How credit cards work?

How credit cards works:

For any transaction with credit card, there will 4 parties involved. Here are the details:

Customer/ card holder: The person who owns the card to make a purchase.

Merchant: The business / shop / hotel / etc accepting credit card for services or products sold to the customer [card holder ]

Bank: Banks who provides credit card processing services to the merchant.

Credit Card issuer: The bank which issues the credit card to its customers.

Credit card association:  Credit card networks such as, VISA, MasterCard,etc … which act as a gateway between the bank and issuer for authorizing and funding.

Example:

You went to a computer peripheral shop [Ex. Shop name is, Trendz Computer perpherals ] to buy a latest LCD monitor which costs around INR 5,000/-. You have a HSBC credit card to make the purchases. Observe that, there’ll be another name on your credit card like, VISA, MasterCard, etc.

So, you go to the shop [ Trendz Computer peripherals] and select a LCD monitor of your choice. Now, you have to make the payment through your credit card. Now, once you give your credit card to the merchant, he’ll try to process the payment by swiping in a machine labeled with ICICI. It’ll take time to process the merchant requested amount of INR 5000/-. Once it is accepted, he’ll handover a receipt to you to sign on it. Once that is done, he’ll give you the bill for your purchase.

Custoer/ Card holder à you

Merchant: Trendz Computer peripherals

Bank: ICICI BANK

Credit Card issuer: ICICI BANK

Credit Card association: VISA/MasterCard, etc.

Usually, most of the banks try to squeeze money from its customers whenever it gets a chance.

Then, why will it give the credit to the customers without any fee for 40+ days?

Here is the deal:

Higher interest rates:

Banks will charge a high interest for any dues on credit card payments.

• Establishment with merchant: Banks make money through fees from merchants.I would say, this is the one of the main business. Thousands of merchants will be there in once city. Each shop owner like, hotels, shops, thatres, malls, etc.. need a card association banker to process the credit card payment.

 For more details:

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=4379&Mode=0