The benefits of the credit card can be grouped as follows:
A. Benefits to the bank
B. Benefits to the customer (Cardholder)
C. Benefits to the retailer.
A. Benefits to the Bank
A credit card is an integral part of bank’s major services these days. The credit card provides the following advantages to the Bank:
(i) The system provides an opportunity to the bank to attract new potential customers.
(ii) To get new customers the bank has to employ special trained staff. This gives the bank an opportunity to find the latent talent from among existing staff that would have been otherwise wasted.
(iii) The more important function of a credit card, however, is simply to yield direct profit for the bank. There is scope and potential for better profitability out of income/commission earned from the traders’ turnover.
(iv) This also provides additional customer services to the existing clients. It enhances the customer satisfaction.
(v) More use by the card holders and consequently increased turnover improves national business growth and consequently the growth of banking habits in general.
(vi) Better network of card holders and increased use of cards means higher popularity and image for the banks.
(vii) Savings of expense on cash holdings, i.e., station, printing and manpower to handle clearing transactions will considerably be reduced.
(viii) It increases customer-base of the bank.
(ix) It brings into bank’s fold high net worth customers by introducing various types of Credit Cards like Gold Card, Executive Card
(x) It brings in new customers from various merchants outlet which accepts credit card against sale of their goods/services.
(xi) It creates a brand name and popular image for the bank.
(xii) Large scale uses of credit cards and shops, etc., accepting them help to increase deposit base of the bank.
(xiii) It increases interest income of the bank when card users avail of loan facility to settle the bills.
(xiv) It minimizes credit risk of the bank as most of the card holders availing of credit facility must have been financially screened by the bank.
(xv) This may increase the chances of relationship banking and thereby retaining the customers.
B. Benefits to the Cardholder
The principal benefits to a cardholder are:
(i) He can purchase goods and services at a large number of outlets without cash or cheque. The card is useful in emergency, can save embarrassment.
(ii) The risk factor of carrying and storing cash is avoided. It is convenient for him to carry a credit card and he has trouble free travel and makes purchases without carrying cash or cheques.
(iii) A month’s purchases can be settled with a single remittance, thus, tending to reduce bank and handling charges.
(iv) The cardholder has a period of free credit usually between 30-50 days of purchase.
(v) Cash can usually be obtained with the card, either on card account or by using it as identification when encasing a cheque at a bank.
(vi) Availing credit with minimum formality.
(vii) The credit card saves trouble and paper work to travelling businessmen.
(viii) The cardholder has the option of taking extended credit up to a pre-arranged limit without reference to anyone, in addition to an initial credit and interest free period. Further, revolving credit becomes automatically available as the outstanding balance is reduced.
(ix) It also induces a sense of financial discipline in a cardholder by allowing him to analyze the statement of expenses incurred which are supplied by card organizations. Cash expenses are often without record and can therefore result in unplanned spending.
(x) It provides a proof of spending through banking channels to strengthen his position in case of disputes with sellers.
(xi) It also gives him exposures to banking operations since systematic accounting for spending and payments is routed through banking channels.
(xii) He has the convenience for making a single payment for the purchases made during the month rather than many payments by various means.
(xiii) It also allows him to delegate spending power to add on members (with additional cards).
(xiv) It also extends additional facilities like free insurance coverage, discount on purchases, free travel booking.
(xv) Credit card is considered as a status symbol.
(xvi) It provides preferential rates on hotel stay, etc., depending upon the arrangement
of the card issuing bank /agency. Thus, the credit card is a pivotal instrument to the card holder for his convenience, social image and for financial credibility.
C. Benefits to the Merchant Establishments
The principal benefits of a credit card to the retailer are:
(i) This will carry prestigious weight to the outlets.
(ii) Increase in sales because of increased purchasing power of the cardholder due to unbilled credit available to the cardholder.
(iii) The retailers gain from the impulse buying and ‘trading up’ the tendency to buy the bigger or better article. This argument has little appeal to service establishments but much to sellers of goods.
(iv) He can offer credit without the botheration of cost or book-keeping and bad debts.
(v) Credit card ensures timely and certainty of payments.
(vi) Suppliers/ Sellers no longer have to send reminders of outstanding debts.
(vii) Systematic accounting since sales receipts are routed through banking channels.
(viii) Advertising and promotional support on national scale.
(ix) Development of prestigious clientele base.
(x) Avoids all the cost and security problems involved in handling cash.
(xi) Less need for merchant establishments to provide customers with extended credit facility which is likely to be costly burdens on them.
(xii) The losses through bad debts are reduced and additional liquidity is achieved.
(xiii) As customers are well educated and understanding, less customer problems.