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FDIC Banking Review

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.



    Last Updated 11/17/2005 Questions, Suggestions & Requests