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Credit Cards

The 'credit card', though a new phenomenon in business and transaction arena which had already won the hearts of millions across the globe, has set its foot in this part of the world with its magical power and becoming a way of life here by offering its handy feature and usefulness. In the advent of Information Technology and globalisation, now shoppers need not worry about money, all they need is willingness and a credit card to buy anything they want at any places across the 'Global Village'. Worldwide access, acceptability and popularity as well of credit cards have rose to such an extent that it is now posing a threat to theory of old 'hard-cash' possession of currencies amid growing sense of insecurity worldwide. The forward march of 'plastic money', the other name of the credit card, is so rapid that the whole concept of monetary system needs immediate review as it has put a question mark in the very existence of paper money.

Physical Feature

The credit card is rectangular and looks like a phone card. It 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 cardholders details. The strip is read electronically by specialized machines called Point of Sale (POS) Terminals at merchants or Automatic Teller Machines (ATM).

Kinds of Cards

There are mainly two kinds of cards-credit card and debit card. By credit card one can purchase from stores called merchants, the price of which is payable at the end of the month through the affiliated banks as per notification. On the other hand, debit card is based on immediate payment system whereby one has to insert card into the ATM (Automatic Teller Machine) located at the key spots in the city. And so it is often called electronic purse. For debit card one has to have an account in a bank while credit card does not necessitate any such provision.

Why it's important?

A credit card is a great financial tool. It can be more convenient to use and carry than cash, and they offer valuable consumer protections. Paper money and coin are risky and burdensome for carrying. One can avoid the toll of finger-counting changes in this system. Dollars, Pounds or Taka can be plundered, lost or stolen. But there is no such fear for card. The cardholder is given a code number called PIN (Personal Identification Number) without which the card cannot be used at sales or services points where the PIN is required. Only the owner of the card will be entitled to use it. In case the card is stolen or lost the clients' bank will issue a fresh card.

Brief History

The card facility was first introduced in the United States in the beginning of the 20th century. Western Union, a US money transfer company, started issuing an embossed metal plate to its preferred customers in 1914. The cardholder had to pay an annual subscription to join the club. This was the beginning of the charge card.

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 which 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. 1958 American Express Bank, like Dinner Club, started card on travel and entertainment. By 1959 the system evolved in great magnitude. A cardholder was allowed to pay off the full amount at the end of the month or to spread payment to suit his or her requirements. The customer's monthly payment included a finance charge on the unpaid balance. In 1960 Bank of America introduced its own card, the Bank Americacard and offered license to other banks in 1966 that brought this system into world arena. A good number of banks across the world bought the license and marketed credit cards.

On the other hand, in 1967 four California banks changed their name from the California Bankcard Association to Western State Bankcard Association (WSBA). WSBA opened its license to other financial institutions. Its bankcard product was known as Master Charge. Numerous financial institutions became Master Charge members to compete with Bank Americard. In 1977 Bank Americard was renamed as Visa USA/Visa International and in 1979 master Charge changed its name to Master Card maintaining the lofty standard to meet up the customers' expanded needs.

Criteria to be a cardholder

A person has to fulfill some criteria to be a cardholder. Every bank has its own array of criteria by which the qualification of an applicant is assessed. The criteria may range over such factors as income range, social status, place of living, education, designation etc. It's quite natural that if the selection criteria for members are more flexible then their clients would be more. On the other hand, if the selection criteria is more conditional and harsh then its operation would be limited.

Credit card of Standard Chartered Grildlays Bank

Former ANZ Grindlays Bank, now Standard Chartered Grindlays Bank, took a pioneering role in introducing credit card in Bangladesh. It started acquiring Visa and Mastercard nearly 10 years back. In the first few years, its operational area was very limited and concentrated only on the large hotels and restaurants. In 1997 the bank decided to launch full-scale card operation and very realistically brought a wide range of people under its service system. It is now giving a wide range of card services through multifarious quality facilities.

The bank has Visa Silver, Mastercard Silver and Mastercard Gold card. MasterCard Gold is targeted to high-end customer base who have a higher income. Silver cards have lower credit limits. The minimum income requirement for Silver is Tk. 10,000 per month and for Gold is Tk. 55,000 per month. The income of the applicant along with other financial data is the preliminary consideration in deciding the limit of credit. Standard Chartered Grindlays Bank offers air travel accidental insurance to its cardholders and this is maximum of Tk. 1,00,000 for Silver and a maximum of Tk. 5,00,000 for Gold. The bank has ATM machines in Dhaka, Chittagong and khulna.Several more new machines will be installed in phases. Standard Chartered Grindlays Bank has initiated for the cardholders' benefit that a cardholder can withdraw maximum 50% of his card's limit in cash on 30% interest. Earlier a cardholder could withdraw only 20% of his card limit on the same interest.

National Bank

National Bank burst into the world of credit card in October 1997. Like Prime Bank it has Gold International and Gold Local and Silver International and Silver Local. For Silver Card one must have a income of minimum Taka 12,000 and for Gold Card a person must have an earning of Taka 50,000 per month. But in some cases it is relaxed, for example, a high-ranking government official may achieve a Gold Card though he does not fulfill the condition of income. It is now dealing with more than 6,000 clients. Kazi Mainuddin Chistia, senior officer, has supported the credit card adding that it's something that can enhance the holder's social status like the possession of a magnificent house, a car and a position give a person identity and standing in society. In response to question about decreasing the existing condition of income to be a cardholder Md. Rezwanul Huq, officer, has said 'the cards are for a section of people, not for the commoners'. However, the issuance of credit cards is on the rise.

Prime Bank

Prime Bank opened its business of credit card in November 1999. The bank has Gold International and Gold Local, and Silver International and Silver Local. For a Silver Card one must have income range over Taka 10,000 and for a Gold Card a person is to have earning minimum Taka 55,000. Prime Bank inserts the client's photograph on the credit card. When a cardholder receives his monthly statement, he can either choose to pay in full or just the minimum due amount shown on the statement. No interest is charged if he pays in full within the payment due date. There are many sorts of service charges like - annual fee, additional fee, replacement fee, late payment fee, excess limit penalty, return cheque fee etc. If a cardholder accumulates 20,000 Prime Bank Bonus Points for his Gold Card or 10,000 Bonus Points for his Silver Card in a year then he will enjoy card facilities without fee ($ 1 purchase equivalent to 1 Bonus Point). If a cardholder accumulates 10,000 Prime Bank Bonus points for Gold Card or 8,000 Bonus Points for Silver Card in a year then he will enjoy Card facilities without fee. (Tk. 50- purchase equivalent to 1 Bonus point). The highest Prime Bank Bonus Point Holder can enjoy free air ticket of Dhaka-Bangkok-Dhaka (Business Class). The bank has already listed about 3,500 members for their cards. An official of the bank preferring anonymity said introduction of any good thing like credit card is better but its practical use in our market places invites a lot of troubles because of malpractices.

Vanik

VANIK, a Sri Lanka-Bangladesh joint venture financial institution, has been rendering credit card services in Bangladesh since 1998. It has already crossed the mark of issuing 6,000 credit cards within a couple of years. Now it is covering only Dhaka city and it has a plan to spread its services to different parts of Bangladesh.

VANIK issues two-type of credit cards - Gold and Classic. The minimum income requirement for Classic is Tk. 10,000 per month and for Gold is 50,000. For the Gold Card Taka 3,000 is to be paid as annual fee while Taka 1,500 for the Classic. Interest per month is 2.5% on carried forward amount for both the cards. Depending on the requirement of a client, one could either settle his outstanding balance in full by the date given in his statement or has the flexibility of paying only 1/12th of the outstanding balance in installment. Whatever method he chooses he can enjoy an interest free credit period of maximum 45 days. The validity of both cards is one year from the date of issuance.

Ishtiaque Ahmed, working with VANIK in credit card evaluation division has said, many a time some subscribers seem to be reluctant to pay the bill and so they give the wrong addresses of their residences and offices and when the time for payment comes they could not be traced. To handle the problems, a team has been constituted to check the applicants' addresses and other information whether these are true or false. Asked about the prospect of credit card in a poor country like Bangladesh, he responded positively adding that when an attempt was first made to market mineral water and tissue paper it was apprehended that they would not get good results, but the reality is quite opposite.

Ready Cash Card of Janata Bank

The Ready Cash Card (debit card) was introduced in Bangladesh by Janata Bank in October 1999. Its operation has not expanded well yet. The Ready Cash cards will be used as an alternate to cash transaction. The bills of telephone, electricity, WASA will be brought under the card payment system. People can pay the gas bill by Ready Cash Card. The water and sewerage bills in the capital and Narayanganj can now be paid by 'Ready Cash' card through one stop service from July 1, 2001. An agreement to this effect was signed between WASA and American International (Bangladesh) Limited on May 16, 2001. The cardholders will be able to pay the bills, including the utility bills easily and without any risk. Arrangements will be made soon for payment of telephone and electricity bills by using the Ready Cash cards. The Mercantile Bank and Dhaka Bank have introduced Ready Cash Card in limited scope.

Smart Card of Grameen Bank

The Grameen Bank is set to introduce its own version of credit cards for rural people. The Bank has taken up initiatives to bring the country's rural masses, initially its members, under its IT network to facilitate their daily transactions and other business activities smoothly and bring about a qualitative change in their lifestyle through its 'smart card' project. The 'smart card' will provide facilities like banking, utility and insurance to members of the Bank's micro-credit programme. At the initial stage, a point of sale (POS) terminal device will be installed at various sites across the country, where Grameen members live. The users will be able to use 'smart card' to facilitate their business and other needs what usually the credit card users enjoy in cities. Grameen Software Limited (GSL) signed a memorandum of understanding (MoU) with Information Technology Consultants Ltd. (ITC) on May 5,2001 to implement the project. At every POS terminal, there will be a smart card that will preserve data of all off-line transactions. The card is expected to be introduced this year in greater Dhaka zone of Grameen network. Later, different villages across the country will be brought under the network of the smart card services

Limitations

There are many business centres which do not give card facilities causing troubles to the cardholders. The most disadvantage of the card is that all the people wishing to be cardholders cannot enjoy card facilities because of ceiling-touch income bracket along with other criteria, only a certain section of people fulfilling criteria can be cardholders.

Defaulter

There is a number of credit cardholders who do not give the money to the bank after finishing the card limit. In this case, the banks have to fall in troubles and expansion of credit cards is naturally discouraged. Again, there are some people who try to take illegal advantage over credit cards.A person was arrested on charge of possessing fake credit cards. The person is the owner of a departmental store providing with credit card facilities to the customers. It is expected that credit cards will be used in a fair way in our country and credit cardholders having ill motive should be prosecuted to check the malpractice.

By Mohammad Farukh Ahmad