Single Purpose Credit Card
Advantages To the Store
There are many advantages of a single purpose credit card to the issuer. Let’s look at them one by one.
1. Increased Sales: Consumers using single purpose credit cards don’t need to pay for the purchase, each time they go shopping. They only have to give their single purpose credit card and pay for the expenses made, which they can repay before the due date. These stores also offer many discount schemes, which attract consumers and increase the sales of the store.
2. Prevents Consumer Flight: Consumers are attracted to the discount schemes offered by the store. Also they get to buy goods even without paying for it. So, customers when on a cash crunch will definitely come there. Consumers get used to the buying pattern followed and become regular customers there.
3. Increased Profits: As the sale of goods increases, the revenue of the store also increases, which in turn increases the profits. Not only that, these stores also earn in the form of interest payments from the defaulting parties. This feature was not present in the traditional system of giving goods on credit.
4. Reduced Losses: As the store gets to choose the goods that a consumer can buy on credit, it can easily reduce its losses even when goods are sold on credit. For example: A store is providing its customers with a single purpose credit card to be used only on grocery items. Now the question is how much grocery is an individual going to anyway purchase for the entire month. There is a limit to the grocery products that an individual can buy and thus not a lot of the store’s money is stuck in credit. It will receive most of its repayment before the due date and if not, it will receive an additional interest from the defaulting consumer.
Advantages to the Consumer
1. Schemes and Discounts: Those using a single purpose credit card, normally receive several discounts and schemes on goods bought in a particular category, by the store. Consumers can make the most of it by spending less for the same amount of goods or by receiving free goods.
2. In Times of Cash Crunch: If a consumer is out of money, he can use the assigned single purpose credit card to buy the required goods, without paying for it at the same time. He can pay the amount later, when he has sufficient funds, but before the due date.
As you can see for yourself, a consumer benefits lesser as compared to the store that issues the single purpose credit cards. Though, consumers can make the most out of it, if they can manage their funds efficiently and repay the credit amount before the due date.
By Foram Mehta
