small-business-cc

Credit Line Type Ownership

• Terminology
• Diagram
• Observations
• An example from real life
• Conclusions for Ravenbill system

Terminology

In this document, I am trying to answer a question - who owns the credit line accounts?

So, first of all, let’s define terms. Of course, those definitions are not strict mathematical definitions and we will define terms using relations between them and examples from real life. Let’s hope that common sense will complete the picture. By defining the terms I am trying to make the further discussion simpler and explain the rules and “system image” of proposed solutions.

• Creditor: an organization responsible for establishing the credit line.
• A creditor may have several types of credit lines (for example Detwiler may have customer accounts, supplier accounts, and B2B customers - restaurants).
• Credit Line Type is defined by a limited set of rules and designs. Credit Line Type is promoted and “sold” to customers/B2B partners by the Creditor. Usually, the Creditor acquires debtors by providing discounts and privileges. Credit line type rules are determined by the Creditor.
• Credit Line is an account that allows the debtor to borrow money and make payments according to the Creditor rules.
• Account is a relationship between a single credit line and a set of debtors who can use the line according to the rules satisfying both type and credit line.

Diagram

Here is a simplified conceptual model:

Observations

Some observations from the diagram and the terms:

• As one can see Creditors owns credit_line_types and Creditors owns credit_lines.
• Creditors are responsible
  • to lure debtors to open accounts and
  • make transactions using those credit lines
  • provide credit and incur risks
  • reap profit from percentage.
• Creditors
  • benefit from transactions (selling more goods).
  • from annual fee and origination fee
  • from percentage paid by debtor.
• Ravenbill benefits
  • from transactions (taking a percentage from each transaction),
  • from annual fee and origination fee (by agreement with Creditor),
  • from percentage paid by debtors (as compensation for statement generation/management).
• Whoever processes the transactions is responsible for fraught caused by “obvious” faults (list them)

An example from real life

Here is an example that demonstrates the above statement.

Banana Republic credit line (I believe it was Visa) issued by Gap, Inc. was originally backed up by Synchrony Bank. In the summer of 2022, Gap moved all the credit lines from Synchrony Bank to Barclay Bank US.

In order to achieve that

• old credit line accounts were deactivated,
• old credit line accounts that were linked to Synchrony Bank were frozen,
• new credit line accounts for the same name/address/ssn were created and linked to Barclay Bank US
• new credit lines were issued for those credit line accounts and mailed to debtors
• all reward points associated with old credit line accounts were transferred to new credit line accounts
• not empty old credit lines in Synchrony Bank were still sending bills to debtors (balances were not transferred)
• when old credit lines were paid off they were closed by Sychrony Bank.

Conclusions for Ravenbill system

From the relationship between terms, the diagram and the real-life example we can draw the following conclusions for the system we are building:

• We should provide some sort of automation for operations like the one described above (moving a credit line type from one creditor to another).
  • We can imagine a transfer of all credit line accounts from one credit line type to another one
    • between Creditors, for example when one Creditor bought another Creditor or one Creditor sold parts of their business to another Creditor.
    • between credit line types belonging to the same Creditor (bronze => silver, automatic or by request)