Advantages of Credit Cards Customers Banks Small Businesses
‘Advantages of Credit Cards Customers Banks Small Businesses‘ tries to explain the main benefits of credit cards to credit card holders, bank and small businesses.
Credit card is the best alternative to cash and the greatest money-power tool for emergencies. But often this tool is used irresponsibly leading to a credit card debt spiral. Having said this the advantages of the credit cards out weigh its disadvantages, provided they are used with care and utmost frugality.
Make the best use of your credit card
Advantages of Credit Cards to:
Customers/credit Card Holders
Banks/Credit Card Companies
Merchants/Small Business Traders
Advantages of credit cards to customers/credit card holders:
1. Best alternative to cask aka convenience
Of all the advantages of credit cards, I think this should rank one. You can literally buy most of the things with a piece of plastic stacked in your wallet. Whether you want to shop over the counter, online, book tickets or expend on life’s daily needs;you can pay conveniently with a credit card. In contrast, you can carry limited cash and if you are out, you need to go in search of an ATM. Bank card or credit card conveniently eliminates this trouble.
2. Tabulated ready made expense sheet- Monthly credit card statement
If you are like me who procrastinates when it comes to making personal budgets, then credit cards are for you. Yes, every month you will receive a well tabulated expense sheet from the credit cards issuing bank or credit card company. This is nothing but the monthly credit card statement which is either delivered at your mail address or sent via email. With this statement, you can easily keep a track of your expenses and plan your spending accordingly.
3. Privileges and Perks- Enticing credit card rewards and bonuses
Different types of credit cards carry different inbuilt benefits like discounts at stores/restaurants/showrooms, frequent flier miles, free vallet parking, VIP lounge access at airports and several other perks and privileges.
4. Notch up your credit score- Build a positive credit history
If you refrain from making just the minimum payments every month and avoid racking up balances, credit card can have a great positive impact on your credit score. Making payments in time will help in building a positive credit history which can be helpful in securing a loan or a mortgage. Lender’s doors are always open for individuals with high credit scores!!!
5. Protect your purchases- Faulty purchase done with credit card can always be disputed
The main difference between a credit card and a debit card is that, with the former you have the right to dispute a charge. An individual is protected by Consumer Credit Act under section 75 wherein the credit card issuing bank and the merchant take joint responsibility for damaged or defective purchases. You will also be protected if there has been an identity theft not because of your negligence.
6. Transfer balances conveniently- Find solace in Balance Transfer Credit cards
Even if you are caught up in a credit card debt spiral, there is always a silver lining. With balance transfer credit cards, you can conveniently transfer balance from different credit cards with high interest rates to a single credit card with low interest rate. But ensure that you read the fine print and also read between the lines as this initial introductory rate would run just for a few months and also, there would be fee for transfers.
7. Automatic notifications and alerts
You can always ask your credit card issuer to set up automatic alerts whenever a purchase is made on your card and also set up fraud alerts. Be on top of your credit card account by getting alerts and notifications. With many banks the alerts and notifications could include but not limited to daily balance summary, credit reaching limit, purchase alert, change of email address for online banking, reminders of due date for monthly payments etc.
8. Money saver- Negotiate better interest rates with higher credit score
If you do not let your line of credit to go out of control and pay you bills on time, you can achieve a higher credit score. This positive score can open lots of doors including your power to negotiate lower mortgage interest rates, loans and maybe credit card offers with striking features.
9. Travel Perks- Make credit card your travel friend
There are credit cards out there in the market which are meant for frequent flyers. You can redeem your airline miles for a free ticket. Also there are credit cards which offer other travel benefits like insurance against lost luggage, assistance during travel, emergency assistance, insurance against trip cancellation, airport VIP lounge access.
10. Loan for Free- Borrow others money for nothing!
If you are paying your bills in full every month, then you are borrowing money from the credit card company for free. Yes, money for nothing!Loan for free!
11. Shop safely
It is safe to shop around with plastic money. Its fast, its easy and its SAFE.The credit card companies strive very hard to keep fraud at bay. In case of debit cards, if it is used fraudulently, the money leaves your account instantly.This might create problems if have any automated payments every month and lack of funds can put you in trouble. But in case of credit cards, if you see a fraudulent transaction, you notify your bank and take it from there. Even if you have fallen victim to identity theft, you are safe as you are protected by credit card fraud and security measures.
12. Accepted beyond country borders- Travel, have fun and do not worry about foreign currency.
Most of the bank cards not only work in the home country but also beyond the borders. So next time you travel, you don’t have to get messy with buying foreign currency, checking rates and stuff. Just carry the plastic card and it will serve you as if you are in your home country. A word of caution. Always check with your card company in which countries you can use your credit card and whether there are any additional charges for foreign transactions.
13. Status Quo- Real Value for money
There are credit cards offered by issuing banks, producing one from your wallet at a store or a restaurant can turn many eyes. Yes, these are the premium credit cards which cater to the privileged elite.They come with very high annual free and carry a huge line of credit. Example:American Express Centurion Card,Visa Signature, Black Visa, Coutts, Stratus White Card, Citibank Ultima.
14. Customized Credit Cards
WellsFargo says “Make your card as unique as you“. Yes, many a credit card companies give you the option to customize your credit card like adding your own picture on the card. Capital One Image Card, as the name suggest offers the same. You can add your own image or an image of your choice.
15. Your best friend for emergencies
You credit card can be your “friend in need” during unavoidable circumstances. Small expenses like repair, health bills etc can creep in anytime and credit cards can very well handle these emergencies.
16. Grace Period
One thing you can always do with credit card companies is ‘negotiate‘. Most of the credit card companies do consider customer’s pleas and give them a grace period if they are not able to pay the monthly bill in time. Grace period is the period beyond the due date to pay the bill. During this period, no interest is charged if the whole amount is settled in full. The grace period can extend up to 21 -55 days.
17. Buy Now Pay Later
Many a times we find ourselves desperately wanting to buy something. For example- Your favorite band is in town and they are throwing a concert but you do not have any hard cash to buy your ticket. This is a one time opportunity and you don’t want to miss out on that. With a credit card, you can always ‘buy now and pay later” unless you have maxed out your card/cards.
18. Consolidation of Bills- One lump sum payment
Most of the households in any part of the world have following monthly bills (not limited to) to pay: Electricity, water, telephone,internet, rent, insurance.To avoid missing out or delaying payments on any of these bills, you can consolidate them and pay through your credit card as one payment.
19. Money Management-Get educated
Credit card can be a great educator particularly one who is starting out in the financial field. Students especially can learn a thing or two from credit cards. Parents can give pre-paid credit cards to their children and can always monitor their spending habits and also teach them how to manage their finance.These little money lessons in the early part of life can have a big impact on their future.
20. Purchasing Power- Power of plastic credit
Last but not the least, credit card is like a spigot of instant purchasing power. Power can be used for good or bad; the choice is your’s to make.
So these are the main benefits of credit cards to a customer or a credit card holder. Now let us look into the advantages of credit cards to banks.
Banks are operating to make profit and the income stream from credit cards is huge. Banks usually make money out of customers who let their credit card balance balloon. ‘Minimum balance payment‘ has real psychological effect on us as the monthly minimum payment is a very small percentage of the total outstanding credit card debt.
So how do banks make money out of credit cards?
Advantages of credit cards to Banks:
1. Merchant Fees:
Whenever you swipe your credit card over the counter at a retail store or make online purchases, a small part of the sale amount goes to the bank. Bank charges the merchant or the retailer for contributing towards technological infrastructure needed for processing the credit card payment. So, when you use your credit card for purchases, the bank automatically make a small profit in the form of a fee or a sales commission.
2. Monthly Interest
Monthly minimum payment works in favor of the banks and it has a psychological effect on the credit card holders. This liberty to make a small payment, as small as 4-5% of the total balance due,and still allowing the card holder to use the credit card month-in and month-out really makes a killing for the credit card issuing banks. Carrying a balance attracts daily compounded APR and in turn increasing the total outstanding balance.The interest revenue that the issuing banks make from unpaid balances is very huge and this is one of the reasons why banks are so willing to offer you enticing credit card offers. One other thing to note is that these interest charges are higher than any other forms of loan mainly because these are not against any collateral security. In other words, they are unsecured.
3. Late Charges
Credit card accounts are subject to late payment fees if the credit card holder fails to make at least the minimum monthly payment in time.Other than the late charges, the banks might even raise your APR as a penalty.All this adds up to bank’s revenues and the bank is at an advantage if you fail to make your monthly payment on outstanding balances in time.The credit card holders can breathe easy as far as raising interest rate is concerned. The card holders are protected by Federal law which requires the issuing banks to notify the card holders 45 days in advance about any raise in interest rate.
4. Annual Fees
Annual fees is another revenue stream for banks. Many a credit card banks charge their customers an annual fee for using their credit card. Read the fine print and also try to find out from the bank whether you will be charged even if you do not use your credit card.
5. Current Assets- Accounts receivable
The money that you owe to the bank is an accounts receivable on bank’s balance sheet which is a current asset. That means a bank will have a huge amount of readily available liquid assets which it can easily convert into cash if required.
6. Over-Limit Fees
Another advantage which works in bank’s favor is the ability or the right to charge a fee if a credit card holder swipes his credit card over the line of credit.This penalty is another source of income for the bank through credit cards.
7. Balance transfer fees
The banks are in a position to charge an assortment of differernt fees and one among them is the balance transfer fees. Credit card companies make available balance transfer credit cards with low interest rates. This means customers can transfer balance from other credit cards to this credit card to take advantage of the lower interest rate. This privilege comes with a fee which adds to bank’s revenues.
8. Cash withdrawal fees
Desperate times call for desperate measures and you might find yourself in such a situation. You might badly need hard cash and the last resort is your credit card. Credit cards allow you to withdraw cash from an ATM but with a high fee. Your adversity forms bank’s advantage.
Many a times, credit card companies do charge a petty amount as transaction fees. Even though small, this revenue from millions and millions of transaction can add up to something significant.
So this is how the credit card companies or issuing banks make money out of credit card holders or simply, the advantages of credit cards to bank.
Advantages of Credit Card processing to Merchants/Small Business Traders
1. Accelerated Sales Growth
Merchants and retailers who accept credit and debit cards are in a better position to serve a wider customer base than ones accepting just cash. This widened spectrum of potential customer base naturally helps in attracting more customers and more customers means increase sales revenue. The ability to accept credit cards puts merchants in a better position by make the goods and services easily available to customers.
2. Beat competition fair and square
More the payment methods available for customers, better is the potential for having an edge over competition. And again, opting for credit card payment processing, a merchant can create a level field to compete with others who have already installed the processing system.
3. Foot Fall of impulse buyers
Credit card holders are machines with ready purchasing power. Studies show that credit cards trigger impulse buying because of the instant power to purchase something.This will work in favor of the merchants or retailers who accept credit cards.
4. Smooth cash flow
The payments made through credit and debit card are processed faster and money is deposited into the merchants account with a few days. The faster payment cycle in turn improves the cash flow for retailers and merchants.
5. Online Sales
A merchant who has an online presence and also who sells merchandize online by accepting credit and debit cards is able to take advantage of the huge potential customer base who like to order things online.This can give a big boost to the over all sales of the merchant.
6. Increase Customer’s Convenience
The world is in a hurry and so are potential customers.They like to shop and pay in few easy steps. A merchant who can process payments faster and relieve his customer in few easy steps will attract repeat sales. Convenience plays a major role in creating repeat sales.
7. Eliminate risks associated with cash handling
There are a lot of risks associated with handling cash and these can be mitigated by electronic payment processing.The risk of theft, misappropriation and fraud can be minimized by installing systems for accepting plastic money.
8. Build Trust
There is a kind of trust associated with well known reputed brands like American Express, Diners, MasterCard, Visa, SBI and alike. This trust is automatically transfered to merchants and retailers who accept the credit card or debit cards of these brands.Trust can build a loyal customer base.
9. Electronic transactions are secure and reliable
Electronic virtual transactions are more secure than handling hard cash. VisaNet indicates that it can handle more than 24,000 transactions per second! This in itself proves that big brands will have invested millions and millions in ensuring that the payments are processed faster, they are secure and also reliable.
10.Effeciency and Effectiveness
A merchants business becomes more effecient and effective when he accepts electronic card transactions. Since the whole payment processing is automated, the merchants need not worry about making trips to deposit the cash and risk associated with transporting the cash.
To summarize, the advantages of credit card are many. credit card can be your staunch friend if you let it to be. Most stunningly, this money friend of yours will never say no. It is in your hands to use it to your benefit and to never get lured by the tactics played by the credit card companies. You can use your credit card for convenience and also to build your credit score.They can be a great tool during emergencies and can be earmarked for consolidating bills. But never be enticed by minimum monthly payments as this little psychological trick can send you down the financial mismanagement drain in no time.