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Thursday, May 28, 2009
Hidden Payments
Merchants who accept credit cards must pay a processing fee ranging from 1- 6 % of the purchase price. These hidden costs and hidden payments are transferred to the consumer in various ways.
The first method is the most commonly accepted one of a surcharge on the payment, leading to the price being higher than the marked price. The problem has been compounded in India, where the credit card companies have not asked for “merchant agreements”, which provide that the processing charges will not be added on by the merchant. This has led to credit cards being used less frequently than they might be, a disadvantage to the issuer as well as the merchant.
A second method is simply marking up of the prices of all items in the shop, leading to the surcharge being hidden in the retail price. While the MRP does restrict this to some extent, the net result is that people who pay in cash are paying as if they were using a credit card. Thus, a part of the revenue earned by the credit card companies comes from people who do not even own a credit card!
The flip side is, with the boom in the credit card market in India, greater volume of credit card sales allow the merchants to keep their existing price structure, and still not lose any profit on paying the processing fee, since the credit card companies have relaxed their rates, as a measure to boost sales and increase the acceptability net. . Credit cards also allow for convenience in repeat sales, and the processing fee is greatly offset by the increased convenience. Also, the processing fee is simply an equivalent payment to the costs incurred in counting, transporting and depositing the cash payments.
Whichever way you look at it, using a credit card can entail certain hidden payments consequences of which must be closely examined before using a credit card.
Source:
Wikipedia
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/08/AR2007030802178.html
Statutory Instrument 1990 No. 2159: The Credit Cards (Price Discrimination) Order 1990
http://rbifinance.com
The first method is the most commonly accepted one of a surcharge on the payment, leading to the price being higher than the marked price. The problem has been compounded in India, where the credit card companies have not asked for “merchant agreements”, which provide that the processing charges will not be added on by the merchant. This has led to credit cards being used less frequently than they might be, a disadvantage to the issuer as well as the merchant.
A second method is simply marking up of the prices of all items in the shop, leading to the surcharge being hidden in the retail price. While the MRP does restrict this to some extent, the net result is that people who pay in cash are paying as if they were using a credit card. Thus, a part of the revenue earned by the credit card companies comes from people who do not even own a credit card!
The flip side is, with the boom in the credit card market in India, greater volume of credit card sales allow the merchants to keep their existing price structure, and still not lose any profit on paying the processing fee, since the credit card companies have relaxed their rates, as a measure to boost sales and increase the acceptability net. . Credit cards also allow for convenience in repeat sales, and the processing fee is greatly offset by the increased convenience. Also, the processing fee is simply an equivalent payment to the costs incurred in counting, transporting and depositing the cash payments.
Whichever way you look at it, using a credit card can entail certain hidden payments consequences of which must be closely examined before using a credit card.
Source:
Wikipedia
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/08/AR2007030802178.html
Statutory Instrument 1990 No. 2159: The Credit Cards (Price Discrimination) Order 1990
http://rbifinance.com
Common Credit Card Mistakes
The following article highlights some common mistakes made by credit card holders before, after and during getting a credit card issued. Before getting the card: Procuring multiple cards An extremely common mistake made by most inexperienced cardholders, lured by the attractive initial rates of an add-on card or a special discount scheme offered during peak season, they often find themselves in twice as much debt as before.
Not shopping around for the best interest rate
Credit card rates and terms vary greatly. Always ask your issuing bank for all the credit card rates they charge like fuel surcharge, late fees, revolving credit charge etc. The bank’s website or customer care service can be used for this function. Choosing a card for the wrong reasons
Cardholders often get a card issued because of the fringe benefits and reward schemes on offer, even though the rates are higher. A credit card is there to make purchases, not to earn reward points. They should be treated as a bonus, after getting a card with the best rates.
Being misled by introductory rates
Some credit cards, especially of the low-end variety, often have a low or waived initial fee and a modest annual fee for the initial period. However, after the period is over, the rates spiral and increase significantly. The paperwork and forms must be scrutinized carefully by the cardholder for such tricks.
Not reading the SMALL print
Before you sign up, be sure you know the card's interest rate and how it is calculated, the grace period, fee schedule, and other terms. After getting a card issued, pay attention to any updates or notifications sent to you by the bank or the card company.
After getting the card:
Applying for a card and limit you cannot afford to repay and paying the minimum repayment
The most publicized feature of the credit card is that of the minimum amount due. What is not advertised is that interest is charged on the amount spent, not the amount outstanding. So use this feature only as a last resort.
Maxing out the card
This implies that the holder has overspent, and the debt becomes crippling. Often the cardholder is stuck paying off the interest alone, and cannot make any inroads into the principal.
Using the cash advance function
Check on the terms and conditions of the cash advance function very carefully. The interest rates are often steep and there is no interest-free period. If you must use it, repay the money at the earliest.
Late payments
Late payments subject you to extortionate interest rates and set fees. The charge is extremely high and proportional to your bill. The late payments are one of the main revenue-earners of the companies.
Not checking your statement and not keeping your receipts
A common error when we start to feel the pressure of a debt burden is to start to ignore the fact that the debt exists in the first place. A downward trend starts that will leave you hopelessly in debt. Also keep your receipts from purchases to cross-check with your monthly bill.
Adding a secondary user
Although some may not consider this a mistake, if you add a secondary user to your credit card account you’ve suddenly lost control over the spending on your card. The interest rates and payments you will have to make will also increase, and the fraud risk multiplies.
Using your card overseas
Overseas purchases are charged with a large fee and a higher exchange rate than the current one. It’s much safer and cheaper to carry travellers’ cheques or cash. There are also special deals which certain global banks offer, one among them being the offer to convert your card to the foreign country’s currency, provided the bank does business there.
http://rbifinance.com
Not shopping around for the best interest rate
Credit card rates and terms vary greatly. Always ask your issuing bank for all the credit card rates they charge like fuel surcharge, late fees, revolving credit charge etc. The bank’s website or customer care service can be used for this function. Choosing a card for the wrong reasons
Cardholders often get a card issued because of the fringe benefits and reward schemes on offer, even though the rates are higher. A credit card is there to make purchases, not to earn reward points. They should be treated as a bonus, after getting a card with the best rates.
Being misled by introductory rates
Some credit cards, especially of the low-end variety, often have a low or waived initial fee and a modest annual fee for the initial period. However, after the period is over, the rates spiral and increase significantly. The paperwork and forms must be scrutinized carefully by the cardholder for such tricks.
Not reading the SMALL print
Before you sign up, be sure you know the card's interest rate and how it is calculated, the grace period, fee schedule, and other terms. After getting a card issued, pay attention to any updates or notifications sent to you by the bank or the card company.
After getting the card:
Applying for a card and limit you cannot afford to repay and paying the minimum repayment
The most publicized feature of the credit card is that of the minimum amount due. What is not advertised is that interest is charged on the amount spent, not the amount outstanding. So use this feature only as a last resort.
Maxing out the card
This implies that the holder has overspent, and the debt becomes crippling. Often the cardholder is stuck paying off the interest alone, and cannot make any inroads into the principal.
Using the cash advance function
Check on the terms and conditions of the cash advance function very carefully. The interest rates are often steep and there is no interest-free period. If you must use it, repay the money at the earliest.
Late payments
Late payments subject you to extortionate interest rates and set fees. The charge is extremely high and proportional to your bill. The late payments are one of the main revenue-earners of the companies.
Not checking your statement and not keeping your receipts
A common error when we start to feel the pressure of a debt burden is to start to ignore the fact that the debt exists in the first place. A downward trend starts that will leave you hopelessly in debt. Also keep your receipts from purchases to cross-check with your monthly bill.
Adding a secondary user
Although some may not consider this a mistake, if you add a secondary user to your credit card account you’ve suddenly lost control over the spending on your card. The interest rates and payments you will have to make will also increase, and the fraud risk multiplies.
Using your card overseas
Overseas purchases are charged with a large fee and a higher exchange rate than the current one. It’s much safer and cheaper to carry travellers’ cheques or cash. There are also special deals which certain global banks offer, one among them being the offer to convert your card to the foreign country’s currency, provided the bank does business there.
http://rbifinance.com
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