MIDDLE EAST TECHNICAL UNIVERSITY

IE 348 - ENGINEERING ECONOMY AND COST ANALYSIS II

TERM
PROJECT:
Credit Card Business

Can Mahmut Doğan

Onur Yılmaz

January 2011, Ankara

Table of Contents
PAGE

Table of Contents .............................................................................................................. I

A. INTRODUCTION......................................................................................................... 1

B. REPORT ...................................................................................................................... 1

PART I . CREDIT CARD BUSINESS.............................................................................. 1

A. Parties Involved in Credit Card Business.......................................................... 1

B. Relationships of the Parties in Credit Card Business ....................................... 2

PART II. COSTS AND REVENUES of the ISSUER.......……………………………… 5

A. Costs of the Credit Card Issuer ..........................…………………………….. 5

B. Revenues of the Credit Card Issuer ......................................………………... 6

PART III. PROFITABILITY OF CREDIT CARD BUSINESS ...................................... 7

C. CONCLUSION............................................................................................................. 10

D. REFERENCES ............................................................................................................. II

E. APPENDIX ................................................................................................................... III

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 A. INTRODUCTION

In this term project analysis of a credit card business is conducted. Credit card business, in
short, a payment system in which consumers can use small plastic cards or more technological
instruments instead of cash money. The consumer, in this concept called as cardholder, buys goods and
services with that credit card and promises to pay the amount in the future to the card provider. Since
this payment system is very convenient, according to Visa Internal Statistics, more than 1 billion credit
cards are being used all over the world. Considering the enormity of the system and since it has roots
related to cost analysis, time value of the money and interest rates, credit card business analysis is one
of the best subjects to study as a term project.

In this report, results and studies of this term project are mentioned. Firstly, credit card
business is explained by its actors and their tasks and responsibilities. Following that, relationships of
these parties are given in different credit card business models. In the second part, costs and revenues
of the credit card issuer are identified with examples from real world. Finally, in the third part,
profitability of this business is studied with a cost/revenue model. For further analysis, numerical
examples of this profit model are given in the appendix.

B. REPORT

PART I. CREDIT CARD BUSINESS

Operations of credit card business have evolved since credit card’s first usage due to the change
of consumer behaviors and technological developments. In addition, since credit card business shows
some differences in different countries, it is found advantageous to mention all parties involved in
international scale and identify the relations of parties in Turkey’s credit card business with the most
recent situation.

A. Parties Involved in Credit Card Business

Since some background information is given about the credit card business in Turkey, detailed
explanation of how this system operates can be given. Firstly, being so immerse, it is obvious that there
must be high number of actors who is involved in this business with very different tasks and
responsibilities.

Firstly, one of the major parties of this business is cardholder, who uses credit card to make
purchases and also who promises to pay this amount to the bank in the future, in other words s/he is the
consumer.

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 Secondly, in order to officially operate this business, financial organizations or institutions are
involved and they are called as card-issuing bank. This part of the system is responsible for
consumer’s repayment and also takes related risks such as fraud.

In order to create a monetary flow between these parties, merchants must be exist to provide
goods and services to customers and they must accept credit card payments which enable cardholders
to involve in the system.
In addition to these core parties of this system, there are some other intermediate parties
involved in credit card businesses. One of these intermediate parties is acquiring bank, which is a
financial establishment that accepts payments for the goods and services on the behalf of merchants.
Acquiring banks are convenient for collecting transactions of different card issuer’s payments and thus
they are included in the system. Another intermediate parties is independent sales organization which
is the alliance of banks who have the authority to sell services of the bank to the merchants. Last
intermediate actor will be mentioned is merchant account, which is a type of bank account merchant
make transactions with. Therefore, merchant account can directly be the card issuing bank or
independent sales organizations as mentioned above.

Considering the magnitude of this business in international scale, there must be some standards
and unions which ensure legal terms between parties. Credit card associations are responsible of these
standards and legal issues and most known ones are MasterCard, Visa, American Express, etc.

All core and intermediate parties of the system mentioned however there must be a platform
that connects each of these actors. This platform is called as transaction network and these networks
can be operated independently and also jointly with other card issuing institutions.
Another type of contributing parties involved is affinity partners. In order to get bigger shares
on this business, card issuers make partnerships to use the names of popular institutions like sports
teams, well-known retailers, universities etc. These partnerships do not only make their credit card
different but also attract more customers because in most cases customers get privileges. These
privileges can be exemplified by chance of buying sport events tickets earlier than public sales or
getting extra discounts in specific stores.

B. Relationships of the Parties in Credit Card Business

As parties involved in the system are mentioned, their relations can be identified in detail. In
order to show different variations of their relations, different models which exist will be given in this
section. Two-party credit card model, three-party credit card model and the extended three-party credit
card model will be explained in order to clarify the relationships of the parties mentioned in the

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previous part. These models are mostly based on the the constitution of the credit card business and its
extent.

First model will be explained is two-party credit card model in which card-issuer is also service
or product provider at the same time. In other words, merchants provide credit cards that can only be
used in their retailer stores and these cards also known as “seller credit cards”. Although this model
does not seem to be an actual credit card business model, it provides customers to use these cards
instead of cash and pay the amount in the future. Being a simple model, there are only two parties:
issuer and customer. Their relations and related operations can be directly assumed as operations of
two-person loan account with a credit card. In this model, from the point of view card issuer, providing
the credit card and sending credit card statement are the main responsibilities.

Second model will be explained is three-party credit card model and in this model credit cards
are provided with professional institutions like banks or associations. Therefore, in this model there are
three main parties involved as merchant, card issuer and card holder.

From the point of view of card issuer, in this system, the institution promises merchant to pay
the amount of the transactions done with their credit card and making this promise card issuer bears the
risks of not collecting payments from cardholders. Considering this jeopardy, card issuer makes
agreements with merchants and cardholders, by doing this the card issuer tries the cover the risk at
certain levels. In addition, card issuer makes the payments to the merchant in the behalf of cardholder
and in the following periods it collects that amount from cardholders.

Considering the merchant in this system, they are accepting credit cards instead of cash and
doing this they are actually placing a loan for cardholders from bank when a good or service is
purchased.

Third and final model will be mentioned in this part, is extended three-party model which is
also known as four-party model. In this model, credit card associations are involved in the system and
card issuers make partnerships with these associations. Since these associations are international and
have predetermined standards, it allows cardholders make transactions in every merchant which is
partner of this association all over the world.

In this system main parties involved can be listed as, cardholder, card issuer, credit card
association, acquiring banks and merchants. How this system works in Turkey can be seen from the
following diagram below (Diagram 1).

From the point of view of card issuer bank, first of all it must make agreements with card
associations to use their system, logo and network. Following these, card issuer makes agreements with
cardholders and merchants like other models mentioned above. Since all payments are controlled by

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the association in this system, after the purchase of cardholder, association declares the amount to the
card issuer bank and card issuer must pay the amount to the credit card association. Like other
methods, card issuer bank gathers the payments from cardholders at the end of period. Relationships of
other parties like acquiring banks and merchants can be identified from the diagram below.

To conclude, in this section firstly, all parties involved in a card business system are mentioned
at worldwide scale with their tasks and responsibilities. Following this, finally, relationships of these
parties are studied according to the different credit card models.

Diagram 1: Relationships in three-party extended model

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 PART II. COSTS AND REVENUES of the ISSUER

In this part, cost and revenue items of the credit card issuer will be explained with some
numerical examples from both international and domestic examples.

A. Costs of the Credit Card Issuer

Cost items of the credit card issuer can be grouped into five as cost of funds, credit losses,
servicing expenses, processing expenses and marketing expenses.

1.) Cost of Funds: Being a considerably large business, there is a high capital investment
behind this business and this capital comes from customer deposits and borrowings from other
establishments. This high amount of capital is used to cover the amount of the payments done with
cardholders. On the average, interest rate applied to this capital is 2% below the prime rate, which is
the general capital investment rate applied by government to the large business owners. This cost item,
which is named as interest expenses is the biggest cost item for the card issuer, considering the prime
rate in the USA as 3,25%.

2.) Credit Losses: Credit losses constitute of fraud losses and bad debts. These two parts can be
identified separately:

Fraud Losses: Although the percentage of the fraud losses value is very low, like 0.07% of
total transactions, this is an indeterminate cost therefore can vary at different time stages. Not only its
amount but also the amenable to fraud losses varies. If a credit card is stolen or duplicated, transactions
done with this card will be paid by merchants, cardholders and card-issuers according to the type of
fraudulent activities. For instance, if there is security vulnerability in credit card network and it is
exploited, fraud transactions will be paid by credit card issuer.

Bad Debts: Although the cardholder promises to pay transaction amounts, when s/he fails to
pay this amount for a time period, according to the agreement between parties, these transaction
amounts are declared as “charge-offs” or in other terms as “bad debts”. This declaration of payment
does not take the obligation of cardholder to cover this amount. However, from the point of card issuer,
these amounts are uncollectables and therefore written in the aspect of cost items like fraud losses.

3.) Servicing Expenses: Credit card business includes interactions of different parties and one
of these core parties is customers. Servicing expenses are the customer contact costs such as risk
management or customer service activities. One of these servicing expenses are rewards, which are
given to the customers as incentives in different forms like points or cash backs. The amount of
rewards mostly depends on the credit card type, amount of transaction and the loyalty of cardholder to
the card issuer bank. The amount of rewards varies from 0.25% to 2.0% of the transaction amount.

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Since these rewards and other costs related to customer satisfaction are paid by the card issuer in this
business, they are listed as expenses to the issuer.

4.) Processing Expenses: Processing expenses can be listed as all back-end costs of this
business, in other words cost of all operations in this system. These operating costs can be divided into
as variable and fixed costs. Fixed costs can be salaries of executives or cost of technological
investments; whereas variable costs can be the cost of credit card itself or cost of tracking and sending
credit card statements to the cardholder. It is mentioned that processing expenses are on the average
0.67 of the outstanding.

5.) Marketing Expenses: Marketing expenses are related to the increasing the consumption of
existing cardholders, keeping high-profitable cardholders and also increasing the number of total
cardholders. The most known method for marketing is promotions, which have different terms and
conditions than normal purchases to attract customers. Since these operations are conducted by the card
issuer, promotion costs are paid by the related institution.

B. Revenues of the Credit Card Issuer

Revenues of the credit card issuer can be grouped into six as interest income, interchange
income, membership fees, over-limit fees; cash advance fees and other fees and incomes.

1.) Interest Income: Interest income is related to the outstanding balances and they are
calculated by multiplying the annual percentage rate by the rollover rate and by the outstanding balance
amount. In the U.S., average annual percentage rate is 9%, average rollover rate is 85% and the average
outstanding balance is $1500. In this concept, outstanding balance is the unpaid amount remaining after
the final date of the credit card statement. In addition to this, when the minimum payment amount is
paid for the related period, conventional interest rate is applied to the outstanding amount. Result of the
cardholders’ attitude and the high interest rates, interest income is the greatest source of revenue for the
credit card issuer.

2.) Interchange Income: Interchange income is a result of the transactions when a merchant
accepts credit cards of credit card associations, like Visa or MasterCard etc., and its paid by the
acquirer bank. How this income is generated can be identified as following: Card issuer pays the
amount of transaction minus interchange fee to the acquirer bank. Acquirer bank, deducts an additional
fee, which is named as add-on rate, and transfers the remaining amount to the merchant. However, card
issuer collects the exact amount of transaction from cardholders and this shows how interchange
income is generated. However, calculation of the rates is not simple for interchange fees; because it
varies according to card associations, merchants, products and transaction amounts. On the average
interchange rate is 1.4% in the U.S. and this rate applied to the transaction amount. Finally, it must be
mentioned that interchange income constitutes nearly 25% of revenues of card issuer.

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 3.) Membership Fees: Although in most of the countries there are no membership fees for
credit cards; in Turkey, cardholders must pay a fixed amount of money for each credit card s/he owns.
Considering the high number of credit cards in the Turkey, 46.221.053 by the end of 2010 September,
collecting even a little fixed amount yields a huge figure in total.

4.) Over-limit Fees: This type of fee occurs when a credit card limit is exceeded in the related
payment period. It is calculated by multiplying a fixed rate, like 5%, by the excess amount or if the
excess amount is under the limits stated in the agreements than a fixed minimum fee is applied.

5.) Cash Advance Fees: When a credit card is used to obtain cash from ATMs, cash advance
fee is incurred. This type of fee has a flat part for each withdrawal and also a variable part which is
calculated by multiplying the interest rate with the amount withdrawn. For cash advance fees, interest
rate period starts with the withdrawal of cash and ends with the repayment.

6.) Other Fees and Income: According to card issuers, card associations and local laws, there
are numbers of different other fees; however, the most significant ones among them is transaction fees,
credit card statement fee and exchange profits.

Transaction Fees: For every transaction that is made by merchants using the card issuer’s
credit card, a fixed amount of money is paid to the issuer by merchant and these fees are named as
transaction fees.
Credit Card Statement Fee: When cardholders request credit card statements of prior payment
periods, a fixed credit card statement fee is incurred to cardholders.
Exchange Profits: When cardholders make transactions in other countries, considering the
possible increase in the value of the foreign currency in the time lag between actual purchase and
payment of the cardholder, a commission fee is incurred in the related payment period.

PART III. PROFITABILITY OF CREDIT CARD BUSINESS

Since costs and revenues of the card issuer is given in the last part, profitability of the credit
card business model and how the profit can be calculated could be mentioned at this moment. While
constructing the model, all used cost and revenue items and related information gathered from the
references which are listed at the end of this report.

And since it is asked to identify the profit model from the point of card issuer’s view the
following model is found appropriate. In the prior part, all cost and revenue items are explained,
therefore in this part, while calculating the profit, these items will not be explained in detail again.

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 A card issuer earns money from two important sources, the first one is customers (interest and
fees) and the second one is merchants (commissions).

Hence; total revenue can be calculated as:

Total Revenue = Interests from customers + Fees + Commission fees from merchants

In order to analyze these revenue items we can start with interest revenue gained from
customers. Interest rates used for revolvers, who paid the minimum payment amount will be different
than the other revolvers who failed to pay minimum payment amount. The considered interest revenues
can be earned from the customers if and only if the customers do not pay the amount stated in their
credit card statement in the payment period. Hence, the revenues earned from full amount payments in
the payment period are not calculated in the aspect of “interests from the customers”. Cardholders, who
pay the total payment amount in the payment period are called as transactors. In addition, the amount
of the payments done at the level of minimum payment limit is considered as paid and the remaining
unpaid amounts are considered in the revolve rate. Considering all these issues, interests gained from
customers can be formulated as following:

Interest from the customers = Revolving balances from the previous month x Interest
Margin x Repayment Rate

Secondly, the next revenue item which is “fees” can be analyzed. These fees will be earned
from the all cardholders in the system as constant amounts and it can be calculated as:

Fees = Annual Fees x Number of cardholders

Third, and the last revenue item which is the commission fees from the merchants are gained
with a predetermined ratio multiplied by the total money spent at these merchants. It can easily be
calculated as:

Commissions from the merchants = Total Spent x Commission Rate

Combining all revenue items, total revenue function can be written as:

Revenues = (Annual Fees x Total number of cardholders) +

(Revolving Balances from the previous month x Interest Margin x Repayment Rate) +
(Total Spent x Commission Rate )

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 On the other hand, costs of the credit card issuer can be calculated as the sum of all mentioned
cost items and it can be formulated as:

Total Cost = Variable Costs + Bad Debt Costs + Capital Holding Costs + Fixed Costs

First of all, variable costs are calculated in the concept of capital invested in this business.
Therefore, cost of capital, fraud rate and loyalty program costs are contained in this calculation.
Variable cost function can be written as:

Variable Costs = (Total number of transactions x Average transaction value) x

{
(Costs of Capital x Adjustments of interest rate for free periods)
+ (Fraud Rate) + Loyalty Program Cost Rate
}

In this part, there is an additional rate which is not mentioned before named as “adjustment of
interest rate for free periods”. If there are periods of capital which are not affected by interest rate, this
adjustment rate is applied for rearrangement of the related periods’ rates. Since variable costs are
calculated in the concept of the capital invested, this adjustment rate is also applied to the
multiplication of total number of transactions by the average transaction value.

Second mentioned cost item is bad debt costs and this can be calculated by multiplying the
utilized limits with the total limits of cardholders. Utilization rate is contained in this formulation,
because for a debt to be considered as bad debt, utilized proportion of the total limits should be
considered. In addition, bad rate is used in this concept to identify the proportion of the total limits that
cardholders give up on paying. It can be formulated as following:

Bad Debt Cost = Total Limits x Utilization Rate x Bad Rate

Third cost item will be mentioned is capital holding cost which contains a rate which is not
mentioned before named as “Basel Holding Rate”. This is the rate related to the self-stock inventory
kept by the card issuer in order to operate this business without any problems. Therefore, this rate is
applied to the part which is not utilized of the total limits. Total formulation of capital holding costs can
be given as:

Capital Holding Costs= (Total Limits x Utilization rate x Cost of Capital) +

(Total Limits x (1-Utilization rate) x Basel Holding Rate x Cost of Capital)

Considering the given profit model above, there are four important cost headlines. In order to
show how banks make profit from this business; or in other words, for maximizing profit, these costs

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should be decreased or revenues should be increased. On the other hand, there will be important trade-
offs; for instance, when a bank wants to decrease the fraud rate, these banks’ fixed costs will increase.
Moreover, removing annual fees may decrease the revenues; however, it may increase the utilization of
the cards. Therefore, decreasing any cost or revenue may cause an increase or a decrease in others.
Hence, it could be stated that sensitivity analysis of this model is more complicated in real world
situations.

In order to understand these mentioned trade-off situations, they should be considered in details.
With this aim, practice of this given profit model is given in the appendix part of this report. As can be
further analyzed from the tables given, two different models and related real life values and some
arbitrary values are given. For the first model, a large credit card business with high-level investment
and large number of cardholders is given. In the second model, considerably low-level investment
business with specialized customer variety with an affinity partnership is given. Most of the variable
values are taken from real life examples; however the rest are set in conformity with the others. In the
following table, application of the profit model and results are calculated. Although, in the real life,
changing one variable value will affect other variables, these results calculated considering the ceteris
paribus principle. As it is expected and calculated, the larger business gains more profit than the second
one because of the high number of cardholders and greater utilization levels and commission fees. In
addition, cash flows of these models are provided in the appendix with some mentioned assumptions.
These assumptions are mostly based on the unknown time periods of costs/revenues and their
allocation for determined number of customers.

C. CONCLUSION

To conclude, in this report, the credit card business is introduced from the credit card issuer’s
point of view. Basically, it is shown that the credit cards are more than the plastic cards that help
customers in daily life shopping and the business of credit cards is worth further studying. Considering
this, firstly, parties in this business and the relations between those parties are mentioned.
Additionally, information about the costs and the revenues of the credit card issuers are provided in
detail. Finally, the profit model of a credit card issuer is studied using the real life values; and how the
banks make profit from the credit card business is given by mathematical model and the related
formulations. In order to illustrate the application of this profit model and show how the trade-offs
effect the profit, some numerical examples are provided as Excel sheets in the appendix part.

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D. REFERENCES

Bankalararası Kart Merkezi. (2010). Retrieved from http://www.bkm.com.tr/

Board of Governers of the Federal Reserve System, (2009). Report to the congress on the

profitability of credit card operations of depository institutions. Retrieved from

http://www.federalreserve.gov/BoardDocs/RptCongress/creditcard/2009/ccprofit2009.
pdf

Bulmer, J. International Affairs, Trade and Finance Division. (2009). Payment systems : The

Debit Credit Card in Canada. Retrieved from

http://www2.parl.gc.ca/content/lop/researchpublications/prb0909-e.pdf

Card processing basics. (n.d.). Bank of America, Merchant Services. Retrieved from

http://www.bankofamerica.com/small_business/merchant_card_processing/index.cfm?
template=card_processing_basics

Credit cards - transaction flow. Informally published manuscript, Georgetown University,

Washington, United States. Retrieved from

http://faculty.msb.edu/homak/homahelpsite/webhelp/Credit_Cards_-
_Transaction_Flow.htm

Le Grange, B. (2010, October 11). A generic credit card profit model. Retrieved from

http://blegrange.wordpress.com/2010/10/11/a-generic-credit-card-profit-model/

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E. APPENDIX
Numerical examples and related cashflows of the model described in the Part III are given as Excel Sheets in the following tables.

A Generic Credit Card Profit Model (Annual) - VARIABLES

Comment about
Cost / Revenue Item Abr. Model 1 Model 1 Model 2 Comment about Model 2 Comment About Variables
Bonus Card - In some countries it is 0, in Turkey average values are taken from BDDK
Annual Fee AF 40,00 TL Standard 350 Galatasaray Card - Gold website.
Number of Total Bonus Total Galatasaray Bonus
Cardholders CH 8000000 Cardholders 23280 Cardholders
Number of Considering the total of 1.4 billion transactions done in Turkey by all
Transactions T 1400000 140000 credit cards
Average Calculated by dividing total value of transactions by number of
Transaction Value ATV 101,99 TL 101,99 TL transaction ( 142.787 billion /1.4 billion)
It is assumed that average revolve rate is same for the consequent
Revolve Rate RR 85,00% 75,00% periods. Taken arbitrarily.
Repayment Rate PR 80,00% 80,00% Taken arbitrarily.
Interest Rate i 15,00% 15,00% Gathered from www.tcmb.gov.tr
Rate of Bonus Card - Rate of Galatasaray
Commision Rate CR 3,00% Standard 2,50% Bonus Card
Loyalty Programme
Costs L 20,00% 20,00% Rate of the loyalty programme costs. Taken arbitrarily.
Cost of Capital CoC 10,79% 0,1079 Taken from related reports.
Interest Free
Period Adjustment IFP 95,00% 95,00% Taken arbitrarily.
Average Utilization U 80,00% 75,00% Taken arbitrarily.
Bad Rate BR 2,00% 2,00% Taken arbitrarily.
Basel Holding Rate BHR 20,00% 20,00% Taken arbitrarily.
2.400.000.0 Limit is assumed as 11.640.000 Limit is assumed as 500 Calculated by multiplying the number of cardholders with an average
Total Limits TL 00,00 TL 300 TL ,00 TL TL limit of 750 TL
500.000,00 50.000,00
Fixed Costs FC TL TL It is assumed as constant and different values are taken arbitrarily.
Fraud Rate FR 7,00% 7,00% Taken from the first part of the report.

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A Generic Credit Card Profit Model (Annual)

Items Model 1 Model 2

NOTES:

Revenues Model 1: Arbitrarily larger credit card business with very high
(AF x CH) + (T x ATV) x ((RR x PR x i) + CR) 338.847.884,00 TL 9.790.050,50 TL number of customers

Variable Costs Model 2: Small number of consumers with an affinity partner.

(T x ATV) x (L +FR+ (CoC x IFP)) 53.188.871,44 TL 5.318.887,14 TL

Bad Debt
(TL x U x BR) 38.400.000,00 TL 174.600,00 TL

Capital Holding Cost

(TL x U x CoC + TL x (1 – U) x BHR x CoC) 217.526.400,00 TL 1.004.764,80 TL

Fixed Costs
(Given as constant) 500.000,00 TL 50.000,00 TL

Profits
(Revenues - Variable Costs - Bad Debts
- Capital Holding Cost - Fixed Costs) 29.232.612,57 TL 3.241.798,56 TL

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Cashflow of the Model 1

General Assumptions
Since all cost and revenue items are calculated considering the time value of the money in the model, these values are
at the worth of the same time.
Since all cost and revenue items are average annual values, they are directly divided into 12 therefore they are same
for the two periods.
All values are calculated considering the Model 1.
For the whole customers, due date for payment and credit card statement date are assumed same.
For cash withdrawals, same model could be used with only changing interest rates and applying its daily.
In this diagram two different revolver payments are shown: first for the revolver amounts for the prior periods and
second for the related period.
Since in the model different types of revolvers' payments are not calculated, in the legend sum of A + B + C will be
equal to the total monthly revenues, which is 28,237,323 TL
In the model, difference between the payments to the merchants and commission fees earned from merchants is not
calculated; however they are drawn in the cashflow, therefore X - Y = 1,570,657 TL

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Legend Value Definition and Assumptions
1 26.666.666,67 TL Anuual Fees x Number of credit cards (per month)
2 41.666,67 TL Fixed Costs per month
3 A Revenue comes from the revolvers' payments from the previous periods per month
4 B Revenue comes from the transactors' payments per month
5 X Commission Revenue per month
6 3.200.000,00 TL Bad Debt Costs per month ( These amount are paid to merchants but not collected from cardholders in this payment period )
7 Y Payments transferred to merchants and collected from the cardholders in this payment period.
8 C Revenues from the revolvers' payments due to the late payments in this payment period.
9 18.127.200,00 TL Capital Holding Costs per month
10 4.432.405,95 TL Variable Costs per month

t0 Start of the first period (month)

t1 Credit card statement date for the first period
t2 Last due date for payments for the first period
t3 End of first period (month) - Start of the second period (month)
t4 Credit card statement date for the second period
t5 Last due date for payment for the second period
t6 End of second period (month)