Economic Analysis Paper on Credit Card Risk Management

With the development of credit card business, credit card risks occur more and more frequently, causing greater and greater losses. Therefore, it is important to Credit card risk management is particularly important. Credit card risk management measures generally include risk avoidance, risk prevention, risk diversification and transfer, and post-risk compensation. In order to obtain the best risk control effect at a lower cost before credit card risks occur, and to ensure stable operation of the card issuer after the risk occurs, the card issuer should analyze the costs and benefits of various risk management methods. Make the right choice based on the situation, so as to avoid or reduce the occurrence of credit card risks as much as possible and achieve stable growth of the card issuer's operations. Keywords: credit card; credit card risk; risk management; role; economic analysis

1. Raising the question

Since June 1985, Bank of China Zhujiang Branch issued the first credit card in China (Bank of China Card), my country's bank card business has made great progress. The card-issuing banks, number of cards issued, and transaction amounts have all increased significantly; the credit card usage environment has also been greatly improved. Take Shanghai as an example. By the end of 2002, the total number of bank cards issued in the city reached 35.65 million, an increase of 27.5% over the previous year. The number of bank card transactions was 107.5 million, the total transaction amount was 106.5 billion yuan, and there were 3,282 ATMs and 16,938 POS units deployed. In 2002, the number of online bank card merchants increased from 2,184 at the beginning of the year to 5,780, with 16,234 POS units connected to the network. The total number of ATM and POS cross-bank transaction settlements throughout the year was 5,185.72. (((According to conservative estimates, by 2007, the total investment in the construction of Shanghai Bank Card Industrial Park will exceed 10 billion yuan, the total annual output value will reach more than 20 billion yuan, and the number of employees will be as high as 30,000. (((Credit Card Credit card business has become one of the most profitable departments of commercial banks. In Western developed countries, credit card business is the main business and main source of profits for many large international banks. For example, Citibank's credit card business revenue accounts for one-third of its total profits. American Express's Express card business accounts for 70% of the company's total profits. However, with the further development of the credit card business, credit card risks occur more and more frequently in the issuance, use, and settlement of credit cards. There may be risks in every link. And with the increase in card issuers, special merchants and cardholders, credit card risks are characterized by wide coverage, diverse risk types, and high hazards. In most cases, the profits of card issuers are gradually reduced. In this case, these losses are covered by the bank's profits. Therefore, it is particularly necessary to manage credit card risks. Currently, card issuers have many risk management methods, but which management method can be used effectively under which circumstances. How to reduce bank operating costs and increase bank profits? The author wants to analyze the costs and benefits of credit card risk management methods from an economic perspective, so as to provide a decision-making reference for bank risk managers.

2. Credit cards. The necessity and role of risk management

Because the occurrence of credit card business risks has the characteristics of wide coverage, diverse types, and high harm, strengthening credit card risk management is of great importance to card issuers. It is necessary to strengthen credit card risk management before or after the risk occurs. (((The author believes that strengthening credit card risk management is of great significance to society, credit card parties, especially card issuers. 1. We know that credit card risks are. One of the main reasons is caused by the card issuing bank itself. The loopholes in the card issuing bank's own operation provide many opportunities for credit card violators, which leads to the occurrence of risks. Strengthening credit card risk management can effectively promote the business personnel of the card issuing bank to operate in accordance with the law. , to prevent the occurrence of violations of laws and regulations; improve the professional level of card-issuing bank employees and the ability to protect the card-issuing bank's rights; it can prompt banks to establish standardized and effective credit card risk prevention mechanisms, so that the entire card-issuing bank's credit card risk prevention work can be carried out in an orderly manner 2. ．Strengthening credit card risk management is the need to safeguard the bank’s own economic interests.

Card issuers can obtain timely and satisfactory compensation for some unpredictable unexpected losses in credit card business through the expenditure of a small amount of insurance premiums, thereby reducing or reducing risks, which is very economical for card issuers. What should be paid attention to here is the division of risk loss, insurance period, premium and insurance liability of the insurance company, etc. 4. Compensation for risk. The so-called credit card risk compensation refers to a management method in which the card issuer seeks partial or full compensation for financial risk losses that have occurred or will occur through certain channels to reduce or avoid credit card risk losses. A common method is to establish a risk reserve system, that is, during the development of credit card business, the issuing institution actively incorporates credit card risks into daily management work, and regularly withdraws a certain proportion from the profits earned from the credit card business to establish risk reserves. Reserves are managed in separate accounts to cover risk losses or bad debts, and the balance is used to offset profits. In reality, there are always some losses that cannot be avoided, and the card issuing bank must bear this part of the responsibility. Establishing a risk reserve system can effectively handle this risk loss. Moreover, this method does not cost much, especially since it can be used in conjunction with the aforementioned prevention, decentralized transfer and other measures. After credit card overdrafts are included in loan management, write-offs can be written off when other risk management methods are ineffective. ((((

Four. Some Suggestions

Through the above economic analysis of credit card risk management, we can see that the credit card risk management department should pay special attention to risk prevention , formulate strict risk management rules and regulations; pay attention to the training of business personnel and special merchants, especially strengthen the internal management of card issuers. During the credit card application process, customers must be required to deposit reserves and provide guarantees. For the management of overdrafts and loss reports and stop payments, we must formulate reasonable operating rules for overdrafts and loss reports and stop payments, strengthen contact with insurance institutions, and try to obtain insurance from insurance institutions. At the same time, we must establish a correct risk awareness and establish a risk reserve account. , we must decisively adopt risk avoidance strategies. In short, effectively reducing costs and increasing returns is the purpose of credit card risk management.

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