English Reading Comprehension with Detailed Explanation – IBPS, SSC Exams (Day-35):
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(Directions 1-10): Read the following passage carefully and answer the questions given below it. Certain words have been printed in bold to help you locate them while answering some of the questions.
Britons who like to borrow using plastic must envy card-carriers across the Atlantic. Compared with American shoppers, British consumers have long suffered a lack of choice and overly steep interest rates. That is now changing. Thanks to a competitive shake-up led by innovative American firms, British credit-card holders are at last sating to get deals worthy of a truly bustling and competitive market.
In most European countries, the credit card industry remains a backwater. Britain is a lone exception; its consumers hold three times more credit cards than the rest of the European Union put together. Still, until now card-issuer’s margins in Britain have remained surprisingly robust, with spreads (the interest they charge minus their funding costs) rising to17%, compared with a high of 13% in America. While credit card lending accounts for 6% of British banks’ loan books, it generates a juicier 12% of their interest income, reckons Simon Samuels of Kleinwort Benson, an investment bank.
Why have margins remained plump? One reason is that Britain’s credit-checking system is less sophisticated than America’s. American card issuers can buy lists of ‘pre-approved’ customers from specialist credit-rating agencies; the issuers can then tailor their offers accordingly. Another explanation is successful branding. The leading British card issuers, such as Barclay card and Lloyds TSB, have forged strong brand identities for which many consumers will uncomplainingly pay a premium.
They have been helped by consumer inertia. After years of bombardment by direct-mail offers, Americans are happy switching cards for better deals. Britons have proved less flexible; market research suggests that older people are generally suspicious of new, low-priced cards and are reluctant to order cards through anyone but their own bank. Further, Britain’s card issuers have successfully moved the battleground away from price towards ‘frills’, such as travel insurance and loyalty points.
The trend is now under threat, however. Faced with a saturated home market, American firms such as Capital One, Advanta and MBNA (which are all specialist banks that deal almost exclusively with credit cards) have come to Britain and set about undercutting complacent British rivals with cards linked to the Visa and MasterCard payments networks. Entrenched British issuers should worry on several counts. The Americans run high-technology, low cost operations; they are masters of marketing; and they compete fiercely on price. Most offer interest rates well below the British average- a hefty 22%- and charge no annual fee.
This competitive streak owes much to the structure of their home market. Almost all banks in America issue credit cards under the Visa or MasterCard brand, with their own names in a secondary position. With all issuers offering the same brands, they are forced to compete primarily on fees and interest rates.
MBNA has already gained a British foot-hold, picking up an estimated 500,000 customers this year alone. Advanta, which set up shop in February in a venture with Royal Bank of Scotland, is growing at a similar clip. Their expansion is largely due to their success in cherry-picking so-called ‘revolvers’ – those consumers who roll over their credit and thus make card firms most of their profit. They have also introduced marketing tricks that are familiar to Americans but still new to most Britons. A favourite is to offer temporary interest rates of, say, 10% to consumers who transfer their card balance from rivals (The rate usually rises to nearer 20% after a few months).
The assault is forcing the locals to fight harder. An investigation published this week in Which? a consumer guide, found that thanks to increased competition quarter of all British cards now issued carry no annual fee, compared with almost none in the early 1990s. Issuers that do charge have begun waiving fees for customers who threaten to defect.
All this means that card – issuers margins are at last heading downwards. Kleinwort’s Mr. Samuels thinks that margins will shrink by a quarter between now and 2000, and that as consumer-targeting becomes more precise, card firms may even start tailoring interest rates to individuals. This will present issuers with a stark choice: spend more on technology, or get out.
Not that British consumer should expect the overall cost of having a card to fall quickly. Although margins in Britain are far higher than they are in America, that gap is largely offset by differences in the treatment of wayward customers. American issuers are more likely than British ones to penalise card holders for late payment or for exceeding a credit limit. Perhaps, Americans are not so enviable after all.
1). Which of the following can be inferred from the passage?
- Because of increased competition, one-fourth of all the British cars now issued carry no annual fees.
- British cards issuers are very hard on errant customers.
- Capital One issues credit cards under the Visa or MasterCard brands.
- Compared with the American shoppers, British consumers have a variety of choice and steep interest rates.
- None of the above.
2). Which of the following idea(s) / opinion(s) is/are not expressed in the passage?
- The credit card industry is one that is flourishing the most only in Britain, as compared to the rest of Europe.
- Successful branding and a relatively less sophisticated credit checking system have resulted in fat margins for British card issuers.
- Britons are far more amenable to changing cards for better deals than the average East Europeans.
- Both A and B.
- None of these.
3). Which of the followings are not the features of American card operations?
I.High technology and low cost operations.
II.Competitive fees and interest rates.
III.Great marketing skills.
IV.‘Frills’ such as travel insurance and loyalty points
- Only I and IV
- Only II
- Only IV
- Only II and III
4). Which of the following is can be true according to the passage?
- A British card issuer’s spread (interest charged including funding cost) has risen to 17%.
- The American card issuers get an interest income of 12%.
- The difference in the treatment of way-ward consumers has to a large extent set off the gap between American and British margins.
- The average American interest rate is 22% and they charge no annual fee.
- All of the above.
5). Which of the following are not American?
III.Royal Bank of Scotland
- Only I,II and III
- Only II,III and IV
- Only III,IV and V
- Only I,III and V
- Only I, II and IV
6). Which of the following statement cannot be inferred from the passage?
- Llyods TSB has strong brand equity.
- British consumers have thrice as many credit cards as the rest of the European Union.
- All American issuers offer the same brands, at the same time they compete on fees, and interest rates.
- Britain and America compete high on interest rates, both keeping their rates low to attract customers.
- None of the above.
7). All the following statements have led to the conclusions drawn by Kleinwort’s Mr. Samuels, about the falling margins except:
- Consumer targeting will become more precise.
- Stricter rules are being imposed by the Americans on their consumers.
- Increased competition is being faced by British card issuers from their American counter parts.
- (A) and (B) only.
- None of these.
8). Which of the following is most similar in meaning to the word sating as used in the context of the passage?
9). Which of the following is most opposite in meaning to the word robust as used in the context of the passage?
10). Which of the following is most similar in meaning to the word tailor as used in the context of the passage?