Plastic Money in India

CHAPTER:-1 INTRODUCTION
1.1 INTRODUCTION The plastic cards began to be widely used only after 1970, when the specific standards for magnetic strip where set. In the late 1990s, plastic card become very common and by 2001, plastic money had become an essential form of ready money the global card market is dominated by two US-based players, Visa and Master card. Visa introduced its first credit card, Bank America in 1958, which went on to become a great success acquiring universal merchant acceptance. Visas card base increased significantly through the decades. Master card International was established in the 1970s. The first Master card was issued in 1988, in Soviet Union. Credit cards in India, made their introduction in 1981, and are on the verge of an exceptional boom. Between 1987 and 2001, the market has virtually grown to over 4 million cards with over 25-30% of compounded annual growth in new cardholders base. 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 busy with different types of cards ranging from gold, silver, global, co-branded credit cards, smart to secure, the list is endless. There is immense growth potential in the domestic card industry. A glance at the Indian population reveals that India's middle/upper middle class (target segment) represents a population of over 10 m. There are only 2 to 3 m cardholders, each possessing an average of 2 cards. This is a very low figure
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Plastic Money in India given India's huge middle to upper class population. There is no doubt that the domestic card industry has to yet to mature and offers significant long-term growth potential. 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. 1.2 HISTROY Paper money was first used in china around the seventh century AD, only to be out lowed in 1455. The use of folding currency re-emerged in England in 1694. The biggest problem which was occurring with the paper note is the wear; the paper note was very small life due to shifting of ownership by time to time and their usage. Firstly Australia was the first who develop the plastic note which have longer life but after wore they are recycled for further utilizing. The plastic notes also secure the government for copying because paper note easily copied but plastic note cannot be copied. The plastic money note are some as paper but the only difference is that are made of plastic and more secured but in travelling and shopping people used to carry huge cash which was very unsecured and also increasing crime rate. Then the cards are introduced in the world to resolve the issue of carrying huge cash then card is known as plastic money. The usage of plastic money has increased in the mode of payment of huge amount and time by time there are lots of different types of plastic money has introduced which enhanced the features of plastic money like we can use it
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Plastic Money in India to anywhere in the world. Now the world is becoming globalize so every card is accepted everywhere with the power of VISA which interconnect the different countries. 1.3 MEANING Plastic money is the alternative to the cash or the standard money. Plastic money is used to refer to the credit cards or the debit cards that we use to make purchase in our everyday life. Plastic money is much more convenient to carry around as you do not have to carry a huge sum of money with you. It is also much safer to carry it along or to travel with it as if it is stolen one can consult the bank whose service you are using and get it blocked hence saving your money from getting stolen or even lost. Nowadays even developing countries like India are encouraging the use of this plastic money more than cash due to this reason. 1.4 DEFINITION A slag phrase for credit cards, especially when such cards used to make purchase. The plastic portion of this term refers to the plastic construction of credit cards, as opposed to paper and metal of currency. The money portion is an erroneous reference to credit cards as a form of money, which they are not. Although credit cards do facilitate transactions, because they are a liability rather than an asset, they are not money and not part of the economys money supply.

Plastic Money in India

CHAPTER:-2 FUTURE SCENARIO OF PLASTIC MONEY

Starting from 'Diners Club', some 50 years ago, the card industry has been growing with a rapid pace world over and so has been the growth in the domestic card industry. With only two players in domestic card industry, HSBC and Citibank in the early 80s, the number swelled to over 25 in the year 2001. Credit cards in India, made their debut in 1981, and are on the verge of an unprecedented boom. Between 1987 and 2001, the market has virtually grown to over 4 million cards with over 25-30% of compounded annual growth in new card holders base. 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 nationalized banks and private sector banks like ICICI and HDFC Bank are aggressively launching credit card with value added features. There is immense growth potential in the domestic card industry. A glance at the Indian population reveals that India's middle/upper middle class
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Plastic Money in India (target segment) represents a population of over 10 m. There are only 2 to 3 m cardholders, each possessing an average of 2 cards. This is a very low figure given India's huge middle to upper class population. There is no doubt that the domestic card industry has to yet to mature and offers significant long-term growth potential. Given the lack of maturity of the domestic card industry, its growth will depend upon building core retail business, with more complicated products. In the expansion of domestic credit card market, the existing foreign players, SBI, other nationalized banks and the new domestic private sector banks are expected to play important role with complementary strategies. Foreign banks with the advantage of technology and industry experience are expected to concentrate on increasing card spending and customer loyalty in the major cities. SBI, on the other hand is expected to capitalize its superior distribution network to expand card acceptance in the smaller towns. The new private sector banks would have the opportunity to capture significant market share by combining the strengths of foreign banks and nationalized bank like SBI. Although at present the card market is mainly limited to India's 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 cannibalizing other foreign banks' existing cardholder base.

Plastic Money in India

CHAPTER: - 3 CREDIT CARDS

3.1 INTRODUCTION Credit Cards are innovative ones in the line of financial services offered by commercial banks. The idea of credit card first developed by a Bavarian farmer, Franz Nesbitum Mc Namara, an American businessman who found himself without cash at a weekend resort founded Diners card in 1950.Right from that time, the commercial bank and non-banking companies in USA adopted the idea of credit card to develop their business. Barclays Bank was the first bank to introduce credit in 1966 in Britain. The credit card has evolved over the last thirty years into one of the most accepted, convenient, and profitable financial product. It is accepted by millions of consumers and merchants worldwide as a routine means of payment for all varieties of products and services. The rapid growth of the credit card industry evidences the cards value to the financial community, including consumers, merchants, and issuing banks. Credit cards play a role in the strategic plans of many banks either as a card issuer, merchant acquirer, or an agent bank. Issuing banks are directly involved in the credit card business through the actual issuance of cards as a member of an interchange system. Issuing banks also or hold sell the credit card loans and, therefore, bear some credit risk. An agent bank is a bank that has entered into an agreement to participate in another banks card program, usually by turning over its applicants for credit
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Plastic Money in India cards to the bank administering the program and by acting as a depository for merchants. The dynamics of todays credit card market make it necessary for the successful issuing bank to manage every aspect of the lending process. In the past, success may have just happened, but with todays strong competition from other issuers, including nonbanks, and rapidly changing technologies, every step in the lending function is crucial to maximizing profits. Competition, market saturation, and changing consumer demographics and attitudes have also forced the successful issuing bank to be innovative with the credit card products it offers and its customer selection and management methods. Credit cards are now available free with lots of features in addition to the payment convenience and credit period. To promote the usage of card, most banks offers certain reward points and cash-back scheme. In the case of issuing card, RBI says that while using issuing card, the terms and condition for issue and usage of a credit card should be mentioned in clear and simple language comprehensible to a card user. 3.2 MEANING A credit Card is a card or mechanism which enables cardholders to purchase goods, travel and dine in a hotel without making immediate payment. The holders can use the card to get credit from banks up to 45 days. The card relives the consumers from the botheration of carrying cash and ensures safety. It is a convenience of extended credit without formality.

Plastic Money in India 3.3 WHO CAN BE A CREDIT CARDHOLDER? The general criteria applied are a persons spending capacity and not merely his income or wealth. The other criteria are the worthiness of the client and his average monthly balance. Most of the banks have clear out norms for giving credit card. 1. A person who earns a salary Rs.60, 000/- per annum is eligible for a card. 2. A reference from a banker and the employers of the application is insisted upon. 3. He should have a savings current account in the bank. 4. His assets and liabilities on a particular date are reported to bank. 5. A statement of annual or monthly income. 6. He is considered credit worthy upon to certain limit depending upon his income, assets and expenditure. The eligible customer is asked to fill in application form giving the details of account number , name , address , income , wealth status and a proof of his income/wealth etc. 3.4 PARTICULARS DISPLAYED ON THE CREDIT CARDS Every credit card bears the following particulars: 1. NAME OF THE CUSTOMER: Every card displays the name of customer. It should be spelled correctly. In case, it does not, the customer can contact the customer service cell/helpline and get the necessary correction done. This facility is provided free of cost by the bank.

Plastic Money in India 2. 16-DIGIT CARD NUMBER: A unique 16 digit number is allotted to every customer/ cardholder. 3. VALIDITY DATE: The card mentions the period through which it is valid. The card is usually valid from the it is received by the customer unto and including the last day of the month indicated on the card. After the card has to be renewed. 4. THE VISA HOLOGRAM AND THE VISA LOGO: The hologram and the logo ensure that all the establishments throughout the world displaying the visa logo will accept the card. 5. NAME OF THE ISSUING BANK: The card indicates on the top the name of the issuing bank. 6. SIGNATURE PANEL: The back of the card contains the signature panel. The customer must put his signature on the signature panel to prevent misuse by any other person. This identifies the card holder. Signature on the panel would imply that card holder has given his consent to abide by the terms and conditions governing the use of the credit card. The card is valid is only if signed.

Plastic Money in India 7. MAGNETIC STRIP: The black magnetic strip contains important information in encoded from and needs special handling. The card should not be kept in an area where there is a continuous magnetic field. It should not be left on the top the television. Set or near any electronic appliance. The card should be kept away from heat and direct sun light.

8. PIN (PERSONAL IDENTIFICATION NUMBER): Each card holder is issued a password or pin to enable use of the card for accessing his/her card account on the ATM and internet and also for availing any privilege, benefit or service that may be offered by bank on the card. The pin is communicated to the cardholder entirely at his/her risk who shall not disclose the pin to any person and shall take all possible care to avoid its discovery by any person. The card holder shall be liable for all transactions made with the use of the pin whether with or without the knowledge of the cardholder.

3.5 PARTIES TO A CREDIT CARD There are three parties to a credit card issuer, card holder, and the member establishments. 1. ISSUER:The banks or other card issuing organizations. 2. CARD HOLDER:Individuals, corporate bodies and non-individual and non-corporate bodies such as firms.
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Plastic Money in India 3. MEMBER ESTABLISHMENTS:Shops and service organization enlisted by credit card transactions to the issuer who accept credit cards. The member establishments may be a business enterprise dealing in goods and services such as retail outlets, departmental stores, restaurants, hotels, hospitals, travel agencies, etc. Member establishments have to pay a certain percentage of discounts on the credit card transactions to the issuer. Some organizations charge a specified sum as service charge. For instance, Indian Railway levy a service charge of Re. 1 per ticket in addition to the fare. 3.6 MEMBER AFFILIATE There is one more party to the credit card, in the case of tie up arrangement, called member affiliate. The issue, May sometimes, enter a tie up arrangement for issuance of credit cards with other organizations. Such organizations are called member affiliates. In such cases, the organizations which have tie up arrangements also issue cards of the issuer to their clients. Credit Card issued by Member Affiliates contains the name and logo of the Member Affiliate on the face of the card, besides name and logo of the issuer. This arrangement enlarges the scope and operations of the credit card.

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Plastic Money in India

CHAPTER: - 4 TYPES OF CREDIT CARD

According to the purpose for which the credit cards are used, they can be classified into three main categories:1. CREDIT CARD It is a normal card whereby a holder is able to purchase without having to pay cash immediately. This credit card is built around revolving credit principle. Generally, a limit is set to the amount of money a cardholder can spend a month using the card. At the end of every month, the holder has to pay a percentage of outstanding. Interest is charged for the outstanding amount which varies from 30 to 36 per cent per annum. An average consumer prefers this type of card for this personal purchase as he is able to defer payment over several months. 2. CHARGE CARD A charge card is intended to serve as a convenient means of payment for goods purchased at Member Establishments rather than a credit facility instead of paying cash or cheque every time the credit card holder makes a purchase; this facility gives a consolidation for a specified period, usually one month. Bills are payable in full on presentation. There are no interest charges and no present spending limits either. The charge card is useful during business trips and for entertainment expenses which are usually borne by the company.

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Plastic Money in India 3. IN-STORE CARD The in-store cards are issued by retailers or companies. These cards have currency only at the issuers outlets for purchasing products of the issuer company. Payment can be on monthly or extended credit basis. For extended credit facility interest I charged. In India, such cards are normally issued by star Hotels, resorts and big hotels. NEW TYPES OF CREDIT CARD 1. CORPORATE CREDIT CARDS Corporate cards are issued to private and public limited companies and public sector units. Depending upon the requirements of each company, operative Add-on cards will be issued to persons authorized by the company, i.e., directors, secretary of the company. The name of the company will be embossed on Add-on cards along with the name of the Add-on cards. The transactions made by Add-on cardholders are billed to the main card and debits are made to the companys account. 2. BUSINESS CARDS Business card is similar to a corporate card. It is meant for the use of proprietary concerns, firms, of chartered Accountants etc. This card helps to avail of certain facilities for reimbursement and makes their business trips convenient. An overall ceiling fixed for this card is also based on the status of the firm.

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Plastic Money in India 3. SMART CARDS It is a new generation cars. Embedded in the smart card a microchip will store a monetary value. When a transaction is made using the card, the value is debited and the balance comes down automatically. Once the monetary value comes down to nil, the balance is to be restored all over again for the card to become operational. The primary feature of smart card is security. It prevent card related frauds and crime. It provides communication security as it verifies whether the signature is genuine or not. The cards also recognize different voices and compare with the recorded original voice. It is used making purchase without necessarily requiring the authorization of personal identification number as in a debit card. Smart card is an electronic pause which attempts to prove to be a panacea for all problems associated with traditional currency. 4. DEBIT CARDS Credit cards have proliferated during the last couple of year in all countries and have become an acceptable alternative to paper currency. The developed countries like USA have moved a step further. Debit card, an electronic product has become more popular in this county. A debit card is only accepted at outlets with electronic swipe-machines that can check and deduct amounts from bank balance online.

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Plastic Money in India 5. ATM CARD An automated teller machine (ATM) is a computerized telecommunications device that provides the customer of financial institutions with access to financial transactions in a public space without the need for a human clerk or bank teller. On most modern ATMs the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smartcard with a chip, that contains a unique card number and some security information, such as an expiration date or CVC. Security is provided by the customer entering a personal identification number (PIN). Using an ATM, customer can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances. ATM are known by various casual terms including automated banking machine, money machine, cash machine, hole-in-the-wall, cash point or Bancomat ( in Europe and Russia) 6. VIRTUAL CARD There is always a fear in the minds of credit card holder that their credit card numbers might get into the hands of some unscrupulous persons who could siphon away whatever they can. For those who dont want to part with their credit card number to the merchant web site, to go for a virtual card. A virtual card is nothing but a card that can be generated by anybody at any time provided he has already registered his name in the
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Plastic Money in India banks web site. What is even better, one can also set monetary limits for each card usually limited to the value of the item he intended to purchase. Of course, this value should be limited to his bank balance or the credit limit. This completely prevents misuse. It is a kind of facility offered to existing card holders at free of cost. For example, the HDFC has introduced its Net safe card for its credit/debit card holders at free of cost. 7. GLOBAL CARD Global Card allow the flexibility and convenience of using a credit card rather than cash or travelers checks while travelling abroad for either business or personal reasons. The limits of the money that can be spent in foreign currency are determined by the RBI based on certain norms. 8. AFFINITY CARD The Card issuer ties up with popular organization/institution which is often non-profit organization to offer an affinity card. When the card is used, a certain percentage is contributed to the organization/institution by the card issuer. 9. 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 customer. For example the City-Times card gives all the benefits of a Citibank credit card along with a special discount on Times Music Cassettes, free entry to Times Music event, etc.

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Plastic Money in India

CHAPTER:-5 ADVANTAGES AND DISADVANTAGES OF CREDIT CARS

5.1 ADVANTAGES OF CREDIT CARD Credit cards can make it easier to buy things. Credit cards may also offer additional protection if something has bought is lost, damaged, or stolen. Both credit card statement (and the credit card company) can vouch for the fact that has made a purchase if the original receipt is lost or stolen. In addition to the benefits listed above, some credit cards offer additional benefits, such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance.) Credit cards can also be useful in times of emergency. The benefits of credit card to various parties are given below 1. CARD HOLDERS Credit cards are simple to operate and easy to carry. The holders are relived from the risk of carrying cash or cheque book with them. A card is a convenient method of payment of goods and services. The holders have the option to purchase goods and services and pay conveniently at a later date in manageable installments compatible with their household budget. Owing to revolving nature of credit, the customer can take advantages of it as and when he pleased within the overall limit. Cash can be obtained at any branch of the issuer. The ATM facility is extended o cardholders who need not stand in queues and spend time
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Plastic Money in India unnecessarily at banks. By just inserting a card into on ATM, the holder can withdraw crisp new notes at any time of day or night. Overdraft facility is given to card holders who are entitled to spend more than their actual limit. The amount of overdraft depends on the holders past credit rating. The purchasing power of the card holder increase to the extent of credit limit given in the card. If wisely used by consumers, credit cards can provide them extra money interest free. All that one has to do is to settle the bill in time. Credit cards provide a certain degree of prestige to the holder. The status which one gets is not only because of his membership in a credit card organization but because the card at once makes him great in a part of wider phenomenon. Visa, American Express and Master card are all prestigious international organization spread over 50 to 60 countries and their affiliated cards being acceptable in thousands of establishments all over the world. 2. ISSUERS Credit Cards offer high profit for the banks. They get commission or discount, usually 2.5 per cent, on sale through credit cards. An interest charge of 1.5 per cent is made on all outstanding. Thus, a single transaction through credit card, assuming the customer does not repay within the stipulated period will fetch income of 5 per cent per annum; miles ahead of which works out as much as 60 per cent per annum; miles ahead of the prime lending rate of many banks. As more and more take advantages of the credit facility the credit card service become more profitable.
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Plastic Money in India Where the card is issued to non-account holders it may help to get new customers. A credit card system helps control bank cost as it reduces the number of cheques issued by the customer. 3. MEMBER ESTABLISHMENT The merchant has guarantee of payment and his account is credited immediately on submitting the charge slip into his bank. No bad debt arises in credit card transactions. A good cash flow is established because of the speedy settlement of bills by bank. The acceptance of card in lieu of cash reduces security risk. Member establishments are able to offer credit facility to their customers without setting up their own credit arrangements. 5.2 DISADVANTAGES OF CREDIT CARD The rapid growth of the payment card industry worldwide has lead to a dramatic rise in credit card frauds. A significant amount of money is lost because of frauds. The biggest disadvantage of credit cards is that they encourage people to spend money that they don't have. Most credit cards do not require paying off balance each month. While this may seem like 'free money' at the time, will have to pay it off and the longer wait, the more money will owe since credit card companies charge interest each month on the money have borrowed. Credit card companies charge you an enormous amount of interest on each balance that doesnt pay off at the end of each month. A good way to look at this is in comparison to what would earn in interest from a bank or owe in
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Plastic Money in India interest to a bank loan: Savings accounts may pay around 2% interest; if have a loan from a bank may pay them around 10% interest (5 times as much earn off savings); if owe money to a credit card company, may pay them around 20% interest (10 times as much as earn off savings.) Like cash, sometimes credit cards can be stolen. They may be physically stolen (if lose wallet) or someone may steal credit card number (from a receipt, over the phone, or from a Web site) and use card to rack up debts. The Demerits of credit card to various parties are given below:

1. CARD HOLDER The card holders are burdened with services, charge, annual fee, membership fee, etc. a high rate of interest is charged for delayed payment. A minimum of 5-10 per cent on monthly purchase apart from the additional charges are to be paid in case the consumers postpone the payment beyond the stipulated credit period. According to a recent survey, 65 per cent of card holders are ignorant about the high interest charged on outstanding balance. Credit Cards tempt the holders for more purchases beyond their income and repaying capacity.

2. ISSUER The cost involved in the credit card business is high which include cost of plastic card to be imported, cost of information, cost of placing and marketing cards, cost of staff to monitor processing of applications and to carry out credit checks on applicants etc. Unless the number of card

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Plastic Money in India holders and the volume of business are high the credit card business will not be a profitable one. The menace of frauds perpetuated by holders of bogus card and sometimes in collusion with the member establishments is the major problem for the issuers. The average utilization of credit card is only 20 per cent to 30 per cent in India. The underutilization of this facility erodes the profitability of banks.

3. MEMBER ESTABLISHMENTS The commission to be paid to the issuing bank/credit card organization is heavy. Some banks make delay in payment due to lack of adequate system and trained personnel which affect the cash flow of the member establishments.

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Plastic Money in India

CHAPTER:-6 CREDIT CARD BUSINESS IN INDIA

Credit card is relatively new to India. Andhra bank and Central Bank of India introduced credit cards in 1981. As of now there are about a dozen major banks, Indian and Foreign, which have entered this line of business, besides some non-banking institution. Since the plastic money has today become as good as legal tender more people are using them in their day-to-day activities. The features of credit cards issued by major banks are described below: 1. ANDHRA BANK Andhra Bank introduced Andhra Bancard in 1981 having linkage with VISA and Japan credit Bureau International cards. It has now a membership around 1, 00,000 and member establishments around 5400 over the country with annual billing of Rs. 120 crores. Features 1. Open to non-account holders also. 2. Individuals with assured income of Rs. 12,000 per annum are eligible to get the card. 3. Credit is allowed free of charge if the account is settled within 15 days from the date of settlement. 4. Service charge of 2.5 per cent per month is collected on the unpaid balance amount.

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Plastic Money in India 5. Advance facility of Rs. 1,000 is allowed twice a month at pieces other than the card holders domicile. 6. The cash advance handling charges are levied at 3 per cent of the amount availed as advance. 7. The card is valid for two years and renewed thereafter periodically. 8. Membership fee and annual subscription is charged for individuals members, add-on cards and corporate cards at the prescribed rates. 9. Fatal accident insurance coverage by air travel up to Rs. 50,000 is available to classic card holders. 10.It is tied up with the world wide Master Card system. 2. CENTRAL BANK The Central Bank issued Central Card in 1981. It has a membership of 1, 00,000 and member establishments around 10,000 with annual billing of Rs. 65 crores. Features 1. It is open to those having saving or current account with sufficient balance and satisfactory dealing with the bank. 2. The cards are issued to individuals with and without add-on facility. 3. Free credit is allowed for three weeks after which interest is charged. 4. Services charge of Rs. 50 per annum is levied if not utilized at least for Rs. 2,000 during the period.

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Plastic Money in India

3. BANK OF BARODA Bank of Baroda introduced BOB card in 1985. Its membership is around 2.8 lakhs and member establishments are approximately 15,000. It has an annual transaction of about Rs. 120 crores. Features 1. Open only to account holders with well conducted accounts for at least two years and having an annual income of Rs. 75,000 or more. 2. The facility is extended to family members Rs. 100 per annum for each add-on member is charged. 3. Cash advance facility not exceeding Rs. 5,000 is allowed for a period of 15 days. 4. Introduced BOB card exclusive offering certain exclusive benefits to the card holder.

4. CANARA BANK CAN CARD, Canara Banks credit card was launched in August 1987. Features 1. Can card is issued to customers as well as non-customers of the bank. 2. Cash withdrawals up to 20 per cent of the card limit is allowed. 3. Add-on facility is given to family members of card holders. Add-on cards provide all benefits including insurance coverage of main card holders except cash withdrawals.
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Plastic Money in India 4. Valid for one year initially subject to renewal after expiry. 5. It is basically a charge card with no facility for payment of bills in installments. 6. Bills are sent once in a month and holders are given a time up to 15 days from the date of bill for payment. 7. Right from the date of issue of the card, the holder is covered by insurance against the risk of death due to accident up to Rs. one lakh. 8. Under CAN COMFORT scheme, insurance cover against the risk of death or injury due to accidents for amounts ranging from Rs. one lakh to Rs. ten lakhs is available. It also offers a variety of mediclaim plans to cover hospitalization expenses. The number of card holder is 1, 60,000. The can card is accepted in 16,000 member establishments. 5. BANK OF INDIA Bank of India introduced INDIA CARD in 1988 and Taj premium Card in 1990 in association with Taj Group of Hotels. Both these cards are affiliated to Master card international. Features 1. Issued to account holders having a well run account for about two years. 2. The membership fee is Rs. 100 per annum plus service charge of 1.5 per cent 3. Add-on facility for a maximum of two members is available at a cost of Rs. 50 per head.

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Plastic Money in India 4. Cash up to Rs. 3,000 a month can be withdrawn from any of the branches. 5. Free flight insurance coverage up to Rs. 40 crores.

6. STATE BANK State bank card is a cheque cars scheme quite different from other cards. Features 1. There are two types: (1) The Regular card and (2) Hi-Value card. 2. There is photograph of the credit holder on the card. 3. Special cheque books of different denominations are given to the customers. 4. Spending limit for a saving account holder is Rs. 5,000 and for a current account holder is Rs. 10,000. For a Hi-value holder it is Rs. 25,000. 5. Overdraft facility is available. 6. The membership fee is Rs. 20 per cent for Regular card holder and Rs. 125 for Hi-value card holder. 7. Card can be used to withdraw cash from any branch of SBI or its associate banks. 8. There is no formal list of member establishments but there are suppliers honouring the card and guaranteeing payments for the cheques issued by the bank.

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Plastic Money in India 7. VIJAYA BANK Vijaya Banks (Master Card) has the following. Features 1. Those with income of Rs. 3,000 per month are eligible to get a card. 2. The fees payable are entrance fee of Rs 100. If the turnover exceeds Rs. 3,000 per annum, then yearly subscription is waived. 3. Cash withdrawals up to Rs. 2,500 per month. 4. ATM cum Master Card helps one to avail of 24 hour banking service. 5. Add-on cards are available at Rs. 100 each add-on card. 6. Premium Gold Master Card is valid all over the world.

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Plastic Money in India

CHAPTER:-7 DEBIT CARD

7.1 INTRODUCTION Debit Cards, also called check card appear similar to an ATM or a credit card. Through debit card serves the same purpose as a card, unlike a credit card, it does not offer any credit facility, but entails a debit to the holders bank account every time it is used. In other words, the debit card works like a cheque book, giving the holder access to his bank account at all hours. It makes sure the holder spends only the balance available in his account and also keeps track of his purchases. The debit card design is similar to that of any credit card or an ATM card and follows the same process of authentication. Businesses with a merchant account can accept plastic cards in one of two ways: 1. Off-line Debit Card Transaction The most popular way to accept debit cards is in a retail environment. The cardholder makes a purchase and presents their debit card for a face to face transaction. The card is swiped through the credit card terminal and the machine calls the processor to ask for an approval. Within seconds a receipt will print or a decline message will show up on the terminals display. Merchants will be able to accept all types of debit cards just to make sure that they have a Visa or MasterCard logo on them.

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Plastic Money in India 2. Online Debit Card Transaction The online pin setup is the latest feature that has been added to retail merchant accounts. Card holders have added protection and merchants get charged a much lower fee. The card is swiped directly through the machine similar to a regular offline debit transaction. The cardholder however does not sign a receipt but enters their PIN on the PIN Pad that is connected to the terminal. The information will then be encrypted and sent through the credit card machine to the processing company and then to the bank for approval. The business has money deposited into their bank account just as it is with regular sales.

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Plastic Money in India

CHAPTER:-8 ADVANTAGES AND DISADVANTAGES OF DEDIT CARD

8.1 ADVANTAGES OF DEBIT CARD

1. Obtaining a debit card is often easier than getting a credit card. 2. It free from carrying cash or a checkbook. 3. Unlike when write a check, using a debit card saves from having to show

identification or give out personal information at the time of the transaction.

4. It can save from having to stock up on traveler's checks or cash when

travel.
5. Debit cards may be more readily accepted than checks, especially in other

states or countries.
6. If return merchandise or cancel services paid for with a debit card, the

transaction will be treated as if it were made with cash or a check. Customers usually get cash back for on-line purchases; for off-line transactions, the amount is credited to account.
7. Most ATMs will allow getting a cash advance against the line of credit on

credit card, using credit card and a separate PIN. Do not necessarily have to have a bank account to do this.
8. A consumer who is not credit worthy and may find it difficult or

impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions. For example, legislation

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Plastic Money in India often prevents minors from taking out debt, which includes the use of a credit card, but not online debit card transactions.
9. For most transactions, a check card can be used to avoid check writing

altogether. Check cards debit funds from the users account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check, containing the account holders personal information.
10. Like credit cards, debit cards are accepted by merchants with less

identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored.
11. Unlike a credit card, which changes higher fees and interest rates when a

cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.
12. The advantages of prepaid debit cards include being safer than carry cash,

worldwide functionality due to Visa and MasterCard merchant acceptance, not having to worry about paying a credit card bill or going into debt, the ability for anyone over the age of 18 to apply and be accepted without regard to credit quality and the ability to direct deposit paychecks and government benefits onto the card for free

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Plastic Money in India 8.2 DISADVANTAGES OF DEBIT CARDS 1. Use of a debit card is not usually limited to the existing funds in the account to which it is linked, most banks allow a certain threshold over the available bank balance which can cause overdraft fees if the user's transaction does not reflect available balance. This disadvantage has lessened in the United States with the requirement that an issuer obtain opt-in permission in advance to allow an overdraft on a debit card. Lacking this opt-in, overdrafts are not permitted for electronic transactions. 2. Many banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may be unknown until later discovery by account holder). 3. Many merchants mistakenly believe that amounts owed can be "taken" from a customer's account after a debit card (or number) has been presented, without agreement as to date, payee name, amount and currency, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks. 4. In some countries debit cards offer lower levels of security protection than credit cards. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. However, theft of users' PIN codes using skimming devices can be equally easily accomplished with a debit transaction PIN input, as with a credit transaction PIN input, and theft using a signature-

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Plastic Money in India based credit transaction is equally easy as theft using a signature-based debit transaction. 5. In many places, laws protect the consumer from fraud much less than with a credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. Because debit cards allow funds to be immediately transferred from an account when making a purchase, the consumer also has a shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card and recover the lost funds, whereas with a credit card, this time may be up to 60 days, and the transactions are removed without losing any credit. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer's bank account, and the consumer will have no recourse.

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Plastic Money in India

CHAPTER: - 9 SMART CARD

Smart cards were introduced in France in 1984. A Smart card is a credit card sized plastic card containing an integrated circuit chip, with memory capacity and high computing ability. In a Smart card permanent data is stored in non-volatile memory and to an extent into volatile memory. Smart cards self containment enables it to work independent of other external resources, thus offering high security protection and authentication. The smart card serves many purposes- it can serve as an identity card for a cardholder, a medical card that contain the medical history of the holder and as a credit card/debit card facilitating off-line transactions. In future single card, with the help of a multi-functional smart card, is expected to replace the conventional magnetic strip card. The single card is referred to an electronic purse or a wallet. The working of the smart card involves many aspects of encryption, along with the authentication process similar to the credit card. The microprocessor embedded in the card and the encryption technology help in the functioning of the card. The transaction in which a smart card is used involves the following steps: 1. The cardholder has to establish his identity every time a transaction is made. 2. For identity verification, the card and the card reader exchange a sequence of encrypted signs to confirm the identity.

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Plastic Money in India 3. After the identity has been verified, the transaction is executed in encrypted from to prevent discrepancies or fraud. Major advantages provided by the smart card technology as compared to magnetic- stripe technology include: 1. Enhanced security that makes it impossible to tamper with the date on the card, and the capability of the card to verify the authenticity of the cardholders. 2. Higher storage capacity than cards using traditional magnetic- stripe technology. 3. Ability to the card to divide storage area and apply separate seciruty to each area. 4. Service as a multiple purpose card and connect the cardholder with various services providers.

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Plastic Money in India

CHAPTER:-10 RISK INVOLVED IN BANKING SUPERVISION

These risks are Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic, and Reputation. These categories are not mutually exclusive, any product or service may expose the bank to multiple risks. The primary risks associated with credit card lending are: credit, transaction, liquidity, strategic, reputation, interest rate, and compliance risk.

1. CREDIT RISK Credit risk is the risk to earnings or capital of an obligors failure to meet the terms of any contract with the bank or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance. It arises any time bank funds are extended, committed, invested or otherwise exposed through actual or implied contractual agreements, whether reflected on or off the balance sheet. Credit risk poses the most significant risk to banks involved in credit card lending. Since credit card debt is an unsecured line of credit, repayment depends primarily upon a borrowers capacity to repay. The highly competitive environment for credit card lending has provided consumers with ample opportunity to hold several credit cards from different issuers and to pay only minimum monthly payments on outstanding balances. As a result, borrowers may become overextended and unable to repay, particularly in times of an economic downturn or a personal catastrophic event.

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Plastic Money in India The majority of credit card programs are priced at a variable rate, which causes minimum payment requirements to fluctuate as rates change. Any

significant increase in interest rates may expose the bank to additional credit risk as a marginal customer struggles to make an increased payment. In addition to credit risk posed by individual borrowers, credit risk also exists in the overall credit card portfolio. Relaxed underwriting standards, aggressive solicitation programs, inadequate account management, as well as a deterioration of general economic conditions, can increase credit risk. Changes in product mix, and the degree to which the portfolio has concentrations, geographic or otherwise, can impact a portfolios risk profile. Banks control credit risk through coordinated strategic and marketing plans. They also have comprehensive policies and procedures that include strong front-end controls over underwriting standards, well-defined account management processes, strong back-end controls for effective collection programs, and good management information systems. Examiners assess credit risk by evaluating portfolio performance, profitability, and customer profiles by business lines, account acquisition channels, credit products, and markets. They also consider changes in underwriting standards, scoring systems, and marketing plans.

1. TRANSACTION RISK Transaction risk is the risk to earnings or capital arising from problems with service or product delivery. This risk is a function of internal controls, information systems, employee integrity, and operating processes. Transaction risk exists in all products and services. A banks success in credit card lending
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Plastic Money in India depends in part on achieving economies of scale. Credit card operations are highly automated, have a large transactional volume, and require strong operational controls. Aggressive growth has the potential to stretch operational capacity and can cause problems in handling customer accounts and in processing payments. To control transaction risk, a bank should maintain effective internal controls and use comprehensive management information systems. Examiners assess transaction risk by evaluating the adequacy of credit card application and processing systems and controls.

2. LIQUIDITY RISK Liquidity risk is the risk to earnings or capital arising from a banks inability to meet its obligations when they come due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Banks use a variety of funding techniques to support credit card portfolios. As such, the techniques individual operations employ have different implications on liquidity risk. For example, a credit card bank self-funded through securitizations (see glossary) has different liquidity risk considerations than a credit card bank funded by its retail parents commercial paper. Likewise, multinational banks with access to a full array of funding sources to support credit card operations have

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Plastic Money in India Different liquidity risk considerations Liquidity risk is present in a banks obligation to fund unused credit card commitments. For example, more consumers use their cards at certain times, such as around gift-giving holidays, so the bank must be aware of seasonal demands. Liquidity risk is also present if a bank securitizes its credit card portfolio. Credit card portfolios comprised of higher risk assets and unusual

portfolio volatility may be difficult to securitize or sell. Failure to adequately underwrite or collect loans also may trigger early amortization of a securitization, which could cause liquidity problems. Such an event may also increase costs or limit access to funding markets in the future. Banks control liquidity risk through a strong balance sheet management process, a diversified funding base, a comprehensive liquidity contingency plan, and laddered securitization maturities, if applicable. To assess liquidity risk, should consider: The reliability of funding mechanisms. The dependence of the credit card operation on securitization of assets. The volume of unfunded commitments. The volume of unfunded commitments. Attrition of credit card accounts. The stability of cobranded and affinity card relationships. The ability to fund seasonal demands

3. STRATEGIC RISK Strategic risk is the risk to earnings or capital arising from adverse business decisions or improper implementation of those decisions. This risk is a
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Plastic Money in India function of the compatibility between an organizations strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation. The resources needed to carry out business strategies are both tangible and intangible. They include communication channels, operating systems, delivery networks, and managerial capacities and capabilities. Strategic risk in credit card lending can arise when business decisions adversely impact the quantity or quality of products, services, operating controls, management supervision, or technology. For example, banks may be exposed to strategic risk if they inadequately plan or market preapproved credit card solicitation programs. To mitigate the risk, management must fully test new markets, analyze results, and refine solicitation offers to limit the risk of booking new credit card accounts that do not perform as anticipated. Examiners assess strategic risk by determining whether bank management has evaluated the feasibility and profitability of each new credit card product and service before it is offered. They also determine whether the banks pricing, growth, and acquisition strategies realistically consider economic and market factors. In particular, examiners evaluate whether a proper balance exists between the banks willingness to accept risk and its supporting resources and controls.

4. REPUTATION RISK Reputation risk is the risk to earnings or capital arising from negative public opinion. This risk affects the institutions ability to establish new

relationships or services, or continue servicing existing relationships. This risk can expose the institution to litigation, financial loss, or damage to its
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Plastic Money in India reputation. Reputation risk exposure is present throughout the organization and includes the responsibility to exercise an abundance of caution in dealing with its customers and community. This risk is present in such activities as asset management and agency transactions. A credit card operation offering an uncompetitive product to the public faces reputation risk because it may be unable to attract new business. In addition, the bank can lose existing relationships if poor service of existing accounts occurs routinely or it does not resolve consumer issues or process payments in a timely manner. Issuing banks often employ vendors to perform solicitation, servicing, collections, or other functions and must monitor and control the products and services provided by a third party. Reputation risk also can occur if a bank offers cobranded or affinity credit cards, because consumers may associate the quality of the banks commercial partner with the bank. A bank has the responsibility to comply with all consumer laws and regulations. Poor compliance can have a negative effect on the consumers acceptance of a banks credit card products. Poorly underwritten or performing receivables can affect a banks reputation as an underwriter of credit card securitizations. This creates a risk that future credit enhancements for securitizing credit card receivables may be available at an increased cost or not available at all. Future accessibility to financial markets may be limited or cost more.

5. INTEREST RATE RISK Interest rate risk is the risk to earnings or capital arising from movements in interest rates. The economic perspective focuses on the value of the bank in
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Plastic Money in India todays interest rate environment and the sensitivity of that value to changes in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (re pricing risk); from changing rate relationships among different yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest related options embedded in bank products (options risk). The evaluation of interest rate risk must consider the impact of complex, illiquid hedging strategies or products, and also the potential impact on fee income, which is sensitive to changes in interest rates. In those situations where trading is separately managed, this refers to structural positions and not trading portfolios. Interest income derived from credit card portfolios is sensitive to changes in interest rates. The predominance of variable rate pricing and wide spreads, however, provides maximum flexibility in managing such risk. The bank should manage interest rate risk on a consolidated basis for the credit card portfolio and within individual product lines.

6. COMPLIANCE RISK Compliance risk is the risk to earnings or capital arising from violations or non-conformance with laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of the banks clients may be ambiguous or untested. Compliance risk exposes the institution to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can lead to
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Plastic Money in India a diminished reputation, reduced franchise value, limited business opportunities, lessened expansion potential, and lack of contract enforceability. Management should ensure that staff involved in credit scoring, processing applications, and collections activity comply fully with these laws and regulations. For their part, examiners should be familiar with fair lending and consumer credit laws and regulations affecting credit card lending.

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Plastic Money in India

CHAPRER: - 11 RECOMMENDATION AND SUGGESION

In todays competition world the banking industry required to be proactive and adopt a range of measures to shape their future: Anticipate and prepare for regulatory change. Focus on identifying core competence and migrate to a business model of choice. Build an optimal operating model by understanding which activities to retain collaborate and outsource. Go beyond compliance to use risk management as a critical decision support tool. Crate and customer, investor and regulator confidence by adopting international accounting standards and improving corporate governance. The no of interest users and the developing technology paved the super highway to internet banking. The comfort and the security play a vital role in switching from the traditional banking system to modern 24/7 net banking. Increasing usage of mobile phones is going to revolutionize the banking culture in near future. Carrying money in the form of plastic cards which is widely accepted every where to buy anything is quite safe and give peace of mind to users is widely accepted.

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Plastic Money in India

CHAPTER: - 12 CONCLUSION
From the study of plastic money in India it is concluded that, now-adays plastic money is not only restricted to the rich or the upper middle class people but even the lower middleclass people are taking the benefit of the plastic card available. Hence through all the research conducted it can be stated that even with many negativities it cannot be denied that it is much more convenient to carry a plastic card rather than cash. This is a most important strength of plastic cards. The customer prefers those banks which provide quality services so the quality services are the basic strength for bank. The easy procedure for obtaining a credit card and debit card is also strength of the plastic card. Inflation is a positive point for banks as due to increased inflation is purchasing power is decreasing and people are more inclined towards use of credit card.

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Plastic Money in India

CHAPTER:-13 BIBLIOGRAPHY
BOOK REFERANCE 1. Dr. S Gurusamy, Financial Services, 2nd edition, Tata McGraw-Hill Education private limited publication. 2. J.N.Jain and R.K.Jain, Modern Banking and Insurance principle and techniques, Regal publication. 3. Dipak Abhyankar, Financial Services Management, vipul prakashan. 4. V.A.Avadhani Financial Services in India. 5. Indian Institute of Banking and Financial market, Banking product and services

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