2 Banking has evolved a long way from the days of the medieval money lenders counting coins on the

bench to the present scenario, where it is hard to trace the trail of money from the beginning to the end. The trail starts right from the small saver leaving a few rupees in his local bank to the billions of rupee loans raised by a syndicate banks and financial institutions, capable of financing projects in any country in the world. Still, these banking majors are heavily dependent upon their retail home base of savers and borrowers. Most of the bankers began focusing on this retail market segment as global competition intensified in late seventies and early eighties. The debit card has emerged from the shadow of its older sibling, the credit card. Over the past decade, debit card has grown from accounting for 274 million transactions in 1990 to 8.15 billion transactions in 2002, to challenge the credit card as the preferred payment card. As it stands, the debit card industry is a multi-billion dollar engine that helps drive bank profits and point-of purchase consumer sales - but is also beginning to redefine traditional payment options in the business and government sectors, such as food stamps, benefits, and payroll. The debit card has arrived and is here to stay. And yet, though it remains poised for growth, the debit card has also reached a crossroads. A recent settlement has cost VISA and MasterCard approximately $3 billion, and has dramatically reduced the fees they can charge for signature-based debit purchases. The effects of the settlement reach into every layer of the industry - from rewards incentives, to marketing programs, to future fee arrangements, and future growth. Consumer preferences for PIN- or signature-based debit will certainly influence how things unfold, and whether either debit card option will suffer or bloom in the short, mid, or long term. Credit cards, one of the banking products that cater products to the needs of retail segment has seen its number grow in geometric progression in recent years. This growth has been strongly supported by the development in the field of technology, without which this could not have been possible. The history of phenomenal growth in the credit cards segment traces way back to in 1950, the time when Dinar Club was established .The card provided select members with credit at 22

3 restaurants in New York and collected a commission for paying the bills promptly. The credit card industry got a further boost with the arrival of American express began selling their card as a prestige to hotels,restaurants,shops or airlines in America and slowly expanded the network across the world. The success of these two players attracted many other banks to join the credit card business. The entire breed of new players saw a fresh opportunity of granting unsecured loans at high interest rates to those credit cardholders who did not pay their bills on time. These banks were not so concerned with collecting commissions from shops but were thriving on high interest income from those who did not pay their bills on time. Its not that only the card numbers have increased, but even the types of cards on offer have seen a surge. Today the domestic card industry is flooded with different types of cards ranging from gold, silver, global, co-branded credit cards, smart to secure .the list is endless. Foreign banks have shouldered the major responsibility of increasing the card base and adding value-added services to the card products in the past. This is also evident from the fact that the market share of these foreign banks is estimated to be well over 70%. But the scenario has changed dramatically in the last of couple of years with the entry of State Bank of India (SBI), a domestic major in the banking sector. More and more nationalised banks and private sector banks like ICICI and HDFC Bank are aggressively launching credit card with value added features. Although at present the card market is mainly limited to Indias relatively bigger cities and tourist locations only, there is also a potential in smaller cities. Domestic banks, owing to their vast network and reach to smaller cities, can easily tap this potential. They would be better off, penetrating into smaller cities and bringing credit card to the masses rather than cannibalising other foreign banks existing cardholder base. The efforts of these banks to increase the card base is going to be wholeheartedly supported by the residents of these smaller cities with their higher disposable income, changing lifestyle, increasing travel and the growth in the entertainment sector.

4 Over the years, Indians have been averse to credit cards. This is primarily because they believed that spending through credit is a sure shot way of getting into the debt trap. Of course, movies highlighting the sad state of a borrower did not exactly help matters. And even the local kirana shops have the famous lines Aaj Nagad, Kal Udhari (cash today, credit tomorrow). But the situation is not actually that scary. And it is all about right timing. Credit cards can be a useful tool at the hands of savvy consumers who can effectively use the benefits offered by cards. It is important to know that credit card is a financial tool that needs to be used responsibly. While it ensures cash flow, it is not advisable for customers to borrow for a longer period of time. Use it effectively and take good advantage of the time line and clear your debts, without any additional costs. Plastic Money: the Currency of Modern India Indian consumers have never had it so good. The soiled notes are definitely out. Carrying cash is no more `a pain in the neck' as consumers are relying more on the `plastic card' which gives them money on credit. Plastic money basically means debit cards and credit cards which is having a magnetic stripe, logo, signature of the cardholder made of plastic. Credit Cards have finally arrived in India. The card industry which is growing at the rate of 20% per annum is flooded with cards ranging from gold, silver, global, smart to secure.the list is endless. From just two players in early 80s, the industry now houses over 10 major players vying for a major chunk of the card pie. Currently four major bishops are ruling the card empire---Citibank, Standard Chartered Bank, HSBC and State Bank of India (SBI). The industry, which is catering to over 3.8 million card users, is expected to double by the fiscal 2003. According to a study conducted by State Bank of India, Citibank is the dominant player, having issued 1.5 million cards so far. Stanchart

5 follows way behind with 0.67 million, while Hongkong Bank has 0.3 million credit card customers. Among the nationalized banks, SBI tops the list with 0.28 million cards, followed by Bank of Baroda at 0.22 million. The credit card market in India, which started out in 1981, is on the verge of an unprecedented boom. Between 1987 and 2000, the market has virtually grown to over 3.8 million cards with almost 25-30 % growth in new cardholders. SBI, one of the late entrants in the card market, has managed to grab over 8 per cent of the market share from the bigwigs like Citibank and Standard Chartered Bank. The bank's credit card business has grown by 8 per cent over the last two years. According to bank officials, SBI's card issue so far is to the tune of 0.28 million which is expected to In a bid to tap the lower middle class segment, SBI is currently sharpening its marketing The bank is putting its best foot forward to compete with global card majors like Citibank and Standard Chartered Bank. The global bigwigs have already established themselves as the `bankable brands' in the metros. However, in a bid to move to greener pastures, they are trying to tap the co-branded card market which has vast potential for growth. Citibank, which is leading the card empire recently launched a co-branded credit card in partnership with Indian Oil Corporation. The card will offer its members reward points on every international spend which can be redeemed for free fuel in India. ATM- debit cards are the flavour of the season The credit card business may have fallen short of expectations, but the debit card seems to lend issuers and payment systems a cause for hope. Plastic money is getting popular, according to a survey conducted by MasterCard international in the Asia pacific region comprising of Korea, Malaysia, Indonesia, Philippines and Thailand. Eighty percent of those who participated in the survey were either the owners of a card or desired to own an ATM card. 50% owned one and 30% wish to own a card. According to Jeff Portelli, Maestro (MasterCards debit card offering) has grown from zero to 70 m cards in the Asia pacific region since its launch six years ago. Today, Maestro is issued

6 in 16 Asia Pacific markets and is accepted at over 35,000 ATMs and more than 220,000 points of sale. In India, the card is available through Citibank, Times Bank and HDFC Bank. The concept of debit cards has been a slow starter in India. Debit cards are currently offered by only a handful of banks, which has made availability low. Besides, the annual fee attached to these cards adds to the perception that consumers are asked to pay for their own money. However as the market get cracking, these fears are expected to be alleviated in future.

DEBIT CARDS A debit card is a plastic card which provides an alternative payment method to cash when making purchases. Physically the card is an ISO 7810 card like a credit card; however, its functionality is more similar to writing a cheque as the funds are withdrawn directly from either the cardholder's bank account (often referred to as a check card), or from the remaining balance on a gift card.

7 Depending on the store or merchant, the customer may swipe or insert their card into the terminal, or they may hand it to the merchant who will do so. The transaction is authorized and processed and the customer verifies the transaction either by entering a PIN or, occasionally, by signing a sales receipt As it is popularly known, it is an ATM card on the move. The Debit Card gives the freedom to access the Savings or Current Account at merchant locations and ATMs. Whenever to make payments, the amount will be instantly debited to the account. There are around more than 5.3 lakh Visa/PLUS ATMs and equally strong Mastercard/ Cirrus ATMs in over 140 countries worldwide. All the purchases and cash withdrawals will be in the currency of the country are in, while account will be debited in rupees. So you needn't carry traveller's cheques or foreign exchange the next time you travel Debit Card can be used at any merchant location displaying the Visa or Mastercard logo or at any ATMs displaying the Visa/PLUS or Mastercard/Cirrus logo. Besides that, one can always use it at any of the bank ATMs as a normal ATM card. Working of Debit Card The user has to present the card to merchant who will swipe it through the electronic terminal and enter the amount of purchase. The customers need to sign the transaction slip. Account will be automatically debited for the amount of the purchase and the transaction can be verified by entering the PIN. Debit Card can be used to access the Account from over 5,000 Shops, Department Stores, Petrol Pumps and Restaurants and over 235 ATMs in India .It can also be used at over 4 million Visa Electron merchant locations and equally strong Mastercard outlets. If Debit Card ever gets lost or stolen, card companies protect from fraudulent usage at the loss. It is necessary to have a savings or current account with the debit card issuer; by filling an application form. The card company then couriers the card across around a weeks time. The Debit card does have a daily limit which could be somewhere around Rs. 15,000 at ATMs, and Rs. 10,000 at merchant locations. This again is subject to the balance available in the account.

8 Advantages of Debit Card

Debit Card is often easier to get than a credit card. Check approval or to show identification at store is not required. No need to carry cash, a checkbook or traveler's checks. Debit cards are more readily accepted than checks, especially at the time of traveling. No interest charges are to be paid by debit cardholders. Debit card processing fee for the merchant are generally lower than credit card fees. Disadvantages of a debit card

Enough money is required in bank account to have debit card. Once the amount is paid for purchase, if something goes wrong with the purchase.. Bank won't put money back into your account for items that are never delivered, don't work or were misrepresented.

Bank feessuch as monthly service charges, per-transaction costs or penaltiesfor dropping below the required minimum balance are charged by debit card holders.

More chances of lose or misuse of debit card than a credit card. Two types of debit cards: There are currently two ways that debit card transactions are processed: online debit (also known as PIN debit) and offline debit (also known as signature debit). In some countries including the United States and Australia, they are often referred to at point of sale as "debit" and "credit" respectively, even though in either case the user's bank account is debited and no credit is involved. In India there are basically three types of cards namely Visa, Master Card and Amex. Participating banks like ANZ Grindlays, BoB then issue these cards to the subscribers. Both Visa and Master Card have been popular in India and Amex a relatively new player in India as it issues its cards only through American Express

9 ATM Cards These cards are typically used at automatic teller machines (ATMs) to withdraw cash, make deposits, or transfer funds between accounts. ATM card is used by inserting the card into an automatic teller machine and enter a personal identification number, or PIN, for security. The system checks the account for adequate funds before permitting any transaction. Check Cards These cards can be used to purchase products at any merchant that accepts VISA or MasterCard credit cards. On the surface, they look exactly like ATM cards. However, check cards cannot be used at automatic teller machines. When using a check card no PIN is used. Instead, you will be asked to sign a transaction slip as would be done with a credit card. Debit Card Problems can be worse than Credit Card Problems When an improper charge appears on the credit card it can not automatically out the money and simply need to work with the credit card issuer to have the charge removed from the bill. When an improper charge occurs with a debit card, however, the funds are automatically taken from the account and customer is burdened with attempting to get the money back. Meanwhile, he may experience cash flow problems and the legitimate checks could bounce. Traveling with your Debit Cards The reverse side of the debit card will display the names or symbols of the various ATM systems that will accept the card. Debit card can be used at any ATM in the world as long as the ATM displays one of the same system names or symbols that is on debit card. When obtaining funds at an ATM in a foreign country the funds dispersed will be in the currency of the country going to visit..

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CREDIT CARDS A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid to the merchant. It is also different from a charge card

11 (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard. Credit cards in India are gaining ground. A number of banks in India are encouraging people to use credit card. The concept of credit card was used in 1950 with the launch of charge cards in USA by Diners Club and American Express. Credit card however became more popular with use of magnetic strip in 1970. Credit card in India became popular with the introduction of foreign banks in the country. Credit cards are financial instruments, which can be used more than once to borrow money or buy products and services on credit. Basically banks, retail stores and other businesses issue these. Major Banks issuing Credit Card in India

State Bank of India credit card (SBI credit card) Bank of Baroda credit card or (BoB credit card) ICICI credit card HDFC credit card IDBI credit card ABN AMRO credit card Standard Chartered credit card HSBC credit card Citibank Credit Card How credit cards works A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but

12 sometimes a captive bank created to issue a particular brand of credit card, such as Chase, Wells Fargo or Bank of America, issues the credit. When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a Card not present (CNP) transaction. The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, either to encourage balance transfers from cards of other issuers, or to encourage more spending on the part of the customer. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance Because of intense competition in the credit card industry, credit providers often offer incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their program. Parties involved: Cardholder: The owner of the card used to make a purchase; the consumer. Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the

13 card is used fraudulently. American Express and Discover were previously the only cardissuing banks for their respective brands, but as of 2007, this is no longer the case. Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant. Independent sales organization: Resellers (to merchants) of the services of the acquiring bank. Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with. Credit Card association: An association of card-issuing banks such as Visa, MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks. Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.

Benefits of Accepting Plastic

More Sales: Studies show that credit card customers spend 2 1/2 times more than customers who only carry cash.

Impulse Buying: Credit cards give customers freedom to spend for previously unplanned purchases.

More Expensive Merchandise: Credit cards entice customers to purchase more expensive merchandise than they had originally planned to buy.

Competitive Weapon: Credit card customers are often less conscious of slight price differences and will seek out businesses that offer credit card payment options.

Enhanced Advertising: Since customers are more likely to shop at businesses where they have credit card acceptance, they tend to look for and read those ads first.

Steadier Sales: Credit smoothes out business peaks. Cash shoppers buy heavier on paydays and just before holidays; credit card customers buy whenever the need arises

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Customer Loyalty: Research shows customers who spend more on credit tend to return to the same business again. Disadvantages On the other hand, credit cards can

1. Cost much more than other forms of credit, such as a line of credit or a personal loan, if not paid on time. 2. It damages the credit rating if payments are late. 3. Allow to build up more debt than actually handled by customer. 4. It has complicated terms and conditions.

DIFFERENT TYPES OF CREDIT CARDS

Charge card A charge card carries all the features of credit cards. However, after using a charge card you will have to pay off the entire amount billed, by the due date. If you fail to do so, you are likely to be considered a defaulter and will usually have to pay up a steep late payment charge.

15 At the time of using the card he is not declared not as a defaulter even if misses due date. A 2.95 per cent late payment fees (this differs from one bank to another) is levied in the next billing statement. Amex card Amex stands for American Express and is one of the well-known charge cards. This card has its own merchant establishment tie-ups and does not depend on the network of MasterCard or Visa. Smart card A smart card contains an electronic chip which is used to store cash. This is most useful when you have to pay for small purchases, for example bus fares and coffee. No identification, signature or payment authorisation is required for using this card. The exact amount of purchase is deducted from the smart card during payment and is collected by smart card reading machines. No change is given. Currently this product is available only in very developed countries like the United States and is being used only sporadically in India.

Diners Club card Diners Club is a branded charge card. There are a wide variety of special privileges offered to the Diners Club cardholder. For instance, as a cardholder you can set your own spending limit. Besides, the card has its own merchant establishment tie-ups and does not depend on the network of MasterCard or Visa.

16 However, since this card is typically meant for high-income group categories, it may not be acceptable at many outlets. It would be a good idea to check whether a member establishment does accept the card or not in advance. Photo card In this photograph is imprinted on a card, and then you have what is known as a photo card. Doing this helps identify the user of the credit card and is therefore considered safer. Besides, in many cases, your photo card can function as your identity card as well. Global card Global cards allow you the flexibility and convenience of using a credit card rather than cash or travellers checks while travelling abroad for either business or personal reasons. Co-branded card Co-branded cards are credit cards issued by card companies that have tied up with a popular brand for the purpose of offering certain exclusive benefits to the consumer. . Affinity card The card issuer ties up with popular organisations/ institutions which are often non-profit organisations (Citi-WWF card or the Stanchart-Cricket cards) to offer an affinity card. When the card is used, a certain percentage is contributed to the organisation /institution by the card issue MasterCard and Visa MasterCard and Visa are global non-profit organisations dedicated to promote the growth of the card business across the world. They have built a vast network of merchant establishments so that customers world-wide may use their respective credit cards to make various purchases.

17 Visa card: Visa, Inc., commonly called VISA, is an economic joint venture of 21,000 financial institutions that issue and market Visa products including credit and debit cards. The company was originally named Visa International Service Association. The name change occurred in the fall of 2007 as a part of Visas restructuring and IPO plan. The company is based in San Francisco, California, USA. Operations Visa offers through its issuing members the following types of cards:

Debit cards (pay from a checking / savings account) Credit cards (pay monthly payments with interest) Prepaid cards (pay from a cash account that has no check writing privileges) Visa operates the PLUS ATM network and the Interlink EFTPOS network, which facilitate the "debit" protocol used with debit cards and prepaid cards. Visa card

Credit vs. debit Even though the service is offered by thousands of banks, the end result is standardized for consumers by the Visa International Association. Two protocols are used, depending upon the type of card marketed, often called "credit" and "debit." The names of the two protocols use the arbitrary "debit" and "credit" from accounting meaning left and right, and they originally had the meanings (and still do to many people) that with credit the cardholder pays later for the purchase, and with debit the cardholder pays immediately. The debit protocol involves using the card at a point of sale terminal (POS) or automated teller machine where the PLUS

18 or Interlink logo is shown, with a Visa card that has the PLUS or Interlink logo on the back of the card. A PIN (personal identification number, known by its acronym) is used to identify the cardholder. The money is deducted from the attached checking account or prepaid account (which is similar with no paper check-writing capability). The credit protocol involves using the card at a POS or a banking center where the Visa logo is shown. The cardholder's signature is generally used for identification, often together with the cardholder's civic registration number or ID card/passport. Holders of any Visa card may use the credit protocol even if the card is marketed as a debit card or prepaid card (basically since it has the Visa logo on the front of the card) MasterCard: MasterCard Worldwide is a multinational corporation based in Purchase, New York, USA. Throughout the world, its principal business is to process payments between the banks of merchants and the banks of purchasers that use its "MasterCard" brand debit and credit cards to make purchases. MasterCard Worldwide has been a publicly traded company since 2006. Prior to its initial public offering, MasterCard Worldwide was a membership organization owned by the 25,000+ financial institutions that issue its card. It was originally created by United California Bank (later First Interstate Bank, subsequently merged into Wells Fargo Bank), Wells Fargo, Crocker National Bank (also subsequent .As at 31 March 2007, over 187 million MasterCard cards (excluding Maestro and Cirrus) had been issued by MasterCard customer financial institutions across APMEA. Cardholders in the region made more than 667 million purchase transactions in the first quarter of 2007 and could use their MasterCard cards at 25.1 million acceptance locations worldwide. Serving nearly 25,000 member financial institutions worldwide, MasterCard is the #2 payment system in the US. The company does not issue credit or its namesake cards; rather, it markets the MasterCard (credit and debit cards) and Maestro (debit cards) brands, provides the transaction authorization network, establishes guidelines for use, and collects fees from members. The company provides services in more than 210 countries and territories; its cards are accepted at more than 23 million locations around the globe. MasterCard also operates the Cirrus ATM network. As a significant link between monetary institutions plus millions of businesses, cardholders and traders globally, mastercard card provide services in further than 210 countries along

19 with territories. Debit mastercard plus credit mastercard moves forward trade worldwide by increasing extra secure, suitable and satisfying payment results, dealing out billions of expenses flawlessly transversely the globe, and structuring fiscal connections that speed up business. The mastercard com modernized and smart approach to dealing out enables competent trade on a global level. It is found on a supple network, lone of the biggest VPNs in the globe, which presents unmatched speed, combination, and consistency. MasterCard assists banks along with merchants raise by enabling fast acceptance of new ways to disburse and offering modified solutions that bring importance in the course of technology As it seems to the prospect, MasterCard are dedicated not just to ongoing to distribute value to its clients and further stakeholders, but as well to helping the benefits of electronic payments, speeding up the dislocation of cash as well as checks, and going forward trade transversely the world. To help educate consumers on financial management, MasterCard launched free tools that are designed to be easily understandable for consumers in order to help them manage personal finances

DIFFERENCE BETWEEN A DEBIT CARD AND A CREDIT CARD A debit card looks like a credit card; it works more like cash or a personal check. pay now." With a credit card, you "pay later." Debit means "subtract." In case of debit card the amount is automatically subtracted from checking or saving account, credit cards are used in stores for purchases. At check-out, the card reader electronically contacts the bank and subtracts the amount from the account. The money in bank account limits how much the customer can spend. However, if the customer is not careful in watching the daily account balance, he can over withdraw the account. Some

20 systems will allow to use the debit card even when don't have enough money in the account to cover the purchase. This can result in hefty overdraft fees. Using a credit card is somewhat like taking out a loan from a bank or other financial institution. Customer have to pay back the credit used each month. If he pays back less than the full amount owe each month, he is to pay interest on the amount not paid back. The credit card company sets the total amount that can charge based on your credit history, income, debts and ability to pay. Some cards are dual-purpose credit/debit cards. Before swiping the card through the reader, select a "credit" or "debit" button on the reader. If you select "debit," then enter your Personal Identification Number (PIN). If select "credit," the credit receipt is given to sign and credit charges will appear on the next charge account bill.