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Monday, December 22, 2008

Credit card

The credit card has evolved over the last thirty years into one of the most accepted, convenient, and profitable financial
products. It is accepted by millions of consumers and merchants worldwide as a routine means of payment for all
varieties of products and services. The rapid growth of the credit card industry evidences the card’s value to the
financial community, including consumers, merchants, and issuing banks.
Credit cards play a role in the strategic plans of many banks C either as a card issuer, merchant acquirer, or an agent
bank. Issuing banks are directly involved in the credit card business through the actual issuance of cards as a member
of an interchange system. Issuing banks also hold or sell the credit card loans and, therefore, bear some credit risk. A
merchant or acquiring bank is an entity that has entered into an agreement with a merchant to accept deposits generated
by credit card transactions. Processing merchant sales drafts may result in customer charge backs and, therefore,
result in some transaction risk to the merchant bank. An agent bank is a bank that has entered into an agreement to
participate in another bank’s card program, usually by turning over its applicants for credit cards to the bank
administering the program and by acting as a depository for merchants.
This booklet discusses the operations of issuing banks. It provides guidance for examiners and banks regarding the
types of elements usually found in systems maintained by prudent bankers. Specific items identified for inclusion in bank
policies, procedures, and guidelines are not presented as a required checklist. Each bank and its systems will vary.
Examiners and bankers should consider the circumstances of the individual bank to determine what system elements
are essential.
The dynamics of today’s credit card market make it necessary for the successful issuing bank to manage every aspect
of the lending process. In the past, success may have just happened, but with today’s strong competition from other
issuers, including nonbanks, and rapidly changing technologies, every step in the lending function is crucial to
maximizing profits. This booklet discusses each segment of an issuing bank’s credit card operation, from marketing
and account acquisition to collections. Each section has information on the necessary front- and back-end planning,
controls, and monitoring necessary for success. (See the following chart titled “Credit Card Lending Process.”)
Competition, market saturation, and changing consumer demographics and attitudes have also forced the successful
issuing bank to be innovative with the credit card products it offers and its customer selection and management methods.
This booklet discusses various types of credit card programs, such as affinity and cobranded cards, and the unique
characteristics, risk, and controls necessary for each. This booklet also includes a discussion of credit scoring, since
many issuing banks use this technology to help them identify possible customers and then manage the card holder
accounts.
The rapid growth of credit cards also has caused banks to look elsewhere for funding rather than from traditional deposit
accounts. This booklet briefly discusses the practice of securitizing credit card receivables as a funding vehicle for
issuing banks.
As mentioned, a variety of factors have caused the credit card business to become one of the most complex and
competitive areas in the financial services industry. The market environment and risks make it essential for issuing
banks to have written operating policies tied to well-conceived business plans and risk management systems.




4 comments:

  1. Hi,
    May this holiday bring us new inspiration...
    Wishing you happiness & health... Happy New Year 2009

    Cheers, Leet

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