JAIIB RBWM Paper-4 Module-B Unit 6: Credit & Debit Cards

15/02/2023

JAIIB Paper 4 (RBWM) Module B Unit 6: Credit & Debit Cards (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 4 (Retail Banking and Wealth Management) includes an important topic called “ Credit & Debit Cards”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 4 (RBWM) Module B Retail Products and Recovery Unit 6: Credit & Debit Cards Aspirants must go through this article to better understand the topic, Important Retail Asset products and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship. Unit 6: Credit & Debit Cards

Credit Card

Global Scenario

A credit card is a thin plastic card, usually 3-1/8 inches by 2-1/8 inches in size that contains identification information such as a signature or picture, and authorizes the person named on it to charge purchases or services to his account — charges for which he will be billed periodically.
The concept behind Credit Card is “Buy Now, Pay Later”.
Credit Cards had their origin right from 1800s.
The first universal credit card that could be used at a variety of stores and businesses — was introduced by Diner’s Club Inc., in 1950.
Another major universal card — “Don’t leave home without it!” — was established in 1958 by the American Express Company.
The first national bank plan was Bank Americard, which was started on a statewide basis in 1959 by the Bank of America in California. This system was licensed in other states starting in 1966, and was renamed Visa in 1976.
Other major bank cards followed, including MasterCard formerly Master Charge.

Indian Scenario

Citibank and HSBC were the pioneers in the Indian credit card market in the 1980s.
Among the public sector banks, Andhra Bank, Bank of Baroda were the early starters followed by Bank of India.
Citibank, Standard Chartered Bank, State Bank of India, ICICI Bank and HDFC Bank dominate the credit card market with more than 90% market share.
Mainly credit cards are issued by banks in two formats viz.,
The proprietary format – banks issue the card in different brand names like Classic, Silver, Gold, Platinum, Titanium Credit limits, cash withdrawal limits and other facilities will depend on the type of card.
The Cobranded format – banks tie up with service providers like Hotels, Oil Companies, Airline Companies etc. and offer the cards as a co branded product with the brand name of the tied up company also embossed in the card.

National Payments Corporation of India (NPCI)

National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India. RuPay, a new card payment scheme launched by the National Payments Corporation of India (NPCI), has been conceived to fulfill RBI’s vision to offer a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments.

NPCI offers ‘RuPay Credit card’, ‘RuPay Debit card’, ‘RuPay Prepaid card’& ‘‘RuPay Global card’

The variants of RuPay Credit card are:

RuPay Select’
‘RuPay Platinum’
‘RuPay Classic’

BharatQR

A QR code consists of black squares arranged in a squire on a white background, which can be read by an imaging device such as camera, QR contains information about the Merchant. It is developed by NPCI in collaboration with Mastercard, and Visa as an integrated interoperable QR code based payment system and was launched in September 2016. It facilitates users to transfer their money from one source to another(P2M) without the need of physical card and POS terminal. The money transferred through BharatQR is received directly in the user’s linked bank account using IMPS. It provides a common interface between RuPay, Mastercard, Visa, American Express as opposed to other such individual proprietary systems. BharatQR is supported on both Android and iOS devices.

The QR code Payment System consists of the following parties:

Acquirer- merchant on-boarding, merchant management, and mobile app solutions
Issuer- consumer on-boarding and consumer mobile app solutions
Transaction processing Engine (NPCI) – end transaction routing engine.

Features of Bharat QR code transactions:

Low-cost infrastructure
Remote management of merchant and customers
Interoperable QR code
Push based transaction
No need to store any charge slip copy by merchant
Instant payment notification to merchant and consumer
Transaction history is available in the app
Nondisclosure of card details by consumer to merchant .

Salient Features of Credit Cards

Credit Cards are accepted globally through their affiliation with Visa and Master Card.
Credit Cards are issued with limits of usage called “Card Limit” which fix the upper limit upto which the cards can be used.
Credit cards have a regular billing cycle and billing date and due date of payment is decided from the billing date. The period after which payment is to be made after the billing date is called as the free credit period and will be usually between 20 days and 50 days and differ across banks.
To induce usage of cards, reward points are awarded based on the amount and type of usage. Reward points vary for different classes like Silver, Gold, Platinum, Titanium etc.
Another promotional concept is in vogue now for usage of credit cards. The concept of “Cash Back Offer” was introduced in credit cards to promote more usage by incentivizing the usage. This incentivisation is offered from 2% to 10% and adjusted in the payment. Cash Back Offer always comes with a cap on the total amount.
The payment for the usage of the card after the credit period and on the due date can be paid in different ways. The payment can be made in full on or before the due date. Alternatively, a minimum of 10% of the outstanding amount can be paid every month on due date. The third option for payment is to convert the outstanding amount into a loan and repay the same in equated monthly installments (EMIs).
Charges for late payment beyond the due date is collected as late fees and varies from Rs.200 to Rs.500 across banks.
Cards are issued with photos also as add on feature.
Liability for the card holder in case of loss of cards is limited to a small amount in case of most of the credit card issuers. Usually the liability is restricted to Rs. 1000/- (Rupees One Thousand Only) and the balance liability if any is borne by the card issuer through an insurance protection. Liability for lost card can be controlled from the time the loss is reported to the card centers which operate on a 24 hour basis.
For online purchases using credit cards, additional password protection just like PIN for ATM transactions can be secured with special security features such as Verified by Visa, Mastercard Secure Code etc., and the above procedure is mandated by Reserve Bank of India.
Some banks offer free personal accident insurance cover for the card holders ranging from Rs. 1 Lac to Rs. 10 Lacs depending on the type of card.

Credit Card Issuing Process

Issue of credit card involves the following processes.

Obtaining an application from the prospect.
Processing the application.
Analysing and arriving at the Credit Score.
Decision on the type of card to be issued.
Issue of Card & PIN Mailer
Dispatch of Card & Acknowledgement of Receipt.
Card Operations.

Charges

Finance Charges
Minimum Amount Due
Maximum Interest Free Period
Annualised Percentage Rate (APR)
Other Charges & Penalties

Eligibility of Credit Card

At least 18 years of age
Compliance of KYC norms
A regular sources in income to repay one’s credit card bills (Salaried or self employee)
A good credit History

Types of Credit cards

The proprietary format – banks issue the card in different brand names like Classic, Silver, Gold, Platinum, Titanium etc. Credit limits, cash withdrawal limits and other facilities will depend on the type of card.
The Co branded format – banks tie up with service providers like Hotels, Oil Companies, Airline Companies etc. and offer the cards as a co branded product with the brand name of the tied up company also embossed in the card.

Credit Scoring Module for credit cards consists of two parts

Part I deals with the criterion to take a decision to issue a card or not.
Part II deals with the scoring for various parameters submitted by the applicant.

Prepaid Cards

Prepaid cards have radically changed the way individuals pay for their purchases on a daily basis. Most individuals tend to pay by using their card rather than cash. Prepaid cards are very similar to debit cards and credit cards in the way it looks. It even comes with a signature strip, the name of the company that has issued the card, and a card number.

NPCI offers Rupay prepaid cards of different variants. They are Gift card, Payroll card, student card and Virtual card.

Prepaid Payment Instrument (PPI)

PPIs that can be issued in the country are classified under three types:

Closed System PPIs: These PPIs are issued by an entity for facilitating the purchase of goods and services from entity only and do not permit cash withdrawal.
Semi- Closed System PPIs: These PPIs are used for purchase of goods and services, including financial services, remittance facilities etc.
Open system PPIs: These PPIs are issued only by banks and are used at any merchant for purchase of goods ad services, including financial services, remittance facilities etc.

Issuance, loading, and reloading of PPIs

PPI issuers shall ensure that no interest is payable on PPI balance.
Cash loading to PPIs shall be limited to Rs 50,000/month subject to overall limit of PPl.
PPIs may be issued as cards, wallets, and any such form/instrument.
Issuers shall enable the facility of cross- border outward transaction only on explicit request of the PPI holders and shall apply a per transaction limit no exceeding Rs 10,000/ while per month limit shall not exceed Rs. 50000/-for such cross-border transactions.

Debit Card

The characteristics of Debit Cards differ vastly from Credit Cards. As already explained, Credit Cards define the concept of “Buy Now, Pay Later” but Debit Cards explain the concept of “Buy Now and Pay Now“. The important aspect of Debit Card is that at the point of purchase itself, the payment is made directly from their account balances.

RBI Guideline

In a bid to make transactions through debit cards and credit cards more secure and convinient, the Reserve Bank of India (RBI) has issued new guidelines that have come into effect from (October 1, 2020).

All new credit and debit cards issued by the banks will be only enabled for domestic transactions at ATMs and point of sale (PoS) terminals.
All the debit card and credit card users from now on are allowed to set up transaction limits.
Card users now have an option to opt-in or opt-out of services on their credit/debit cards such as online transactions (e-commerce), international transactions, and contactless transactions (NFC-based).
RBI has asked all the banks and card issuing companies to disable online payments for all those debit and credit cards which have never been used for online or contactless transactions in India or abroad.

Debit Cards v Credit Cards

	Debit Cards	Credit Cards
Spending limits	– Daily limits on spends and cash withdrawals	– Monthly credit limits based on card. – Monthly and daily limits on cash withdrawals
Benefits	– What you spend is instantly debited from your account – No repayment needed – No interest charges – Get cashbacks and discounts	– Buy now, pay later – Enjoy 50-days of interest free credit – Get cashbacks, discounts, rewards and miles – EMI-based repayment
Annual fees	– Low to nil	– Depends on card
Security features	– PIN, OTP, SMS notifications	– Zero liability insurance on lost or stolen card PIN, OTP, SMS notifications

Co-Branded Cards

Co-branding is a process where two or more facilities are combined in a card with added benefits. An airline or a hotel chain co-branded card isthe best example of a co-branded card.
Co-branded cards offer the usual facilities plus some rewards from the co-branded entities. For example, an airline co-branded card will give some special discounts to the card holder on booking tickets with the card.

Contactless Cards

A Contactless card is a faster way to pay with a credit or debit card for purchases under ₹5000/- at participating stores. Instead of dipping (or swiping) the card at the billing counter, simply wave or tap the card on the contactless terminal and pay without entering a PIN (for amount under ₹5000/-).
These cards work on Near-Field Communication (NFC) technology, which employs radio transmission to ascertain contact when the cards are tapped or waved near a terminal.

JAIIB Paper-4 Module-B Unit-6 Credit & Debit Cards PDF-RBWM PDF