Free , Free , Free … Lifetime Free .. But Why ?

We all must have received any calls / email from Bank employees or DSA or some outsourced companies about the Lifetime Free Credit Card being offered .

But why are they offering us lifetime free credit card? What have we done for them ? Are there some hidden charges which will be levied once i use the card for a specific period ? Well, there are many clauses /cases but we will be discussion only on the Lifetime free credit card here

To understand this, we need to understand some concepts beforehand :

• Cardholder : Person / Entity to whom the card is being issued by the Bank
• Merchant : Shop / Business / Portal where you intent to use the Credit Card . It may be a shop or ecommerce portal
• Issuing Bank : Bank which issues the Credit card to customers . For example, HDFC Bank, ICICI Bank , Axis Bank etc
• Acquiring Bank : Bank which has the tie-up with the merchant to process the payment on swipe of a card. This has no correlation with the Issuing Bank (both may be some or from different Banks)
• Payment Processor : It acts as an intermediary between credit card networks . It is the single point of contact for merchants and several third party banks and helps in Payment processing of the transactions
• Card Associations / Networks: These provide the network and technologies for the transactions to flow between various partners. There include American Express, Mastercard , VISA , RuPay .
• MDR : Merchant discount rate . This is the fee that Merchant pays as he is getting the facility to accept card payments from the customers. This usually lies between 1–3% and varies basis card networks. For example , Amex may take 2% , while Rupay may charge 0.1% of the transaction value.

Now , coming back to the Free part (and i guess most of you must have understood the mechanics . Merchant pays MDR for each transaction which is swiped via Credit Card. This gets distributed among all the participants involved in transaction (Issuing Bank, Acquiring Bank, Network , Processor) . So if i have swiped my card for INR 50,000 for paying my Insurance policy , my merchant will pay INR 1000 as MDR which will be distributed among all the parties . So effectively , i am not paying anything from my pocket but merchant is paying to all the parties involved in form on MDR fees.

So next time , just remember nothing is free but is paid by someone else :)

Bonus Tip : Cards starting with 3 are Amex cards, 4 are VISA Card, 5 are Mastercard and 6 are Rupay cards.