Loans, credit, insurance & investment

When the entire transaction is carried out electronically the following takes place and the entire transaction normally takes between one and two seconds to complete.
The cardholder requests to pay by credit card, presents their card which is read by the merchant’s card reader and details of the card plus requested purchase amount are transmitted to the merchant’s processing bank. The merchant’s processing bank then sends a request, routed through the credit card operator’s network, to the cardholder’s issuer bank. This network may be a global network for cross-border transactions or one that is completely national. There will be occasions, particularly for the biggest banks in a country, when the merchant’s bank and the cardholder’s issuer bank are the same. Provided the issuer bank’s systems are in operation and a network communication established, the card’s details are verified and the issuer bank determines whether to authorize or reject the payment request. This involves checking the value of the transaction against the cardholder’s available credit and carrying out a number of security checks intended to detect any fraud attempt. The request is then either approved or rejected. The response is then transmitted back to the merchant’s bank, together with an authorization code if approval is granted. If for some reason the issuer bank’s systems are inaccessible arrangements may have been made with the network operator to authorize approval of transactions up to some specified level. The network operator will then act on behalf of the issuer. The merchant then receives the authorization response or rejection. The cardholder signs and given a paper copy of the transaction details. The transaction is then completed.
If a merchant does not have a card reader or the equipment to send the request for authorization electronically they normally have to seek authorization by making a telephone call to their processing bank. The resulting sales drafts are the only record of the transaction having taken place and the merchant bank arranges for these to be collected, or they are delivered to the bank’s processing center, at the end of each day.

The basic rationale for this segmentation is based on issuers’ knowledge that the demands of customers in the mass-market and mass-affluent (premium) segments are different:
Mass-market.Mass-market customers are generally price sensitive in terms of annual fees but relatively ignorant about the real level of interest being charged on their rollover balances. Rollover rates on mass-market cards are usually high while transaction values, otherwise referred to as billings, are relatively low. Mass-affluent. Mass-affluent customers are less price sensitive to annual fees than mass- market customers and more concerned about the status attached to a particular card and the level of credit limit granted. The latter is important, as the costs associated with international travel in particular can be very substantial. Anyone who has experienced having their card rejected when presented as a payment means knows how embarrassing this is, and how dangerous this can be if this happens in a country that is thousands of miles from their home. Issuers require holder of various cards to have a certain minimum income level. Someone paying with a gold credit card is indirectly making a statement about her income level.
Billings on mass-affluent cards are generally high, particularly for people using cards to pay for business trips. Rollover rates are generally much lower than on mass-market cards, however, with many holders using them primarily as charge cards and paying off the full outstanding balance each month.
By segmenting the market credit card issuers seek to extract the maximum profit possible from each segment.