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Saturday, November 14, 2009

Feature Review: Payment Protection Insurance

Most Credit Card Issuing Banks offer an Insurance feature on their Credit Cards which may be Life Insurance, General Insurance or in some cases may be a specialized form of Life Insurance which is called as “Payment Protection Insurance”

What is Payment Protection Insurance also known as Credit Shield Plus Insurance?

This insurance ensures that if you die while holding your Credit Card, then the entire Credit Card outstanding whatever it might be at that time will be paid by your Insurance Company and will not have to be borne by your family / dependants / legal heirs.
In 99% of the cases I do not recommend this product as it is useless and I have observed that most banks (at lease the credit card issuers I have worked for) do not follow up with the family of the deceased card holder and just write off the out-standing. The fact that if you die, the bank will chase your family is untrue, at least to my knowledge. While they are legally empowered to do it, they do not do it as far as I am aware.
In addition to this, it may happen that at the time of your death that you do not have any Credit Card outstanding at all and hence the entire premium that you have paid has got wasted. I would recommend this card only if you are a perpetual revolver and your Credit Card outstanding at any given point of time is more than your monthly take home salary, then you can think of going in for this product.
The premium amount is usually less than 0.1% of your Monthly Outstanding and gets billed in your Credit Card statement every month. If you have an outstanding of Rs.30000 every month you will have to pay a Premium of approx Rs.30 every month. While this may look like a small amount, this is an expense you can avoid and donate this money to “needy children” which would be putting it to better use.
If you do apply for this product, you will open yourself to complaints such as incorrect premium billed, changes in the premium rates, non receipt of policy documents and in most cases your family will not even be aware that you have this insurance policy.
You need to keep it in mind that the bank will keep calling you and keep saying that “after taking this insurance you can live in peace knowing that your family is secure etc.” but that is all crap. Remember from the Rs.30 that you pay every month, the bank will get Rs.10 from the Insurance company and hence you give your Bank Rs.100 per year. If they manage to sell this product to 100,000 customers, they will get Rs.1,00,00,000 which is waster money going to the bank coffers.
This is a totally useless feature of most Credit Cards, so please stay away from it.
If you have any queries or suggestions, you can write to me at Ask.Pranav@Gmail.Com and I will write back to you as soon as possible. Thanks.

Market Outlook: Future of Credit Cards in India

In the current scenario, almost all banks which issue Credit Cards are bleeding financially and are not able to sustain themselves. A simple generic model of the Profit & Loss Account of the
Credit Cards Business is given below.
For every Rs.100 lent to customers by the Bank the following are the income and expenses
Revenue Streams
(1) Rs.20 is the Interest Income earned by the Bank on an annual basis (average across portfolio)
(2) Rs.2 is the other income earned through transaction & merchandising revenue
(1) Rs.9 is the Cost of Funds
(2) Rs.5 is the Acquisition Cost of sourcing the Card
(3) Rs.3 is the Operational Cost
(4) Rs.3 is the Bad Debts (Customers not paying back money and going delinquent)
So if you calculate for every Rs.100 lent out you have revenue of Rs.22 and a cost of Rs.20, which gives you marginal profit of Rs.2 for every Rs.100 lent out. However this was the case about 3 years back when the Bad Debts were restricted to 3%.
Last year the bad debts have soared to as much as 12% which is Rs.12 for every Rs.100 which have been spent and hence the costs go to Rs.29 which the revenue still remains at Rs.22, so as a result the banks make a loss of Rs.7 for every rs.100 lent out. This loss cannot be sustained and as a result the banks have taken the following steps

(1) Cards issued to customers who have a flawless Credit History and who will definitely pay back on time and hence reduce the percentage bad debts and make the business more profitable
(2) Tighten Credit Policy to issue Cards to reduce Bad Debts. Not to issue cards to customers who do not have a proven Credit Record
The way I see it, the Credit Cards Business in India will be profitable in India only under the following scenarios. If these scenarios are not met then I do not see the sense in banks issuing Credit Cards at all – a view which is echoed by many in the Financial Services space and is disputed by an equal number of people as well
(1) The Acquisition Cost has to come down from Rs.5 to Rs.2. This will happen when the banks move away from the current model of DSA Agent Based sourcing and move to Internet Sourcing with no face to face visit with the customers. However there are Technical and Regulatory hurdles preventing this from happening right now
(2) The Bad Debts should not exceed 2% to 3%. This needs to be managed through effective Credit Policy which ensures only those customers get Cards who have an ability to pay back. This restricts the number of Cards issued by the bank as most customers who can afford to pay back have already got a Credit Card. New entrants will get all the sub-prime customers where if you issue cards, the losses will also rise
(3) Banks need to increase revenue by cross sell effectively on the Credit Cards base. This means that they will need to start doing merchandising activity on the Credit Cards Base and use the Credit Cards Base to sell Loan products, Bank Accounts, Investments and Insurance to beef up the Non Interest Income and increase the same from rs.2 to Rs.5
Until the banks develop a strategy on the above mentioned lines, it will be very difficult for the Credit Cards Business to be profitable at all. The financial model used above as an example is indicative and does not represent any specific bank profit and loss account.
If you have any queries or suggestions, you can write to me at Ask.Pranav@Gmail.Com and I will try to write back to you as soon as possible.

Customer Awareness: Most Important Terms and Conditions for Credit Cards (MITC)

Whenever you apply for a Credit Card, you are subscribing to the Most Important Terms & Conditions of the Credit Card Company at the time of applying for the Credit Card itself. These most important Terms & Conditions are mostly the same across Credit Card Issuers and usually state the following major points.
(1) Tariff Schedule is covered as the last part of the MITC. This gives your Rate of Interest (also known as APR in Credit Card circles) Late Payment Charges, Cash Advance Charges, Fuel Surcharge and all the other charges. It is recommended that you go through this list of charges to avoid nasty shocks at a later date
(2) It is to be noted that if there is any change in the MITC, then the bank has to inform customers at least 30 days before effecting the change. The bank will communicate to you as a part of the Statement Message on top of the statement or through a separate letter sent to your mailing address. If the bank does not do this, and changes your charges in an ad hoc manner then you can write to them for a Charge Reversal and escalate your Complaint to the Banking Ombudsman as well
(3) Other, than the schedule of charges, the MITC also contains a declaration that you authorize the bank to contact you for any offers that they may deem suitable for you. Some application forms like Deutsche Bank and SBI Card have a section which allows you to opt out of any calls and messages. You may choose to check the same. However, I recommend that you should opt for promotional messages as sometimes during festival times, the banks come out with good offers which you would not like to miss
(4) On a lighter note, the bank does not verify the number entered by you. You can change your Mobile Number later and change it to someone you really want to harass and the bank will start directing calls to the new mobile number updated by you. Believe me, the banks do not have a check to prevent this
(5) The MITC also states that they will provide your data to the Credit Bureau (CIBIL) from time to time which gives your spend data, late payment data and non payment data. This is an important point as you can ruin your future life because of this. Please note that now in India we have a CIBIL Score and hence any late payment / non-payment made by you will reflect across all banks and they will refuse to lend to you if you have a bad score. What this means is that you will need to take extra care that you make your payments on time, else you will have your record ruined. It does not matter if you are arguing with a bank for the reversal of charges etc. once they report you (which happens automatically end of month) you are finished. I would sincerely recommend that instead of fighting with the bank over a few hundred bucks it is better to pay up and keep your Credit Score in tact
(6) The MITC also gives other information such as the Payment Modes for making Payments to the Banks and other good to know features on your Credit Card
Please make sure you read the MITC of the Credit Card at the time of applying for one. Do not bother asking the Sales Representative, as they usually do not have a clue (they are usually paid per application and hence they are keen on picking up the application however complete, incomplete it may be.

Mark my word, if you do not read the MITC and are not an aware customer, your ignorance is going to come and bite you at a later date. Credit Cards are very useful and I strongly recommend them as a Financial product, however only informed users should use them.
If you have any queries or sugestions, you can write to me at Ask.Pranav@Gmail.Com and I will try to revert back to you as soon as possible.

Product Review: Deutsche Bank Gold Credit Card

The one thing that stands out about Deutsche Bank is a customer focused approach across all their products. I rate them at the top on Customer Service. Their Contact Centre is best in class with executives who have good communication skills and know what they are talking about, and hence managing your Credit Card relationship is a pleasure. I would recommend this card primarily for the ease of Banking with them.

The positive aspects of this card are as follows

(1) Outstanding Phone Banking and Internet Banking Platform with well trained staff making information access very easy. If you compare this to some poor quality contact centre’s such as Barclays & ICICI, you will understand what I am talking about and the difference it makes to the Customers life
(2) Awesome festive offers, they have gives Rs.10,000 Cash back on Rs.1,00,000 of spend in the festive months of Oct to Dec for the first 100 customers or so and the lucky draw of a Maruti Swift as well. Their regular round the year offers are nothing to write home about, but these festive offers definitely make take the card worthwhile
(3) The charges and interest rates are better than the others in the market and my personal view is that this is the bank which is least likely to take the customers for a ride with unfair charges being levied to customers
(4) Their Operational processes are sound, the statements reach you on time and payments get credited on time. They have launched payments through Quick Pay and NEFT Payments for Credit Cards which enables you to make Payments through different banks on the Internet
(5) They do not have a massive Outbound Calling Team for stupid offers such as Loans and the Customer is left in peace to use his Card. This is a major irritant in banks such as Citibank, Barclays and ICICI where you will get at least 3 calls a week if you have not registered for the “Do Not Call Registry”
The negative aspects of this card are as follows
(1) The Card Plastic Is not unique and is not designed very well at all. They let you change images on the Credit Card at a small fee, however none of them are unique like the Times Barclaycard which you would like to show off to your friends
(2) Regular offers are not as good as the festive offers that are offered on this card
All in all, I recommend this card, however their Card Issuing Policy is very tight and for the past year they have been issuing cards only to a select group of customers. Feel lucky, if they have actually issued you a card.
Feel free to write to me at Ask.Pranav@Gmail.Com for any clarifications that you may have and I will try to respond to you as soon as possible.

Monday, November 9, 2009

Clarification on Payment Due Date for Credit Cards

Just a few days back I read an article in the Times of India pertaining to the confusion on Credit Cards Payment Due Dates. Having worked in the Credit Card industry, I thought it would help if we threw some light on the subject.

All Credit Card Issuing banks have 2 payment dates.
(1) Print Due Date: This is the Payment Due Date which is communicated on the customer statement. This is the date communicated to the customers, by which the payment needs to be made
(2) Actual Due Date: This is usually between 2 to 5 days after the Print Due Date. This includes 2 to 5 days of grace period which the bank gives for the cheques which have been dropped on the Payment Due Date to Clear and for the clear funds to reach the credit card issuing bank

In most cases customers drop cheques on the Payment Due Date as communicated on the statement. If the cheque is dropped in the drop box as communicated by the bank on the payment due date, it gets picked up the next day and sent for clearing. The payment gets credited to the Credit Card only after 2 or 3 working days depending on the clearing period and if it is an outstation cheque or not.
If the Banks start levying the fat late payment fee of Rs.500+ if the payment does not reach them by Print Due Date, 80% of the customers would get charged and the call centre would get calls that we have dropped the cheques on time – how dare you charge us etc. This is the reason why the due date configured on the bank statement is different.
However, if you use Internet Banking, NEFT to make Credit Card Payments, they reflect instantaneously as they do not need to go through the cheque clearing process and hence the customer will not get charged even if he makes a payment a bit late after the print due date and before the actual due date.
Late Payment Charges are a major source of revenue for credit card issuers, and this revenue line is monitored at the highest level. There is a monthly target for Late Payment Fees and strict guidelines for Late Payment Fee Reversals as well. Most banks will reverse out the Late Payment Fees the first time … however will be very strict after that. However if you spend more than Rs.20000 on your Credit Card every month and have been paying back regularly, then your bank will not want to lose you as their customer and you can get them to reverse the fee sighting some reason or the other.
However, I suggest that you make your Credit Card Payment in time, however if you have forgotten, the first time you will be excused, but after that you jolly well start paying the fees. You need to be responsible – if you take your bank for a ride, be rest assured, they will take you on a ride as well.
For comments, suggestions and queries, you can write in to Ask.Pranav@Gmail.Com and I will write back to you as soon as possible.

This is the season for Hidden Charges on your Credit Card

Over the last few months Indian Credit Card Issuers are going through a tough time on the inability of the customers to pay back the money that they have spent on the Credit Card. The whole model of the Credit Card industry has been turned up-side down. This has happened due to the following reasons.

(1) Tremendous Sales pressure within the banks has forced them to give Credit Cards to sub- prime Customers, customers who do not have a proven ability to pay
(2) Some banks have even given Credit Cards to customers who do not know what a Credit Card is, and hence do not know they need to pay back (sounds funny isn’t it!)
(3) About 3 years back, the banks on an average would lose Rs.3 for every Rs.100 lent out as bad debt, not that number is Rs.15 for every Rs.100 lent out
(4) This is a 12% reduction in the profit margin, which was anyways between 3% to 4%, and now the companies are heavily in loss
As a result banks are issuing fewer credit cards and to make the business more profitable have increased the fees and charges, hoping to make more fee revenue. Therefore it is very important to pay attention to the revised fees and charges communication that you would receive from the banks. It would also do you good to check the revised fees and charges communication on your Bank website.
Just a few pointers to what has happened in the market over the last year
(1) Barclays has raised the Late Payment Fee from Rs.300 to Rs.500 to Rs.600 to I think Rs.1000 for some tier of customers (I agree they have been very transparent which was their launch tagline ….. and I have received 4 badly printed inland letters communicating the changes)
(2) HSBC has done away with the fuel surcharge of 2.5% which was waived for the customer and if you want a fuel surcharge waiver they have introduced a fee of Rs.349 or so which will make sense only if you have fuel purchase in excess of Rs.12000 per year
(3) HSBC has introduced a transaction charge on making Credit Card Payments through HSBC Branches and Drop Boxes (how funny is this …….. the customer is actually paying back, when many customers are not paying back)
(4) Deutsche Bank has reduced the value of a Reward Point from Re.1 to 75 Paise
(5) ICICI Bank has started charging for Credit Card Payments through NEFT
So dear customers, the point I am trying to make is that BEWARE ……. All Credit Card issuers are trying to get more fee revenue and will try to extract those fees from you. Some do it openly and some do it slyly. So please check your Credit Card Statements carefully and if you see any hidden charges, please login a complaint with the bank and if they do not reverse it, with the Banking Ombudsman. Anyways do let me know … I would like to know the ways in which Credit Card issuers are trying to make their money.
You can write to me on Ask.Pranav@Gmail.Com and I will revert back to you as soon as possble.

Sunday, November 8, 2009

Which Credit Card can a businessman use for Working Capital Management?

Customer Says:

I am a business man and basically need money daily usually 10000-50000> on daily basis.So,I thought that a credit card might help me.Are these> really helpful.Pls tell me which card to apply for.
Ask Pranav says:

Credit Cards are to be used for convinience, so that you do not need to carry Cash everywhere you go. They are not to be used as Tools for Working capital management, as you are sure to get stuck in a Debt Trap. Please do not make this mistake.
However, if you need to get a Credit Card under any circumstances and you will be using it extensively, I suggest you avoid Barclaycard, ABN Amro and the other smaller companies. It would be better to go with ICICI or Citibank as they have a better product offereing and they have a robust Internet platform which will help you manage your account Online.
The Citibusiness Credit Card from Citibank would be a good option to go with.
Do write into ask.pranav@gmail.com for any further clarifications that you might have. Also do visit http://www.simplybank.blogspot.com/ for interesting articles in the financial services space, which may be of use to you.

Saturday, November 7, 2009

Case Study (HSBC Bank) - Payment for HSBC Credit Card which was never received!

Customer Says:

Hi, I applied for HSBC credit card one year before and after some weeks I got call and letter from bank that they are not issuing any credit card and in case i got any credit card, dispatch it. No credit card and document i received.

After 6 month i got a call from HSBC recovery dept. to pay my due of 5000 otherwise they list my name in defaulter and blah blah. After that i called customer care who says my account is closed. After that i start ignoring them,but they continuously calling me .

Then they started bargaining with me to settle down.At the end i offered them, to pay 1000 rupees .Then they told me that their man will come at my place next day and pay him cash.As i heard from net that after that also they don't stop. Then i asked him to give me the letter of settlement i will pay that amount in the bank.And :D they refused. so the game continues...I would like to hear if there is any solution to get rid of it without paying any due to recovery dept and HSBC.

Ask Pranav Says

Yes, there is a way out. I am assuming that whatever you have stated is the truth.
If you have not even received a Credit Card from HSCB, there is no reason why you need to do any settlement with them. You just need to tell them to give you proof of delivery of the Credit Card and the Transactions that were done in your card, and wait for your response. There would mostly be some form of fraud on your Credit Card and you had never received it, there is no need to pay for the same.

You can collect all your communication with HSBC and share the same with the Head Customer Care at HSBC, the E-Mail will be updated on the website. If you do not get any response, then write to the Banking Ombudsman, the E-mail ID of which is updated on the HSBC Website, also keep a record of all the communication.

As you have not paid back the money (at least as far as their records are concerned) they would have reported your name to the Credit Bureau, once the case has been resolved you need to tell the HSBC guys to remove your name from the Credit Bureau, they can do it internally. Please do not leave them before they do this, else your changes of getting a loan subsequently may be affected.

If you have any further queries, do write into Ask.Pranav@gmail.com and I would be happy to answer any questions that you may have.
Also do check http://www.simplybank.blogspot.com/ for articles on financial education that may be useful to you.

Saturday, October 31, 2009

Case Study (HDFC Bank) - Salary on Hold

Customer Says:

I have my salary account with HDFC bank, and i also had a credit card from them. In the last year i had become irregular in repaying the credit card dues due to severe illness of my mother. This month the Bank has frozen my salary account and withdrew all the money that I got as my salary without my authorization. I also offered them for a settlement option and repaying the whole amount in monthly installments. However, the collection dept of the bank did not agree to that. I want to know if these banks have got the right to do something like this. And if this is not authorized by RBI what are the actions I can take.
AskPranav Says:

In the Credit Card applications form Terms & Conditions there is a condition whichs says that the Credit Card Bank has a "Right to Lien" on the Salary Account you have with them, which also effectively means that if you do not pay your Credit Card dues, they can deduct the amount from your Salary Account without informing you of the same.
This is a standard practise in most banks where they issue credit cards basis Salary Accounts. I do not think that there is much you / anybody can do as the bank is covered on this.
You can read the Terms & Conditions of HDFC Bank for clarifications. I am sure that the "Right to Lien" clause is included.
For interesting information on Banking and Credit Cards do read the following blog.http://www.simplybank.blogspot.com/
Warm Regards.

Case Study (Barclays Credit Card) - No Statements Sent but Charges Levied

Customer Says

I was holding Barclays credit card 4339481234567890 which was given on some promotion. I commited a mistake of using this card on 18-11-2007 for purchase of Rs 2174.00. I did not recieve any statement for this.Instead i recieved a call for payment. I was shocked but I was assured that any late payment charges shall be reveresed.Subsequently I sent payment of RS.2200 which was duly credited to my a/c on 28-12-2007.
But the bank kept on calling & sending statements inspite of card being suspended. Finally on 28-06-2008 AARTI came on line to inform that late payment charges can not be waived. I asked for supervisor & Mr Ranjit (Supervisor as told to me ) THAT HE CANNOT TAKE ANY REQUEST OR COMPLAINT ON A SUSPENDED CARD. I IMMEDIATELY ASKED HIM IF THEY CANNOT TAKE ANY COMPLAINT THEN HOW THE BANK CAN CHARGE INTREST OR OTHER CHARGES ON SUSPENDED CARD.i ASKED FOR MY COMPLAINT NO WHICH WAS 1897164 DT 28-06-2009.
Mr Ranjit told me to check status after few days. On 10-07-2009 Rashmi told me that this is not a complaint no but a REF>NO> ONLY. IT WAS SUCH A SHOCKING EXPERIENCE. Looking forward for early redressal.

Ask.Pranav Says:

This is a standard complaint received from most users of Barclaycards. The Statement Process is poor and the charge reversal policy is also not implemented properly. You need to do the following.

(1) Write to the E-Mail ID provided on the website which is service@brclays.com
(2) If you do not get a response write to the Nodal Officer which is Mrs.Meera Rawat and her Contact ID is provided on the website
(3) If she does not respond, write to the Banking Ombudsman for help \
It is very important that you remember the dates on which you spoke to the bank and all the written communication and have copies of the same. It is important that you submit the same to the Ombudsman when you do not receive a satisfactory response from the Bank for 45 days.
I suggest you do not waste any time reasoning out with the Barclaycard Contact Centre folks. It is an absolute waste of time. Just patiently make your point, record your call and hang-up
Also do visit the following website on http://www.simplybank.blogspot.com There are several articles on Credit Cards posted here which may be of use to you

Case Study (SBI Credit Cards) - Rs.500 Late Patyment Fees on Outstanding Less than 50 Paise

Customer Says: SBI Credit Card

HARRASSMENT BY APPLYING UNJUSTIFIED CHARGES: I was using the SBI GOLD card no. 431751234567890 from 2006 to JULY-2007. In one of the payment i made payment of the amount excluding the fractional amount, e.g. Billed Amount was 884.23Rs. & made payment of only 884Rs. to make it round figure. But in the next months statement the bank charged me late fees for the remaining 23 paisa.
When I requested their customer care executive for reversal of the same he refused to do so. I stopped making payment of that late fee, and repeatedly requested customer care to consider it, but all in vain. The same is going on and the latest amount due against the card in the month of June -09 is of 2476.90 Rs. Now I am fed up of talking with customer care department, as they are not at all ready to understand my issue. Sir, I want to bring it to your notice that if really I wanted to cheat the bank, I would have used the card further also as the credit limit over my card was of Rs 52,000, but I never did that. You can even verify my track record before this incidence. I hereby request you to please look into this matter kindly and give me the reversal of the amount whatever you charged me. Otherwise it will be a big injustice with me.

Ask.Pranav Says:
Hi, I faced a similar problem with my Barclaycard. The issue is that most Credi Cad issuers allow a short Payment of Rs.100 on the Total Amount Due. If you pay Rs.100 less than your Total Amount Due, you will still not be charged any Interest.

However Banks likeSBI Card and Barclays do not follow this practise. Hence all customers have to be very careful and ensure that the full amount de is paid to the nearest Paisa. I suggest you do the following.

(1) Register a Case with the Banking Ombudsman stating that you had not paid a few paise and the Late Payment Fee Charged has been Rs.500+ for a short Payment of 23 paisa.Word the letter saying that the Late payment Fee cannot be 1000% of the Payment Outstanding
(2) My bigger worry for you is that by now, they would have reported your name to the Credit Beureau completely ruining your Credit Card. Fo more details on what this means you can visit the following article which explains what a Credit Beureau is.
I suggest you pay off the amount and close the matter as it is very important to have a good Credit Record these days. For any further clarifications you can write to me at Ask.Pranav@Gmail.com or visit my Blogsite on http://www.simplybank.blogspot.com I am sure you will find some articles of use out here.

Case Study (Kotak Credit Cards) - Cheque Encashed but Payment not Received

Customer Says:

I have issued a cheque # 123456 (SBI, HPS Branch) for Rs 297.90 as payment towards my credit card dt 06/10/2009 & dropped it in Kotak ATM located at Begumpet, Hyderabad on 06/10/2009. However, I received a call from Kotak Cards call centre that the payment is outstanding. The debit of the referred cheque from my SBI account updated. I request you to kindly sort out the issue at the earliest

Ask.Pranav Says:

This is a very simple issue for resolution. You need to proceed as follows.

(1) Call the Kotak Contact Centre and fax them a copy of your Bank Statement which clear reflects the Charge Debit and Chequ Number. Also check that you had written the Card Number correctly
(2) They will have to reverse out all charges (Late payment as well as Interest)
(3) If they refuse write to Nodal Officer and then to Banking Ombudsman and keep all the documentation.

If what you are saying is correct, you have a very strong case and you cannot lose. Do let me know if you need any further clarifications. Feel free to write to me at Ask.Pranav@Gmail.Com
You can find very useful information on Credit Cards on the following Blogsite. Do go through and let me know your comments.


Introducing Customer Case Studies

The objective of this blog was to empower and educate customers on the issues that they experience on their Credit Cards. However basis the mails I receive from readers, I have found out that I need to start helping customers resolve the specific problems that they face with their Banks.
As a result, I am starting a Case Study series where I will publish sample customer complaints that I receive and the resolution as proposed by me, hoping that readers can read these case studies and take up the issues with the banks.
So do continue to write to me with the specific issues you face (and how you feel your bank is cheating you :) ) and if the complaint is representative, I will publish the same with the resolution so that other customers can benefit from it as well.
Having worked closely with 2 Credit Card Issuers in the last 4 years especially from a Customer Service perspective, I think this is an area where the customers need help
Feel free to write in to Ask.Pranav@Gmail.Com with comments / issues if any

Monday, September 28, 2009

RBI Roll-Backs FREE ATM Withdrawal Transactions

In April, RBI had launched a mandate to enable FREE ATM Transactions to all customers across all ATMs. This was a very customer centric move wherein all customers (irrespective of bank) could do a cash withdrawal from any ATM free of cost.

As per the new policy to be made effective starting 15th October, this will be available to Savings Account customers for the first five transactions in a calendar month and for Current Account customers there will be no FREE Transactions at all. However the Banks may continue to offer additional FREE transactions basis the Average Balances maintained – so you will need to check with your bank for how many transactions you have FREE.

How do you know if it impacts you?

(1) If you do not do more than 5 ATM withdrawal transactions from other Bank ATMs in a calendar month then your life does not change
(2) If you do more than 5 ATM Transactions, then you need to call and check with your bank how many transactions you have FREE basis the balances you maintain
(3) Current Accounts Customers will also need to contact the bank and check how many transactions they have FREE
(4) Now at other Bank ATMs you can do a transaction of at max Rs.10000 as a per transaction limit

It is disappointing that RBI has withdrawn this mandate, however in my opinion 95% of the retail customers will not be impacted as I do not think they do more than 5 transactions from other bank ATMs, however RBI should focus on making this policy easy to understand and this rollback is going to complicate understanding from a customer point of view.

For other useful Personal Banking tips do go to www.simplybank.blogspot.com or you can mail me at Ask.Pranav@Gmail.Com and I will try to respond to your queries at the earliest.

Product Review: Yatra Barclaycard Platinum Credit Card

This Credit Card is a Travel Card, however it is not a co-brand with an airline, however it is a co-brand with a travel aggregator which is www.yatra.com. The plus point is the fact that the customer does not get tied down to a particular airline and can redeem points across airlines and holiday packages.

The strengths of this Credit Card are as follows

(1) It is a FREE Visa Platinum Credit Card (not many Platinum cards are free in the market) and hence the customer becomes eligible for VISA platinum Offers which are decent from time to time such as PVR Movie tickets etc. Check www.visa.com for the latest offers
(2) It is not tied to any airline and unlike the other travel cards such as Jet Airways Citibank Credit Card are not linked to 1 Airline only. This gives a lot of redemption options to the customer

For the 2 strengths listed above, this Card has several drawbacks

(1) The redemption ratio is the worst in the Industry. The last time I calculated 1 Yatra Mile was 0.25 paise and you get only 1 Yatra Mile for all spends other than those done on www.yatra.com
(2) You will have to spend at least 3 times what you spend on Normal Cards to get free flights. You are better of spending on any of the regular credit cards and using the regular Reward Program to convert them to JP Miles or King Club Miles
(3) Poor Quality Customer Service both at the Contact Centre where complaint resolution and turn around times are not managed well
(4) Barclaycard has got several serious customer complaints on www.mouthshut.com and other such forums
(5) No Internet Banking Platform, so you will need to call the Barclaycard Customer Service Helpline for any details you require (which is not a very pleasant experience)

On the whole this Credit Card is nor recommended for customers as the pitfalls far outweigh the strengths. Please think several times before you apply for this card because it is very unlikely you will get any value for it. Barclaycard has the Timescard offering which is awesome, so you could try considering that.

For other useful Personal Banking tips do go to www.simplybank.blogspot.com or you can mail me at Ask.Pranav@Gmail.Com and I will try to respond to your queries at the earliest.

Consumer Offer Review: Deutsche Bank Festive Promo 2009 (SpendVantage)

Deutsche Bank has launched its Credit Card festival Promotion for the year end. The offer period is 15th September to 15th November, 2009.

The offer is open to Deutsche Bank Platinum, Mile & More and Deutsche Bank Signature Credit Card holders. The Vanilla Deutsche Bank Card Holders are not eligible for this promotion.

The construct of this offer is as follows.

• Customer needs to spend a minimum of Rs.25000 in a minimum of 5 purchases between 15th September and 15th November, 2009
• If the above condition is satisfied, the customer qualifies for a quiz to be conducted in the last week of November
• The first 1000 correct responses get Rs.4999 Cash Back

This is a VERY GOOD offer from a customer stand point due to the following reasons

• This is a 20% Cash Back on the total spend amount
• Customer needs to satisfy the spend criteria and then be alert on 20th November for the quiz
• The quiz questions will be simple and can be googled out instantly
• The main focus should be to respond to the quiz on 20th November itself and then walk home with the 20% Cash Back

This offer is much better than the maximum 10% Cash Back that Deutsche Bank launched in the Festival promotion in 2008

If you want to apply for a Deutsche Bank Credit Card you can www.deutschebank.co.in and fill up the application form. This Bank has very good customer Service and it is a pleasure banking with them.

Sunday, September 6, 2009

Myths of Online RTGS and NEFT Transfers

Common Myths about RTGS and NEFT Transfers

One of the cool things RBI has done in the last few years is introducing Online Funds Transfers which are of 2 types.

(1) RTGS: Real Time Gross Settlement which require a minimum transaction amount of Rs. 100,000 (transfer happens within 2 hours usually into the destination account)
(2) NEFT: National Electronic Funds Transfers which can be of any amount (transfers happen in 3 cycles of 10 AM, 2:00 PM and 4:00 PM or some similar time)

I am not dwelling too much on the technicalities of the process. What I want to highlight is the convenience of this process and the security aspects related to the same. The objective is to get more and more people (especially the younger crowd who are always short of time) to use this for funds transfers instead of cutting out cheques.

Security Aspects

(1) You will need to register for Internet Banking to effect RTGS and NEFT Transfers online
(2) Your Bank should have a Payee List (to whom you can make RTGS and NEFT payments) with a separate Payee Registration process.
(3) I have a Citibank Account whenever, I need to transfer Funds to a friend, I need to register him / her as a Payee and enter his Account Details. An SMS gets triggered to my Mobile which I enter on the Internet and confirm him as a Payee. It is only now, after payee confirmation that I can start transferring funds to him
(4) If your Bank does not have a Payee Registration Process with an SMS leg to it, then please do not use the Internet Banking of this bank, else if somebody hacks into it, they will be able to empty your account – and I am sure you do not want that happening
(5) Also ensure that you have an Instant SMS alert facility that whenever your Account is debited for RTGS/ NEFT or for any transaction s above a threshold, you should get an alert on the Mobile
(6) The bank should have daily limits for RTGS and NEFT Transfers

If the above criteria are met in the Internet Banking of your Bank, you can go ahead and execute Online Funds Transfers from your Bank Account

Payee Registration Process

There is one obstacle you will face in the Payee Registration process which is the entry of the IFSC Code of the destination Account. It is important to note that RBI has assigned an IFSC Code to every Bank Branch. This IFSC Code can be found in 2 ways

(1) One the Cheque Leaf: You will have to ask your friend the IFSC Code of his Bank Account which he can read on his cheque book / cheque leaf
(2) Bank and Branch Combination: Your Internet Banking may ask you to enter the Bank Name and Branch and Auto Select the IFSC Code. In this case you will have to ask your friend to specify his Branch

Common Problems faced with RTGS and NEFT Transfers

(1) Funds Transferred but not credited to the destination Account: You have no reason to worry. If the funds get returned to your account means that the data (Payee Name, Bank Name, Account Number, IFSC Code) you entered was incorrect.
(2) If the funds do not come back to your account and your friend has also not received them, all you need to do is call your bank. They will tell you if the funds are with them or have been transferred to the destination Bank
(3) If transferred to the destination bank then you can take the RBI Reference Code and pass it on to your friends. He can confirm the same to his bank and get the amount transferred to his account
(4) If the money is still with your bank, you can ask them to transfer it back to your account.
(5) These are small technical issues in the process and I will not dwell into the reasons for the same

Other than the Common problems and the security issues sighted above, this process works with 99.5% accuracy and can save you multiple trips to your Bank / ATMs to drop off cheques.

For any further clarification on Customer Related Banking Processes you can write to me at Ask.Pranav@Gmail.Com and I will revert to you as soon as possible

Dynamic PIN Pads for Internet Logins

With the advent of hacking softwares and professional hackers in India, it has become extremely important for Banks to combat Financial Fraud and more importantly Internet Banking Fraud. When Internet Banking was first launched sometime in 2000, the customer would have to enter the Internet Banking User ID and Password on his keyboard which continued for about 5 years till 2005.

Today we have hacking softwares to capture keyboard entries, so if you are entering your User ID and Password on your computer, some hacker can easily capture the letters you are entering with the help of hacking software. As a result, he knows your User ID and password and can hack into your account. When I speak to customers about this risk, they just dismiss it saying that the chances are one in a million, but you never realise the import of it until the same happens to you.

To counter this risk, banks have launched Dynamic PIN Pads where the customer does not enter his Internet Password on the keyboard but on a dynamic Keyboard with a mouse. The layout of this dynamic keyboard changes with every login, so the hacking software cannot understand the letters / numerals you are selecting and your Internet User ID and Password is protected.

I would strongly recommend that all customers who use internet banking, need to ensure that they enter their password on the Dynamic PIN Pad only and not on the keyboard. If your Bank does not offer it, then write to them and ask them to. If you are keeping significant money in your account, I am sure they will listen.

However, it is important to note that when you use the Dynamic PIN Pad the password will become easily visible to people standing behind you who are looking into your computer (a phenomena known as “shoulder surfing”) so make sure you login when you are alone, else someone could be looking at your screen and noting down your password.

If you have any further questions pertaining to Online Security do write into Ask.Pranav@Gmail.Com I will revert to your query as soon as possible.

Sunday, August 16, 2009

Product Review: Timescard Barclaycard Credit Card

This Credit Card was launched in early 2008 as an Entertainment Card. This Credit Card tends to stand out as there are not many entertainment cards in the market right now.

This card has been launched as a partnership between Barclaycard and Times of Money. The first thing you notice about this card is the Credit Card Plastic, which is very neatly designed. It is one of the best card designed in the industry today (my opinion!)

The strengths of this Credit Card are listed below.

(1) Good Offers especially the movie ticket offer at select multiplexes. This single offer of movie ticket discounts is the single largest USP of the Timescard Barclaycard
(2) Other category discounts are good but the movie / multiplex discounts is the best. You can save up Rs.1000 / month if you watch 1 movie / week
(3) Free for Life Card
(4) Rewards program at No Additional Cost
(5) Multiple Payment Options for Barclaycard, hence paying your Credit Card Bill is easy irrespective of the Bank in which you hold an account

The flipside is as follows

(1) Poor Quality Customer Service both at the Contact Centre where complaint resolution and turn around times are not managed well
(2) Barclaycard has got several serious customer complaints on www.mouthshut.com and other such forums
(3) No Internet Banking Platform, so you will need to call the Barclaycard Customer Service Helpline for any details you require (which is not a very pleasant experience)
(4) Offers are concentrated in Mumbai and Delhi and the options for other cities are limited

Amongst the cards I hold, this gives me the maximum value on the movie offer as I watch at least 1 movie a week at Bandra East Cinemax. So I land up saving Rs.1000 per month at the very least. I do not care about the pain they put me through at Customer Service as no other card gives me such a save. If you feel the same way then go for it.

For other useful Personal Banking tips do go to www.simplybank.blogspot.com or you can mail me at Ask.Pranav@Gmail.Com and I will try to respond to your queries at the earliest.

Saturday, August 15, 2009

Withdrawing Cash from Shops instead of ATMs

The Reserve Bank of India has recently made public its intent to enable customers who have a Debit Card to withdraw cash from merchant outlets / shopping outlets.

What this means for customers is the following

(1) In addition to ATMs customers can now go to merchants who have Credit / Debit Card swipe machines and withdraw money similar to the manner in which they do so in an ATM
(2) This will result in added convenience as now customers do not need to go hunting for an ATM, they can shop as well as withdraw money at the same merchant outlet itself

However the RBI has not made the fine print of execution clear and several key questions have been left unanswered, which can drastically alter the manner in which banks in India do Business

(1) Can money be withdrawn against Credit Cards or Debit Cards? If RBI permits to withdraw money against Credit Cards, then it will be tantamount to killing the Credit Cards proposition as it will be free money on Credit. My guess is that RBI will restrict the withdrawals to Credit Cards only
(2) Most Master and VISA Debit Cards when used for shopping at Merchant outlets do not require a PIN to be entered for executing the transactions. Will RBI be allowing Cash Withdrawal as well without a PIN validation? This will create a direct security validation conflict across channels and will put a question mark over PIN Based transactions as a whole
(3) Will all Debit Card Merchants be expected to participate in this scheme and what is the level of cash they need to maintain etc. and the guildelines around the same are yet to be examined

Every step taken should address a need. When RBI made withdrawal of cash from all ATMs free of cost, then there was a genuine customer need for the same, however in this case it is unclear why RBI has taken such a far reaching decision without giving due thought to the operational aspects of the same.

While the Indian consumer is fairly smart, we should not come up with convoluted banking guidelines (like the ones on Income Tax) which the customer fails to understand and use to his benefit.

While this will definitely be a customer enabling step, there are several key decisions that RBI will need to take while setting out an execution plan for the same. I am awaiting clarity in this regard before I comment further.
For any questions or queries on Personal Banking practises feel free to write to Ask.Pranav@Gmail.Com

Think before you "Go with VISA"

These days I see several commercials on TV saying “More people around the world, “Go with VISA”. While I am a proponent of the usage of Debit and Credit Cards, I advise all customers to do so with ample caution. After working in the Credit / Debit Cards industry for over 4 years now, I have seen enough Card related frauds where the customers have been cheated for a minor negligence on their part.

There are 2 types of Debit Cards which are issued by VISA as given below.

VISA Debit Cards: When you use these debit cards for shopping at merchant outlets you do not require a 4 digit Debit Card PIN to be used. Just one swipe, and the money leaves your account and your shopping has been paid for.

VISA Electron Debit Cards: When you use Visa Electron Debit Cards you will need to use the 4 Digit PIN for shopping as well as ATM Transactions, when you swipe a card at the merchant outlet, the person at the billing counter will give you a keypad on which you will enter a 4 digit PIN after which your transaction will get authorised. There is an additional security for shopping transactions

The bank you bank with, usually takes the call if the customers are to be issued VISA Debit Cards or VISA Electron Debit Cards (or Master Card Debit Cards or Maestro Debit Cards).

If your wallet has got robbed and you have 1 VISA Debit Card, 1 VISA Credit Card and 1 VISA Electron Debit Card the risk you are exposed to due to each of them are as follows.

(1) The robber can use your VISA Debit Card for shopping and any money that he spends on it is never coming back to you …… no matter what you do, as that money has already left your account
(2) The robber cannot use your VISA Electron Debit Card as there is a 4 digit PIN protecting it and hence your money in the Account is safe
(3) The robber can use your Credit Card, however you can raise a chargeback with you Credit Card company and at the end of the day refuse to pay the money back (at the risk of ruining your credit record)

So the point I am trying to highlight is that, if your bank has issued you a VISA or MasterCard Debit Card and you lose the same the risk is considerable as there is NO PIN based protection for shopping transactions, however if you have a VISA Electron Debit Card you are secure.

So please take care before going with VISA as these are the finer points VISA does not tell you about. If you are a victim of card related frauds, do write to me at Ask.Pranav@Gmail.Com after reading the articles I have posted previously on Card related frauds

Thursday, July 9, 2009

How to use Verified by VISA and Master Secure Code to prevent Credit Card Fraud (Combating Credit Card Fraud: Part 4 of 4)

This is a good Technological innovation which VISA and Master Card have come up with to combat Internet Fraud. Some banks have enrolled for this service.

Whenever a customer of these banks does an Internet Transactions, the customer needs to input his Card Number, Expiry Date and CVV, and then in addition to that he needs to enter an additional parameter which is known only to the customer (and is not present on the Credit Card) such as Internet Banking Password (Citibank) or Date of Birth (HDFC / ICICI).

Hence somebody who has seen your card will not be able to do an Internet Transaction, unless he knows these details as well, so to a great extent the banks are successful in curbing Internet Fraud. It is advisable that you call up your Bank and get registered for this facility as soon as possible and use it in the future.

For any details or clarifications on Combating Credit Card Fraud, you can contact me on Ask.Pranav@Gmail.Com

What if I am a victim of Credit Card Fraud? (Combating Credit Card Fraud: Part 3 of 4)

God forbid, if you have identified suspicious transactions on your credit card, then you need to take the following immediate steps.

Step 1: Contact the Call Centre and get your Credit Card Blocked immediately
Step 2: Make a List of all the Transactions you have not done with the Amounts and the Description which appears on your Statement. Ask the executive if it was an Internet transaction (Card Not Present) or a Physical Swipe (Card Present)

If it was a physical swipe which means someone has got hold of your physical card, then assume your money is not coming back. You need to follow the next steps in addition you need to start praying to GOD.

Step 3: Ask the Call Centre Executive where in the website is the “Transaction Dispute Form” displayed. Download this for, fill with the necessary details pertaining to fraudulent transactions and amounts and send to the Banks PO Box. Also scan and mail to the Banks Customer Service ID. It is better to write a covering letter to the bank asking for a charge-slip retrieval if these are physical card swipes. Try to find some contact somebody in the bank who can help you fast track the investigation.

Ask the Call Centre when you can contact them next for an update and keep the details of your calls / mails.

Step 4: If the Transaction was an Internet Transactions which was done without the Card being physically swiped request for a Temprory Credit (which is given for a period of 45 days) and initiate a Chargeback process. This is a process where the Bank does an investigation with the vendor and reverts back to you with a decision within 45 days. For disputes on Internet Transactions there is a good chance of being ruled in the customers favour. Keep following up with the bank regularly. For physical swipes where the Card has been stolen, the customer is at the mercy of the fraud investigations done by the Bank.

Step 5: If you have received a Temprory Credit, you do not need to make a payment for those transactions. Else please make your minimum payment due to avoid being reported to CIBIL

Step 6: In case of p0hysical swipes, you will need to accept whatever the bank rules, in the case of Internet Transactions, you can write to the Nodal Officer of the Bank or the Banking Ombudsman and escalate the complaint further if you get a satisfactory resolution. There are certain Internet Chargeback Norms defined by VISA / Mastercard Norms, you can contact me on Ask.Pranav@Gmail.com and I can help you basis how the case is progressing.

Saturday, July 4, 2009

Prevention is better than Cure (Combating Credit Card Fraud: Part 2 of 4)

If you are a proud owner of a Credit Card, there is a certain responsibility on you to ensure that you use the Credit Card securely. I have mapped some precautionary steps which can be taken for the 4 scenarios mentioned above.

Scenario 1: Card Details Compromised at Petrol Pump or Restaurant or similar vendor outlet

As soon as you receive your Credit Card, scratch out the CVV number on the reverse of the Credit Card and commit it to memory or store it on your Mobile Phone. The objective is that nobody should get hold of the Card Number and the CVV number together. Scratch it out real nice so that it is no longer visible (use a swiss knife, rather than using a pen or Pencil as the CVV number cannot be easily scratched out)

Scenario 2: Lost your Card and did not realize it, someone else took the physical card and swiped it

Always be aware that, if you are an irresponsible user of Credit Cards, you can lose money upto the Credit Limit of your Credit Card. If my Card with a Credit Limit of Rs.300,000 gets lost, I risk losing upto Rs.300,000

So if your monthly Credit Card Bill is Rs.25,000, have a Credit Card with a limit of Rs.30,000, or have 2 Credit Cards each with a Credit Limit of Rs.30,000 and keep the other one at home in a lock and safe to be used if you require additional limits. A high Credit Limit is like a Damocles Sword hanging over your head

There is a card protection insurance which is offered by some banks / credit card issuing companies, where if your card is stolen and used, the insurance company pays for the losses. The premium is usually less than 1% of your Credit Limit every month. If you have a Credit Limit of more than Rs.50,000 please sign up for this and pay that Rs.300 every month and then you do not need to worry about losing your card

But before signing up for this product, do check the details as all banks sell insurance and you need to be aware that the risk is covered. These days call centre executives who sell these products have no clue about what they are selling, so be careful. Feel free to write to me for clarifications on Ask.Pranav@Gmail.Com for clarifications if you need any

Scenario 3: Disclosing CVV Numbers on the Phone

I can only ask you not to do this. I am also planning to write to Yatra and see what they say about asking for CVV numbers on the phone. Will write a separate blog post on that. However I intend to run a campaign to highlight such merchants and write to VISA if possible

Scenario 4: Credit Card Details Compromised outside the country
Every time you travel abroad, it is advisable to get a PIN based Prepaid Debit Card rather than use a Credit Card. If you have to use a Credit Cards, then it is advisable to block the old card and get a new one issued on your return to prevent possible fraud. However these are rare occurrences and you can only blame your luck if you are trapped in a scenario like this. However, if you are travelling to some South East Asian countries, it is advisable to reissue your Credit Card on your return.

Behaviours Leading to Credit Card Fraud (Combating Credit Card Fraud: Part 1 of 4)

Majority of Credit Card Transaction Frauds in India happen due to one of the four scenarios mentioned below

(1) Careless with your Credit Card at the Petrol Pump or Restaurant ….. someone noted down your 16 digit Credit Card Number, Credit Card Expiry Date and 3 digit CVV Number appearing on the reverse of your Card. This data is enough for an Internet Transaction
(2) You have lost your Card. Your wallet got flicked or you missed taking it back from the waiter at the restaurant. In some cases I have seen people leave it in the ATM itself after withdrawing cash
(3) You frequently book tickets at call centers like www.yatra.com or similar vendors who ask for your CVV numbers over the phone (I beg you to bear in mind that … the CVV number is not to be shared with anyone and you are better off scratching it off from the reverse of your Credit Card and writing it down somewhere else or storing it in your Mobile Phone against some unsuspicious name. I do that J
(4) You traveled abroad (especially countries like Malaysia or Thailand), visited night clubs or some shady joints where your Credit Card Magnetic Strip details were intercepted and the well networked fraudsters generated a duplicate card and used the same

If you are experiencing Scenario (2) do note that you are a forgetful person and please ensure that you do not use Credit Cards the rest of your life ….. or a more practical suggestion would be to reduce the Credit Card Limit to an amount which you can afford to lose. If you set your Credit Card limit to Rs.20,000 you can lose a maximum of Rs.20,000 if you lose your Card
If you are experiencing Scenario (3), please be aware and make everyone around you aware that the 3 digit CVV number is not to be shared with anyone. You may punch it on the phone to authenticate the transaction, but please do not voice it out. You are digging your own grave by doing so.

I cannot blame you if you faced Scenario (1) and Scenario (4). But there are ways in which you can prevent the same. Do read on in the next article of this series.

Grappling with Credit Card Fraud?

Majority of the mails I receive on Ask.Pranav@Gmail.Com pertain to customers cribbing about Credit Card Frauds. This seems to be the most common problems Credit Card customers face, so I am doing a detailed, easy to understand write-up on this topic.

Having worked in 3 different banks, I feel pained at the hysteria with which customers call the Call Centre for erroneous transactions on their Credit Cards which they have not done, and the call centre executives are as clueless about how these customers can be helped (they do not have adequate training and are usually unaware of the complex chargeback processes defines by VISA / Mastercard), hence I dedicate this series of articles on combating Credit Card fraud to all those people who lose sleep over transactions on their credit card which they did not do.

For those who have not been through this situation, please realize that you may experience this anytime, even as you read this article, so please take the necessary precautions mentioned below. Feel free to forward this content to every Credit Card User you know, as I am sure it will be of help.

Monday, May 11, 2009

Why Retail Overdraft Accounts are better than Personal Loans?

I am sure all of you are aware of Fixed Deposits where you pledge your money to a bank for a fixed amount of time and earn a rate of interest on the same. Most Middle class Indian families have some amount locked in fixed deposits. However, very few people are aware that these deposits can help them get liquidity on a later date at an affordable rate of Interest.
I have 2 lakhs locked in a fixed deposit which fetches me 9% p.a. Now I need some cash to buy a Car for example a TATA Nano which costs in the range of Rs.125,000 to Rs.130,000. Most people would prefer to take a vehicle loan which will cost anywhere between 14% p.a. to 16% p.a.
A better option would be to go to the bank where you hold the fixed deposit and ask them for an Overdraft against the Fixed Deposits of 2 lakhs. Most Banks (especially the Indian Banks) sanction an OD Limit of upto 90% of your Fixed Deposit Amount, at an Interest Rate which is 1% to 2% more than your Fixed Deposit Interest Rate. So I would be eligible for a Loan of Rs.180,000 at 10% p.a. The best part about this product is that the Interest is charged on a daily average balance method and I pay interest only for the days on which I borrow the money.
This has the following benefits.
1. In a Personal Loan, I predecide the tenor to be 12 months or 24 months and as a result, the interest gets calculated upfront and gets baked into the calculation. The pre-closure charges are heavy and there may be an hefty pre-closure fee as well
2. In the Overdraft, I write out a cheque of Rs.125,000 for my Nano car. After a month I get my salary of Rs.50,000 (or any cashflow) which I can temporarily park in this account. When the Interest is calculated for the month, I save interest to the extent of this amount.
3. In the overdraft you effectively get charged an interest rate of 1% or 2% only, as you continue earning money on your Fixed Deposits and do not need to break the same.
Due to some technical reasons, I am unable to post an Excel Model to show how much Interest you save, however feel free to write to me at the address mentioned below and I will mail the same to you. For any queries on Overdraft accounts or any questions you have in the personal finance domain, do feel free to write into Ask.Pranav@Gmail.Com. I will revert to your query within 48 hours.

Thursday, May 7, 2009

How Credit Card Balance Transfers are Useful?

Balance Transfer is a feature offered on a Credit Card where you can transfer the Balance of one Credit card to another at a lower Rate of Interest. To explain Balance Transfers further, I will need to delve a bit deeper into the concept of Interest Charging on Credit cards.

When you spend on your Credit card you get between 20 to 50 days of an interest Free Period after which you are expected to repay the entire amount. Alternatively, you can choose to pay back only 5% of the balance and pay interest of ~45% per year on the remaining balance. This is a frightful amount of interest you need to pay as compared to conventional products such as Personal Loans etc.

However with the increased competition in Credit Card issuers and their desire to get more customers to use their Cards they have introduced the concept of Balance Transfers which I will explain with the help of an example.

I have an ICICI Credit Card with a limit of Rs.1,00,000 and I have used it to pay Rs.75,000 for my Holiday in Spain. My payment is due on 25th May. I have also been issued a fresh new Yatra Barclaycard Platinum (which I got without doing much when I booked a ticket on Yatra) with a Credit Limit of Rs.150,000. I just call up the Barclaycard Customer Service helpline and ask them to do a Balance Transfer of Rs.75,000 to my ICICI Bank Credit Card. They issue me a cheque favoring the ICICI Bank Credit Card which I drop in the drop box to make my ICICI Bank Payment.

Bingo …. My Credit card debt has seamlessly moved from ICICI to Barclays where I can enjoy a larger Interest Free period. Most banks offer an Interest Free period of 90 days after doing a balance Transfer. So now till mid September I have a Credit Free period on by Barclaycard. However, I will need to pay 5% Minimum Amount every month.
The obvious question is … why do banks promote this product when they do not make any money on the same. This is because they want customers to activate their credit card and get into the habit of paying and hope that within 3 months they will start doing other transactions on the Card as well, now they have gotten into the habit of paying bills on the new card issued to them.

When you opt for Balance Transfers – please look out for the following.
1.There is a processing fee which is charged between 1% and 3% with Service Tax
2.If you do any other transactions on the new card you will pay interest on the same from Day 1. This means that you cannot use the Card with the balance Transfer for anything else
3.Some banks do not give a 0% Interest Balance Transfer, but rather go for a 0.99% or 1.49%, so please check before availing of the same

I do not recommend Balance Transfers (or any other form of Credit Card Debt) at all, however I must admit that they have helped me overcome a temporary liquidity crises. Whenever you need any amount and do not have the liquidity, but are capable of paying the same within three to six months, then do not go for a personal Loan, a Balance Transfer will be much better as you will not pay any interest except for a 1%processing fee.

Feel free to write to me for any further clarifications that you may require on balance Transfers as a product. My E-mail ID is Ask.Pranav@Gmail.com and I will revert to your query in 48 hours.

Thursday, April 9, 2009

What is CIBIL (Credit Bureau) and why is it so important today?

Most customers in India, who have Credit Cards and Personal Loans are unaware of the existence of CIBIL (Credit Information Bureau (India) Ltd.) which will definitely play a very important role in their financial planning in future.
Take for example case of Mr.Tomar who dropped his Credit Card Cheque on the Payment Due Date in the Skypak Dropbox. However, for some reason the payment got updated against his Credit Card a day late and he got levied a hefty late Payment Fee of Rs.300 in addition to service tax. Not someone to be taken for a ride he called the bank and registered a complaint for reversal.
Most Credit Card Issuers get several such reversals every month amounting to Crores of rupees. Based on some internal thumb rules, they reverse out some charges and decline other reversals. (I would like to highlight the policy adopted by HDFC and Deutsche Bank where they give the customer the benefit of doubt and confirm the reversal on the call itself – the first complaint on reversals is always resolved in the customers favour) Very often it is very difficult for the bank to judge if the customer is telling the truth or there has been some inefficiency at the cheque pickup agency. Mr.Tomars request was declined and he did not get the reversal. His next recourse was to write to the Head Service department in the bank and after 30 days write to the Banking Ombudsman. I completely agree with him.
However what Mr.Tomar does not realize is that in the intervening period his other statement has already got generated and as his complaint has not got resolved he has not paid the Rs.300 late payment Charge he has been levied. As a result in the following month he gets reported to CIBIL as a defaulter who has not paid his Credit Card Minimum Amount Due. Two more statements get generated and now the amount with Interest and service tax has inflated to Rs.600. He has been reported to CIBIL thrice for not paying his Minimum Due – the impact of which is as follows.
Next time Mr. Tomar applies for a Credit Card or a Personal Loan which he desperately requires, the changes of it getting declined are extremely high.
Why does this happen?
1. Every bank before giving you a Credit Card or Loan will check your CIBIL Record
2. The CBIL Record gives the performance of the current Cards and Loans that you hold
3. The following can ruin your CBIL record completely
a. Not paying your EMI / Credit card Minimum Due every month
b. Not paying the dues for a longer period of time
4. Every time you do not Pay your Credit Card or Personal Loan outstanding the CIBIL score dips further and the amount of outstanding and the number of days outstanding is visible to other banks as well
In the current scenario banks will think a million times before giving credit to a customer who has a bad record on CIBIL. If you have a bad record on 2 or more relationships or have not paid your Credit Card Outstanding for 6 months (write-off case) then please forget about it. This will definitely impact you as more and more banks start using CIBIL, which eventually may be used for Pre Employment checks, Utility Payment checks as well. The day when the interest rate given to you depends on your CIBIL score is also not very far away.
Please keep the following in mind!
1. Whatever happens, try to be regular with your payments
2. If you have a dispute on the Credit Cards, you can take up the issue, but please continue to pay your Minimum Amount Due every month. You can ask for the subsequent reversal later.
3. Head Service Departments as well Banking Ombudsman are useful authorities and my experience with them has been great, they do take fair decisions – so pursue your case with them while you continue to make the Minimum Payments to keep your Records from going to CIBIL
4. It is not worthwhile ruining your CIBIL record for a few hundred rupees of Late Payment Fee. Do realize that the bank does not care about the consequences of passing your records to CIBIL – it is only a file upload for them. You should definitely fight your case – but do not hurt yourself.
I think my details have already been reported in CIBIL. What do I do?
You can be reported to CIBIL because of 3 reasons
1. You have not paid your dues – You definitely need to be reported. Once you pay your dues over a period of 24 months your score will improve provided you start making regular payments again.
2. Erroneous updation by bank – Due to an error at the banks end due to inefficiencies in their Cheque Pickup agencies etc. they may not receive the payments in time and they incorrectly report your details to CIBIL, then they initiate the process to delete the name from CIBIL or sometimes the customer finds out when the application gets declined and needs to rush bank to the bank to get the record rectified
3. If you are currently in a dispute with the bank (especially payment not received etc) – I would suggest you settle it quickly and as a pre condition as for settlement, ask the bank to delete the reporting they have done to CIBIL.
Remember that your CIBIL score will improve over time once you start making regular payments. So do not worry, if your record is bad and CIBIL score is low, just continue making your Loan and Credit Card payments on time and it will pickup.
Personally, the biggest problem I have with the CIBIL system is that Customers cannot view this data and point out any incorrect reporting. Due to deficiencies and inefficiencies in bank there are several incorrect uploads on CIBIL and these uploads affect the customer’s Credit Record in a big way. There is no way the customers can get to know of these goof ups and rectify the same. They will get a rude shock one day when they go to seek Credit. This is a broader consumer battle that we will need to fight.
For any further questions on CIBIL do write into ask.pranav@gmail.com
Also do visit my Personal Finance Blogsite http://www.simplybank.blogspot.com/ for useful information in the Personal Finance space.

Product Review: Jet Airways Citibank Platinum Credit Card

The Jet Airways Citibank Platinum Credit Card is one of the better Travel Credit cards in the country.
Things You Must Know
1. The Jet Airways Citibank Platinum Credit Card has an annual fee of Rs.3000 and is targeted to a specific profile of customers who should ideally satisfy the following criteria
a. Spend at least Rs.20,000 on the Credit Card
b. Like to travel by Jet Airway and would usually want to travel at least once a year on a ticket redeemed through air-miles
c. Are Ok with not having Reward Points as all the Reward Points get auto converted to JP Miles
2. If you like cashback, redemptions against fuel vouchers etc. and other flexible options for rewards, then please stay away from the Jet Airways Citibank Platinum Credit Card
Differentiating Features
The following are the great features about the Jet Airways Citibank Platinum Credit Card
1. For every Rs.100 spent on this card you get 4 JP Miles. Each worth approx 40 paise* when you go to redeem them. This is the highest ratio in the Credit Card Industry today
2. You get an Upgrade voucher for every 8000 miles you accumulate, which entitles you to Business Class travel on next domestic trip. You also get Upgrade Vouchers on renewal. The strategy is to accumulate Upgrade Vouchers and use them for the next international trips and Business Class on Jet Airways International Flights is a once in a lifetime experience
3. Now that master Card has withdrawn the lounge access program, this is the only card which entitles you to lounge access on domestic airports
4. For ant transaction using this card on http://www.jetairways.com/ you get 8 JP Miles for every Rs.100 spent which is a great deal in helping in accumulate more miles
5. Both Citibank and Jet Airways have great Internet & Phone Platforms and my experience with them has been good.
However after Citibank slapped Charges on several innocent customer’s way back in 2004 for Insurance & Account Maintenance, no matter how hard they may try to behave differently today, I always scan my statement for erroneous charges that may have been levied. This ghost should and will haunt them for a very long time.
*One way journey to Chennai is approx 10000 JP Miles. A one way Chennai ticket will cost me Rs.4000 so the value of each JP Mile is 40 paise

Saturday, April 4, 2009

Now withdraw Cash for FREE from any ATM!!

All ATM Card Holders please note ........
All ATM Card Users can now withdraw cash from any bank ATM for FREE irespective of the number of transactions and the withdrawal amount. The previously levied fee (usually Rs.20 plus tax) has been waived based in a circular issues by RBI and all banks are to have complied with it by 1st April, 2009.
This is a boon to customers as I experienced yesterday, when I could withdraw money free of transaction carges on my Citibank ATM Card at a Bank of Centurion Bank ATM outside my gate and not have to Drive to the Citibank BKC ATM which is a 5 min drive away. For most of the banked population (except the high net woth guys) the Rs.20 charge for ATM withdrawal does make a difference and customers are unwilling to pay it to access the other banks ATM.
Through this circular, RBI has made life easy for many customers and rubbed the banks the wrong way. While for the customer it is immense convinience, for bank it is an incremental cost anywhere between 30 lakhs to 1 Crore per month depending of the Number of customers and Geographical spread ofthe ATM Network.
Customers should note that very time they use another bank ATM, for e.g. if I withdraw money from the Centurion Bank TM with a Citibank Card, Ciitibank will still have to pay Centurion Bank Rs.20 or so fo the transaction, but Citibank will not be able to pass on that charge to me. Hence no bank will promote this service in a big way - because it directly impacts their bottom lines. However what they will be missing is that this can be converted into an effective acquisition strtegy. Several people preferred ICICI / HDFC over the foreign ones, because of the ATM Coverage (especially my friends in FMCG Sales Profiles, who would love to bank with Citibank / HSBC because of their powerful Internet / Phone Banking platforms). These foreign banks can now turn this RBI Madate on the head and make the most of it and publicise it well ... but it is unlikely to happen as in my opinion they will definitely prefer avoiding a tangible lost rather than invest it in an intangible gain.
However, I would like to salute this move of RBI, who would have taken this decision keeping only the customer in mind even though each and every bank would have opposed this move ..... the good part of it being, it will force the banks to reconsider their ATM strategy and if possible outsource it to a centralised vendor who will manage it across banks ...... which I eventually see resulting in a more efficient ATM banking system in India.