Nano booking to start in April

Mumbai: The maker of Jaguar and Land Rover luxury vehicles, Tata Motors Ltd, will start accepting bookings for the Nano, the world’s cheapest car, in the second week of April.

Limited stocks: Tata Motors unveiled the Nano last year aiming to sell it at Rs1 lakh, almost half the price of the country’s next cheapest model. Ramesh Pathania / Mint

The auto maker will display the Nano at dealerships from the first week of April, Tata Motors said in a statement on Thursday. The Mumbai-based company will elaborate on thebooking process on 23 March.

Tata Motors unveiled the Nano last year aiming to sell the car at Rs100,000, almost half the price of the next-cheapest model in the country.

Chairman Ratan Tata’s plan to begin sales of Nano from the last quarter of 2008 got delayed as the company had to relocate its factory because of protests by farmers about acquisition of agricultural land.

“We expect only limited quantities to be produced now—maybe about 3,000 a month—so the waiting period could be long,” said Surjit Arora, autos analyst at Prabhudas Lilladher Pvt. Ltd.

Tata Motors’ new Nano plant in Gujarat is not expected to be ready until the year-end. The company has said it would make the first Nanos at one of its two existing plants in Pune, about 170km north of Mumbai, and at Pantnagar in Uttarakhand.

The company, also India’s largest maker of trucks and buses, will sell the Nano in Europe for €5,000 (Rs3,20,000), Bild said, citing an interview with Tata. The car maker will present the European version of the Nano next month at the Geneva car show, the newspaper said.

Tata Motors gained 7.26% to close at Rs150 on the Bombay Stock Exchange. The shares have declined 10% this year, extending last year’s 78% slump.

Inflation at 14-month low, price rise slows to 3.36%

New Delhi: India’s inflation fell to a 14-month low in mid-February as cheaper fuels fed into a slowing economy. The Wholesale Price Index, the most widely watched inflation measure, rose 3.36 % in the 12 months to 14 February, lower than the previous week’s 3.92% but slightly above a forecast of 3.31% in a ‘Reuters’ poll.

It was the lowest reading since 24 November 2007 when inflation stood at 3.11%. It was 5.66% a year ago. “Fiscal year 2008-09 is likely to end with inflation at 1% or below,” said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai. “I see very aggressive monetary action by the RBI (Reserve Bank of India), with the major part of the cuts coming in the next four months,” Hajra said.

GDP growth dips to 5.3% in third quarter

The economy grew 5.3% in the December quarter from a year earlier, below forecasts of 6.2% and the previous quarter’s 7.6% as the global economic crisis cut demand and exports

New Delhi: India’s economy grew at its slowest annual pace in almost six years in the December quarter, throwing into doubt growth estimates for the full fiscal year and raising expectations the Reserve Bank of India (RBI) would soon cut rates.

The slower-than-expected growth in Asia’s third-largest economy saw a weak sharemarket extend losses to more than 2%, and analysts said the RBI could cut rates as early as Saturday.

The economy grew 5.3% in the December quarter from a year earlier, below forecasts of 6.2% and the previous quarter’s 7.6% as the global economic crisis cut demand and exports.

It was the slowest growth since the March quarter of 2003.

“We have been calling for significant rate cuts for a long time. We are looking for a 100 basis points cut as soon as probably tomorrow in the repo rate and reverse repo rate,” said Sailesh Jha, senior regional economist at Barclays Capital.

“After seeing this number, I think the market is now pricing in a 100 basis points cut.”

The central bank cut its main lending rate, the repo rate, by 350 basis points to 5.5% in four moves between 20 October and 2 January, but held rates steady at a review in late January, saying banks were yet to pass on its rate cuts.

The rupee, which hit a record low of 50.78 in morning trade, was supported by buying from state-run banks, which traders said was likely to have been on behalf of the central bank.

LOSING ALTITUDE

India’s economy has lost altitude from growth rates of 9% or higher in the past three fiscal years, and economists said the government’s forecast of 7.1% growth in the 2008-09 fiscal year ending 31 March was now too optimistic.

The manufacturing sector fell 0.2% in the October-December quarter from a year earlier, while the farm sector contracted an annual 2.2%.

Analysts were surprised by the contraction in farm sector growth, with some expecting the numbers would eventually be revised up, but said the overall picture remained grim.

“Whatever the government is doing is not going to be very effective as large-scale demand stimulus world over has not proved to be effective in restoring business confidence,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

“Eventually interest rates are going to come down but the Q1 and Q2 of fiscal year 2009-10 are going to be very challenging for India.”

Now STD at 50 paise for calling anywhere in India

Ahead of the Lok Sabha elections, BSNL will launch the ‘India Golden 50’ scheme to take Indian mobile telephony into the sub-one rupee tariff structure. The scheme, for mobile phone users, would see STD or long distance call rates drop to 50 paise a minute.

Launching BSNL’s 3G services through video-conferencing from his hospital bed, Tamil Nadu chief minister M Karunanidhi also rolled out the ‘India Golden 50’ scheme. The scheme will be launched for pre-paid mobile services on March 1.

Charges for ‘India Golden 50’ will be Rs 375 plus applicable taxes with free talk value of Rs 50. In addition, customers can make local and STD calls to selected BSNL numbers at the rate of 20 paise and 30 paise per minute respectively. Each SMS will be charged at 50 paise.

BSNL has also tweaked its landline plans. The hitherto 60-second pulse for a call has been doubled to 120 seconds. This effectively allows the caller to speak twice the time at the same tariff.

RCom introduces long-validity STD pack for Reliance CDMA users

Reliance Communications on Thursday introduced a all-India long-validity pack for users of Reliance CDMA, which will bring down STD calling tariff by up to 30 paise per minute or even low. Reliance has always kept the interest of those CDMA subscribers, who need regular calling to other Reliance CDMA subscribers," Reliance Comm Regional Head (Uttar Pradesh and Uttarakhand) Saleem Haq said while introducing the offer.

On Rs 2,222 recharge, 500 minutes of free STD/local talktime per month for 12 month would be offered, while Rs 4,444 recharge pack gives 500 minutes of free STD/local talktime per month for lifetime.

The long-validity all-India Reliance CDMA to Reliance CDMA calling packs are encouraged to increase STD usage from this segment -- which brings down Reliance to Reliance effective calling tariff to 30 paise per minute or even lower, Haq said.

"This is in addition to already introduced STD calling products STVs for the benefit of those who repeatedly recharge with STD STVs every month," Haq said, adding these packs are available till March 31, 2009.

Short message service

hort Message Service (SMS) is a communication service standardised in the GSM mobile communication system, using standardised communications protocols allowing the interchange of short text messages between mobile telephone devices. SMS text messaging is the most widely used data application on the planet, with 2.4 billion active users, or 74% of all mobile phone subscribers sending and receiving text messages on their phones.^{[citation needed]} The SMS technology has facilitated the development and growth of text messaging. The connection between the phenomenon of text messaging and the underlying technology is so great that in parts of the world the term "SMS" is used as a synonym for a text message or the act of sending a text message, even when a different protocol is being used.

SMS as used on modern handsets was originally defined as part of the GSM series of standards in 1985^[1] as a means of sending messages of up to 160 characters (including spaces), to and from GSM mobile handsets.^[2] Since then, support for the service has expanded to include alternative mobile standards such as ANSI CDMA networks and Digital AMPS, as well as satellite and landline networks.^{[citation needed]} Most SMS messages are mobile-to-mobile text messages, though the standard supports other types of broadcast messaging as well.

SMS as part of GSM

The idea of adding text messaging to the services of mobile users was latent in many communities of mobile communication services at the beginning of the 1980s. The first action plan of the CEPT Group GSM approved in December 1982 requested "The services and facilities offered in the public switched telephone networks and public data networks ...should be available in the mobile system".^[3] This target includes the exchange of text messages either directly between mobile stations or the transmission via Message Handling Systems widely in use since the beginning of the 1980s.^[4]

The innovation in SMS is indicated by the word Short in Short Message Service. But why should the message length be limited to 160 characters in a situation where a service with an unlimited message length was available (e.g. a service using a Message Handling System)? The GSM system is optimised for telephony, since this was identified as its main application. The key idea for SMS was to use this telephony-optimised system and to transport messages on the signalling paths needed to control the telephony traffic during time periods when no signalling traffic existed. In this way unused resources in the system could be used to transport messages without additional cost. But it was necessary to limit the length of the messages to 128 bytes (later improved to 160 characters), so that the messages could fit into the existing signalling formats. Therefore the service was named “Short Message Service”.

This concept allowed implementing the SMS in every mobile station just by an additional software routine without incremental cost per unit. Also the implementation in the networks required just software without incremental cost. The only new network element was a specialised Short Message Service Centre for a whole countrywide network. It needed capacity expansions of course with growing SMS traffic. This concept was instrumental for the implementation of SMS in every mobile station ever produced and in every network from early days on. Hence a large base of SMS capable terminals and networks existed when the users began to utilise the SMS.^[5]

No individual expert or company can claim to be the ‘father’ or ‘creator’ of the SMS. The GSM project as a whole was indeed a multi-national collaboration at its best. Therefore the responsibility for the SMS innovation is not with a single person but with a network of closely cooperating persons who has created this innovation. They did this with the supporting framework of Standard Bodies and through these organisations made the technology freely available to the whole world. This is described and supported by evidence in the following sections.^[6]

The first proposal for SMS which initiated the development of SMS in the group GSM was made by a contribution of Germany and France into the GSM meeting in February 1985 in Oslo^[7]. This proposal was further elaborated in GSM subgroup WP1 Services (Chairman Martine Alvernhe, France Telecom) based on a contribution from Germany. There were also initial discussions in the subgroup WP3 network aspects chaired by Jan Audestat (Telenor). The result was approved by the main group GSM in a document of June 85 which was distributed to industry.^[8] The input documents on SMS had been prepared by Friedhelm Hillebrand (German Telecom) with contributions from Bernard Ghillebaert (France Telecom).

SMS was considered in the main GSM group as a possible service for the new digital cellular system. In GSM document "Services and Facilities to be provided in the GSM System",^[1] both mobile originated and mobile terminated short messages appear on the table of GSM teleservices.

The discussions on the GSM services were then concluded in the recommendation GSM 02.03 "TeleServices supported by a GSM PLMN".^[9] Here a rudimentary description of the three services was given:

1. Short message Mobile Terminated (SMS-MT)/ Point-to-Point: the ability of a network to transmit a Short Message to a mobile phone. The message can be sent by phone or by a software application.
2. Short message Mobile Originated (SMS-MO)/ Point-to-Point: the ability of a network to transmit a Short Message sent by a mobile phone. The message can be sent to a phone or to a software application.
3. Short message Cell Broadcast.

The material elaborated in GSM and its subgroups WP1 was handed over in spring 1987 to a new GSM body called IDEG (the Implementation of Data and Telematic Services Experts Group), which had its kickoff in May 1987 under the chairmanship of Friedhelm Hillebrand (German Telecom). The technical standard known today was largely created by IDEG (later WP4) as the two recommendations GSM 03.40 (the two point-to-point services merged together) and GSM 03.41 (cell broadcast).

WP4 created a drafting group message handling (DGMH) who was responsible for the specification of SMS. It was chaired by Finn Trosby (Telenor). DGMH had about 5 to 8 participants (Finn Trosby mentions as contributors Alan Cox of Vodafone). The first action plan^[10] mentions for the first time the Technical Specification 03.40 “Technical realisation of the Short Message Service”. Responsible editor was Finn Trosby. The first draft of the technical specification was completed in of November 1987^[11] ().

The work on the draft specification continued in the following few years, where Kevin Holley of Cellnet (now O2) played a leading role. Besides the completion of the main specification GSM 03.40 also the detailed protocol specifications on the system interfaces needed to be completed.

The Mobile Application Part (MAP) of the SS7 protocol included support for the transport of Short Messages through the Core Network from its inception.^[12] MAP Phase 2 expanded support for SMS by introducing a separate operation code for Mobile Terminated Short Message transport.^[13] Since Phase 2, there have been no changes to the Short Message operation packages in MAP, although other operation packages have been enhanced to support CAMEL SMS control.

From 3GPP Releases 99 and 4 onwards, CAMEL Phase 3 introduced the ability for the Intelligent Network (IN) to control aspects of the Mobile Originated Short Message Service,^[14] while CAMEL Phase 4, as part of 3GPP Release 5 and onwards, provides the IN with the ability to control the Mobile Terminated service.^[15] CAMEL allows the gsmSCP to block the submission (MO) or delivery (MT) of Short Messages, route messages to destinations other than that specified by the user, and perform real-time billing for the use of the service. Prior to standardized CAMEL control of the Short Message Service, IN control relied on switch vendor specific extensions to the Intelligent Network Application Part (INAP) of SS7.

The first SMS message^[16] was sent over the Vodafone GSM network in the United Kingdom on 3 December 1992, from Neil Papworth of Sema Group (now Airwide Solutions) using a personal computer to Richard Jarvis of Vodafone using an Orbitel 901 handset. The text of the message was "Merry Christmas".^[17] The first SMS typed on a GSM phone is claimed to have been sent by Riku Pihkonen, an engineering student at Nokia, in 1993.^[18]

The first commercial deployment of a Short Message Service Centre (SMSC) was by Aldiscon (now Acision) with Telia in Sweden in 1993,^[19], followed by Fleet Call (now Nextel)^{[citation needed]} in the US, Telenor in Norway^{[citation needed]} and BT Cellnet (now O2 UK)^{[citation needed]} later in 1993.

Initial growth was slow, with customers in 1995 sending on average only 0.4 messages per GSM customer per month.^[20] One factor in the slow takeup of SMS was that operators were slow to set up charging systems, especially for prepaid subscribers, and eliminate billing fraud which was possible by changing SMSC settings on individual handsets to use the SMSCs of other operators^{[citation needed]}.

Over time, this issue was eliminated by switch-billing instead of billing at the SMSC and by new features within SMSCs to allow blocking of foreign mobile users sending messages through it. By the end of 2000, the average number of messages reached 35 per user per month,^[20] and by Christmas Day 2006, over 205m texts were sent in the UK alone.^[21]

It is also alleged that the fact that roaming customers, in the early days, rarely received bills for their SMSs after holidays abroad had a boost on text messaging as an alternative to voice calls^{[citation needed]}.

Text messaging outside GSM

SMS was originally designed as part of GSM, but is now available on a wide range of networks, including 3G networks. However, not all text messaging systems use SMS, and some notable alternate implementations of the concept include J-Phone's SkyMail and NTT Docomo's Short Mail, both in Japan. E-mail messaging from phones, as popularized by NTT Docomo's i-mode and the RIM BlackBerry, also typically use standard mail protocols such as SMTP over TCP/IP.

SMS today

Commercially SMS is a massive industry in 2006 worth over 81 billion dollars globally.^[22] SMS has an average global price of 0.11 USD and maintains a near 90% profit margin.

GSM

Main article: Short message service technical realisation (GSM)

The Short Message Service - Point to Point (SMS-PP) is defined in GSM recommendation 03.40.^[2] GSM 03.41 defines the Short Message Service - Cell Broadcast (SMS-CB) which allows messages (advertising, public information, etc.) to be broadcast to all mobile users in a specified geographical area.^[23] Messages are sent to a Short Message Service Centre (SMSC) which provides a store-and-forward mechanism. It attempts to send messages to their recipients. If a recipient is not reachable, the SMSC queues the message for later retry.^[24] Some SMSCs also provide a "forward and forget" option where transmission is tried only once. Both Mobile Terminated (MT), for messages sent to a mobile handset, and Mobile Originating (MO), for those that are sent from the mobile handset, operations are supported. Message delivery is best effort, so there are no guarantees that a message will actually be delivered to its recipient and delay or complete loss of a message is not uncommon, particularly when sending between networks. Users may choose to request delivery reports (simply add *0# or *N# to the beginning of your text message), which can provide positive confirmation that the message has reached the intended recipient.

Message size

Transmission of short messages between the SMSC and the handset is done using the Mobile Application Part (MAP) of the SS7 protocol. Messages are sent with the MAP mo- and mt-ForwardSM operations, whose payload length is limited by the constraints of the signalling protocol to precisely 140 octets (140 octets = 140 * 8 bits = 1120 bits). Short messages can be encoded using a variety of alphabets: the default GSM 7-bit alphabet (shown above), the 8-bit data alphabet, and the 16-bit UTF-16/UCS-2 alphabet.^[25] Depending on which alphabet the subscriber has configured in the handset, this leads to the maximum individual Short Message sizes of 160 7-bit characters, 140 8-bit characters, or 70 16-bit characters (including spaces). Support of the GSM 7-bit alphabet is mandatory for GSM handsets and network elements,^[25] but characters in languages such as Arabic, Chinese, Korean, Japanese or Cyrillic alphabet languages (e.g. Russian) must be encoded using the 16-bit UCS-2 character encoding (see Unicode). Routing data and other metadata is additional to the payload size.

Larger content (Concatenated SMS, multipart or segmented SMS or "long sms") can be sent using multiple messages, in which case each message will start with a user data header (UDH) containing segmentation information. Since UDH is inside the payload, the number of characters per segment is lower: 153 for 7-bit encoding, 134 for 8-bit encoding and 67 for 16-bit encoding. The receiving handset is then responsible for reassembling the message and presenting it to the user as one long message. While the standard theoretically permits up to 255 segments,^[26] 6 to 8 segment messages are the practical maximum, and long messages are often billed as equivalent to multiple SMS messages. See Concatenated SMS for more information.

SMS Compression

An Indian startup myMobile Ergonomics has introduced on phone SMS Compression in its products CleverTexting and Panini Keypad in which they offer an increase in the capacity of the SMS by 40% and 350% respectively. This is done through an application on the phone with its own compression and decompression routines which uses the SMS as a transport layer.

SMS Gateway providers

SMS gateway providers facilitate the SMS traffic between businesses and mobile subscribers, being mainly responsible for carrying mission-critical messages, SMS for enterprises, content delivery and entertainment services involving SMS, e.g. TV voting. Considering SMS messaging performance and cost, as well as the level of messaging services, SMS gateway providers can be classified as aggregators or SS7 providers.

The aggregator model is based on multiple agreements with mobile carriers to exchange 2-way SMS traffic into and out of the operator’s SMS platform (Short Message Service Centre – SMS-C), also known as local termination model. Aggregators lack direct access into the SS7 protocol, which is the protocol where the SMS messages are exchanged. SMS messages are delivered in the operator’s SMS-C, but not the subscriber’s handset, the SMS-C takes care of further handling of the message through the SS7 network

Another type of SMS gateway provider is based on SS7 connectivity to route SMS messages, also known as international termination model. The advantage of this model is the ability to route data directly through SS7, which gives the provider total control and visibility of the complete path during the SMS routing. This means SMS messages can be sent directly to and from recipients without having to go through the SMS-Centres of other mobile operators. Therefore, it’s possible to avoid delays and message losses, offering full delivery guarantees of messages and optimised routing. This model is particularly efficient when used in mission-critical messaging and SMS used in corporate communications.

Mobile Number Portability Coming To India By August 2009

By August this year (2009), the mobile phone users will not have to get through the bothersome routine of updating every person regarding a number change in case they want to switch their service provider.

Mr. A Raja, Union Communications and IT Minister, has announced that the Department of Telecommunications (DoT) has decided to launch Mobile Number Portability (MNP) in India by August 2009.

Initially, the service will be introduced in the major cities, followed by other cities by the end of this year.

Mr. Raja made this announcement during the launch of BSNL’s 3G services in Chennai, India.

“The mobile number portability enabling customers to retain their old number while shifting from one operator to another would be launched in major cities by August this year,” Mr. Raja said.

Reacting to the declaration, Mr. Kuldeep Goyal, BSNL Chairman, who was also there, stated that it was really a welcome step.

Mr. Goyal also expressed hope that BSNL would get many new subscribers because of this.

DoT had already given its approval to the MNP service in November last year (2008), and said that the system would primarily be introduced in the metropolitans.

With the help of MNP, mobile phone subscribers can change their telecom service provider without altering their original numbers unlike present services, where each different network operator issues numbers unique to it.

Credit Card

A credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holders promise to pay for these goods and services.^[1] The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the same shape and size as specified by the ISO 7810 standard.

How credit cards work???

Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom and Ireland commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed if the balance is not paid in full (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.

Interest charges??

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made, the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid...i.e. when the balance stopped revolving).^[2]

The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, to encourage balance transfers from cards of other issuers. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue.

Profits and losses

In recent times, credit card portfolios have been very profitable for banks, largely due to the booming economy of the late nineties. However, in the case of credit cards, such high returns go hand in hand with risk, since the business is essentially one of making unsecured (uncollateralized) loans, and thus dependent on borrowers not to default in large numbers

Costs

Interest expenses

Banks generally borrow the money they then lend to their customers. As they receive very low-interest loans from other firms, they may borrow as much as their customers require, while lending their capital to other borrowers at higher rates. If the card issuer charges 15% on money lent to users, and it costs 5% to borrow the money to lend, and the balance sits with the cardholder for a year, the issuer earns 10% on the loan. This 5% difference is the "interest expense" and the 10% is the "net interest spread".

Operating costs

This is the cost of running the credit card portfolio, including everything from paying the executives who run the company to printing the plastics, to mailing the statements, to running the computers that keep track of every cardholder's balance, to taking the many phone calls which cardholders place to their issuer, to protecting the customers from fraud rings. Depending on the issuer, marketing programs are also a significant portion of expenses.

Charge offs

When a consumer becomes severely delinquent on a debt (often at the point of six months without payment), the creditor may declare the debt to be a charge-off. It will then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a charge-off.) The item will include relevant dates, and the amount of the bad debt.^[18]

A charge-off is considered to be "written off as uncollectable." To banks, bad debts and even fraud are simply part of the cost of doing business.

However, the debt is still legally valid, and the creditor can attempt to collect the full amount for the time periods permitted under state law, which is usually 3 to 7 years. This includes contacts from internal collections staff, or more likely, an outside collection agency. If the amount is large (generally over $1500–$2000), there is the possibility of a lawsuit or arbitration.

In the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.

Rewards

Many credit card customers receive rewards, such as frequent flier points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses. Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spread. Networks such as Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. Some issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. Others encourage redemption for lower cost merchandise; instead of an airline ticket, which is very expensive to an issuer, the cardholder may be encouraged to redeem for a gift certificate instead. With a fractured and competitive environment, rewards points cut dramatically into an issuer's bottom line, and rewards points and related incentives must be carefully managed to ensure a profitable portfolio. Unlike unused gift cards, in whose case the breakage in certain US states goes to the state's treasury, unredeemed credit card points are retained by the issuer.

Fraud

The cost of fraud is high; in the UK in 2004 it was over £500 million.^[19] When a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of the charges that the customer has received for things they did not buy. These refunds will, in some cases, be at the expense of the merchant, especially in mail order cases where the merchant cannot claim sight of the card. In several countries, merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries. Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. Most of the banking services have their own credit card services that handles fraud cases and monitoring any possible attempt of fraud. Employees that is specialized in doing fraud monitoring and investigation are often placed in Risk Management or Fraud and Authorization or Cards and Unsecured Business. The fraud monitoring emphasize in minmizing fraud losses while doing their best to track down fraudster from getting as much illegal information and using the credit card as their can. The credit card fraud is one of the major problem within white collar crimes that has been around for many decades and even though the creation of chip based card (EMV) in some countries was in place to prevent these fraud case, there are still many cases reported and still around in these countries.