Increased Security by Using Credit Cards with Online Payments
Indians have a tendency to be suspicious and wary, especially when it comes to online shopping and entering their credit card details to purchase goods or service over the internet. Being suspicious can be a good and bad thing, that is to say being careful when making a purchase on line is a good thing but one shouldn’t let a healthy level of suspicion turn into outright fear which prevents you from going about your business online, because you are too afraid you might become a victim of fraud or theft. Using your credit card online gives you the same rights as discussed in my previous post on the benefits of using a credit card as you would receive were you making a physical purchase. If there is fraud or you do not receive the goods or services you purchased the card company will have to chargeback to your account. For you as a consumer, you get the same benefits with the same minimal risk when you use a credit card online as you do when you use it in a store.
In India, credit card issuers make a provision in their contract with the client that they, the company, would not be liable for the fraudulent transaction unless the client loses their card and reports the loss immediately. Sometimes the banks and credit card companies try to avoid liability by inserting a clause in the relevant contract. This is purported to absolve the company in case a fraud occurs on the stolen card and the client fails to notify the loss in time. This unilateral provision however has not stood the test of legal scrutiny. The courts have placed the burden of loss squarely on the issuers.
Basic rules that you should follow when using your card online.
Whenever possible use your own computer or one that you are in control of. If you are going to use a shared computer like at home for example, then you should be aware of whom the other users are.
The vast majority of time spent on the internet in India though is done through internet cafes, and though most merchants have good security mechanisms in place and legally credit card companies must indemnify you against fraud, using your credit card on a computer in an internet café is a complete faux pas. You don’t know how the network is configured who has access to it, what they are looking at and whether malware has been installed on the computer you are using specifically to defraud you. Never do this, it is unsafe.
If you are using a shared computer though and you have or wish to engage in online shopping, then you should take some basic precautions.
- Delete your history and clear your cache. If you are using internet explorer you can do this by using the tools menu, select internet options, and click on the delete cookies and delete temporary internet files buttons.
- If you want to go a step further, clear the history as well, though that may cause problems between you and the owner of the computer.
- For Firefox it’s a little simpler, use the tools menu and select the clear private data option and it’s done in one step.
Shopping Online Security - A Brief History
The World Wide Web started back in 1990, and by 1994 the first shops started to appear on the internet, back then, less than a million people had access to the web and there was latent psychological mistrust amongst the online community and few people engaged in online shopping.
To counter this banks or card issuers, and merchants have had to implement sophisticated security systems in order to attract shoppers. Encryption technology for secure transmission of credit card information over the Internet and the standards and business relationships with credit card companies and banks are now in place that makes it all work smoothly. 15 years on and over a billion and half internet users later, the technology is well established now and there really is nothing to fear.
In the event your account does get hacked, and someone misuses your card there is legal recourse even if the banks fail to explicitly guarantee this. Remember though that contracts are one sided in this country and you will have to take legal action if the bank fails to chargeback in the event of fraud. In India, credit card fraud is mostly limited to the physical space anyway. Online con jobs make up just about 1% of the total numbers here, unlike 40% in the developed world. But, as consumers graduate to the shop-easy internet and pay with their cards, instances of fraud are bound to rise.
Whilst statistics are not available, as access to the web increases, reported cases of card fraud are estimated to rise at 20-30 % every year. So whilst being afraid is excessive, there is nothing wrong with a healthy dose of caution and most importantly common sense, in fact life is a lot more better for it.
>> Compare India’s best Credit Card Deals here
Clear Trip Offer Travel Insurance to Customers
Following on from my last post, one of India’s best known travel portals cleartrip.com has begun to offer travel insurance for domestic air tickets through Tata AIG, and it’s as simple as ticking a box when you purchase your domestic airline tickets. For the cost of Rs. 129 per round trip, you are covered for the following events :
- Flight Delays
- Medical Expenses whilst traveling
- Lost Baggage
- Flight cancellations, due to sickness, injury or death.
The policy is valid for the duration of the round trip or 30 days from date of booking, and cover ranges from Rs 1,500 to Rs 7,50,000
>> Compare India’s best Insurance deals
>> Click here to book a flight online with Cleartrip.com
Understanding Credit Card Interest Rates
The reason credit card interest is higher than other forms of borrowing is simple, it is unsecured, unlike a mortgage for example, banks have no security when they lend you money, if you default, it can be difficult for them to recover the outstanding loan amount particularly if you have no assets to speak of. For that reason the interest rate they charge you for this kind of lending is going to be substantial and you should be aware of a few things before you opt to undertake this form of borrowing.
Unsolicited Credit Cards
First of all if you are the recipient of an unsolicited card, that is to say you have not explicitly agreed be issued with one and the card is activated, you should return the card immediately. The Reserve Bank of India (RBI), India’s central bank, has issued guidelines which effectively ban this practice. Unsolicited cards should be returned to the issuing bank, any charges incurred for activating of the card, annual fee’s etc, must be automatically reversed and the bank is obliged to pay you the consumer a penalty of twice the charges incurred (whether that extends to purchase made using an unsolicited card I am unsure as of now, the guidelines do not mention this specifically and are ambiguous on this point). The RBI has asked credit card issuers not to levy excessive charges and to prescribe ceiling rates, including processing charges. The central bank has also said that banks will have to bare any losses arising out of unsolicited cards that they issue.
Credit Card Interest Rates
Now assuming you have signed up and agreed to be issued with a credit card in India, do not be misled by benign monthly rates of interest. Lenders like everybody else like to put their best face forward, and show you monthly rates of interest that seem quite low to begin with first, ranging anywhere from between 1.5% to 3.5% per month. Don’t be fooled by this, on the face of it, looks like a good deal, but due to the power of compounding your annual rates of interest, in India they range anywhere from 36 to 49 % for the average borrower compared to 10-18% for the average borrower in the UK and US. The rates being quoted here are for the average, some individuals in America with poor credit histories can end up paying exceptionally high rates.
Annual Percentage Rate (APR)
A much better measure of what your rate of interest works out to is the Annual Percentage Rate (APR) banks are obliged to quote what their monthly rates of interest work out to on an annual basis and the APR gives you an indication of what this will be. APR still does not provide a completely accurate estimate of the actual interest you would end up paying on a stable balance over one year, that is actually termed Effective Annual Rate (EAR). To arrive at that requires a mathematical calculation using formula which is beyond the scope of this discussion. APR provides a reasonable estimate with which to compare credit cards and is a useful proxy for trying to work out what your interest payments amount to over a year. Stick with that to begin with and according to RBI guidelines all banks are required to quote it. If you don’t know what it is for your card ASK, and be mindful that banks vary interest rates over time to reflect credit conditions in the market place.
Interest Rates on Cash Advances and Purchases
The other thing you should be aware of is banks will offer two rates of interests one for cash advances that you take using the card and the other for purchases made, so if you plan to use your card to finance some activity which is not a retail purchase, then you will be charged in all likelihood a higher rate of interest.
How do Banks Calculate the Balance they Charge Interest On?
Well that can be a difficult one to answer because there are a few methods. However most issuers charge interest based on the average daily balance, which is calculated by adding each month’s daily balance and dividing that number by the number of days in the month.
This is all fairly basic information, but as Indians we aren’t used to looking at the fine print when we seek out credit financing. Most of the time we are concerned with the amount of credit that is available to us, rather than its cost, and that is the reason for the high default rate in this country and why our rates of interest are so much higher then the developed world. A little education will save everyone a lot of time and a lot trouble. Know your interest rate, know your rights, and enjoy your life.
>> Compare India’s best Credit Card Deals here
Benefits of Using a Credit Card in India
It is important to understand when you are issued a credit card and then you go and spend on it, that the rate of interest you are going to be charged can some times be extortionate if you do not pay your outstanding balance off within the period specified by the bank as being interest free, especially in a country like India where interest rates appear to be far higher than in the developed world. Understanding the interest rate and when it kicks in is therefore critical to your spending and saving decisions. That being said credit cards do have their advantages.
Credit Card Interest FREE Periods
Making purchases using a credit card is often a good idea because banks typically give you an interest free period to pay off the outstanding amount. In India, the interest free period can range anywhere from 30 to 50 days depending on who the card issuer is and how much they value your custom. Interest free loan periods are something you should look at when comparing the various credit cards on offer to see which is most suitable for you aside from reward programs and cost of borrowing. It’s essentially free use of someone else’s money after all; you may as well get the most that is available to you.
Consumer Protection when Paying with a Credit Card
The other benefit of using a credit card other than obvious one of deferring your payment is there is some degree of consumer protection on offer. Recently we have seen the advent of US$100 plus per barrel cost of oil. Many airlines have had to close down operations and their passengers have been left holding the bag because they purchased their tickets using cash and have effectively become creditors to a bankrupt company. Under consumer protection rules set by Visa and MasterCard themselves, the cardholder has every right to demand the payment (refund) from their card issuer (bank) if the merchant does not render service for which they have collected advance payments. This is called a chargeback in the credit card industry and all Visa/MasterCard cardholders can chargeback citing “Service Not Rendered” and is very useful in the challenging economic environment that we live in, which even the largest corporations do not seem to be immune to.
If you pay off your credit card balance every month in a timely fashion, then using your card for day to day activities provides a useful way to monitor your outgoing expenses, because you are sent a detailed statement every month itemising your expenditure, its effectively free record keeping for you by the bank subsidised by those that are actually paying interest on their outstanding balance. Some cards offer insurance, so if your purchase is stolen within a specified period of time you are covered. If you check with your issuing bank you may even find that you are automatically issued with travel insurance when you buy airline tickets. In India this is not the case when you purchase domestic flight tickets, you will have to check with your individual vendor or issuing bank if indeed you receive it when you book international flights.
There are many other benefits that come from using credit cards, which we will save for further discussions. Obviously the elephant in the room is the various reward programs on offer, and that will require a discussion of its own. Suffice to say responsible use of your card can make your life significantly easier and has its cost advantages.