News released by credit card industry expert said that credit card transaction volume has exceeded more than $2 trillion and raked in more than $100 billion in revenues in U.
S.
alone.
The huge transaction volume required massive operational and manpower supports.
In order for a transaction to take place, there must be four parties involved.
The first party is a company that issued the card and it is called the Issuer.
The second party is a company that acquired the transaction from the merchant and it is called the Acquirer.
The next two parties are the cardholder and the merchant.
Because the transaction volume is so huge, the credit card industry experts smartly segregated the business into two categories, the Card Issuing Business and Card Acquiring Business.
This system makes managing business easier.
Card Issuing Business Issuer can make money just by concentrating on the card issuing activity.
The Issuer make money by charging cardholders: 1.
Membership fees.
2.
Interest on revolving balances.
3.
Interchange fees (a shared income from Acquirers) 4.
Cash Advance Fees 5.
Late payment penalty fees.
6.
Other service fees such as returned cheque handling fees, exceed limit fees, sales slip retrieval fees, etc.
The Issuer incurs expenses such as: 1.
Cost of Funds.
2.
Card Acquisition Cost - Expenses spent in acquiring new credit card customers such as direct card sales commission, welcome package cost and related expenses.
3.
Plastic card and embossing cost.
4.
Marketing and promotion cost - Advertisement and card promotional programs.
5.
Operational cost which include staff salaries and expenses incurred by various departments such as New Accounts, Card Marketing, Card Sales, Card Embossing, Authorization, Customer Service, Collection, Fraud Control, Systems, Human Resource, Administration and Finance.
6.
Capital Investments - Major costs involve Mainframe Computers, Networking, Credit Card Software, Card Embossing Machines, Personal Computers for staff, Furniture & Fittings, Office Renovation and Telephone System.
Card Acquiring Business If a card company does not wants to go through the complexity of setting up the Card Issuing Business, it can kick off the Card Acquiring Business.
An Acquirer, by offering the Merchants, a facility to acceptance credit cards, the Acquirer charges the Merchants a discount fees.
The cost incurred by the Acquirer is much less complex than the Issuer.
1.
Merchant Sign Up cost - Cost includes printing of Merchant Agreements, Display Decals, Standees.
2.
Interchange Fees - Sharing of Merchant Discount Revenue with the Issuers whose cardholders patronized the Acquirer Merchants.
2.
Operational cost which include staff salaries and expenses incurred by various departments such as Merchant Sales, Merchant Services, Authorization, Fraud Control, Systems, Human Resource, Administration and Finance.
3.
Capital Investments - Major costs involve POS Terminals, Mainframe Computers, Networking, Credit Card Software, Personal Computers for staff, Furniture & Fittings, Office Renovation and Telephone System