Figure 4
Benefits and Costs for Participants in the Credit Card Industry |
| Type of Participant |
Function |
Benefits |
Costs |
|
Cardholder
|
Purchases goods and services |
Convenience of making purchases without carrying cash Ability to time payments to match cash flows Access to credit Access to float Use of bonus features |
Interest rates and fees Difficulty managing credit
|
| Merchants |
Sells goods and services |
Access to large number of consumers Ability to sell to consumer needing credit without carrying credit risk Guaranty of payment |
Need to pay interchange fees on sales to cardholders Loss of private credit accounts (customer loyalty, marketing information, interest income)
|
| Issuing Bank |
Collects payments from cardholders Extends credit to cardholders Distributes cards Finances receivables Authorizes transactions Ability to collect on interest rate spreads |
Ability to collect fees from cardholders Ability to share in interchange fees from merchants Ability to cross-sell to consumers |
Operational costs Fraud risk Credit risk |
| Acquiring Bank |
Issues payments to merchant Routes information enabling authorization, billing, and payment to merchant |
Shares in interchange fees from merchants |
Operational costs Some fraud risk |
| Card Association |
Promotes the brand Establishes rules, standards, and protocols governing participation in network Sets interchange fee structure |
Collects transaction fees Collects assessment fees |
Marketing costs Cost of fraud reduction programs Operational costs of maintaining network
|
| Source: Federal Deposit Insurance Corporation. |
