequent purchase, thus reducing processing costs per transaction. Is not delinquent in making the minimum monthly payments and did not default and thus reducing bad debt losses.

CREDIT CARD IN BANGLADESH

In Bangladesh three banks have already introduced credit cards. These are Prime Bank, National Bank, Standard Chartered Grindlays Bank, American Express Bank issues charges cards only. Very recently Janata Bank a nationalized commercial bank in Bangladesh has also came