Sr.

concept

1.

History

2.

Introduction

3.

Types of plastic money

4.

Credit card
Introduction
Advantage & Disadvantages
Steps in credit card transaction
Different types of credit cards
Credit card data

5.

Debit card
Introduction
Types of debit card systems
Benefits & Features of debit cards
Process debit card transactions
Plastic fraud

6.

Advantages & Disadvantage

7.

Technology & Infrastructure

8.

Merits & Demerits

9.

Case study

10. Conclusion
11. Bibliography

Page. no

CHAPTER1
CREDIT CARD
INTRODUCTION:A credit card is a small plastic card issued to users as a system of
payment. It allows its holder to buy goods and services based on the holder's
promise to pay for these goods and services. The issuer of the card grants a line
of credit to the consumer or the user) from which the user can borrow money
for payment to a merchant or as a cash advance to the user. Usage of the term
"credit card" to imply a credit card account is a metonym.
When a purchase is made the user would indicate consent to pay by
signing a receipt with a record of the card details and indicating the amount to
be paid. Issuer agrees to pay the merchant and the credit card user agrees to pay
the card issuer.

DEFINITION:The credit card can be defined as A small plastic card that allows its
holder to buy goods and services on credit and to pay at fixed intervals through
the card issuing agency

MEANING:A credit card is a card or mechanism which enables card holder to

purchase goods, travels and dine in a hotel without making immediate
payments. The holders can use the cards to get credit from banks up to 45 days.

The credit card relieves the consumers from the botheration of carrying
cash and ensures safety. It is a convenience of extended credit without
formality. Thus credit card is a passport to, safety, convenience, prestige and
credit.

FIRST CREDIT CARD INTRODUCE

ADVANTAGES & DISADVANTAGES OF

CREDIT CARD

ADVANTAGES OF CREDIT CARD

The benefits of credit card can be grouped as follows:

A) BENEFITS TO THE BANK

B) BENEFITS TO THE CUSTOMERS

(CARD HOLDER)

C) BENEFITS TO THE RETAILER

(A) BENEFITS TO THE BANK

a) A credit card is an integral part of banks major services these days. The
credit card provides the following advantages to the bank: the system provides
an opportunity to the bank to attract new potential costumers.

b) To get new customers the bank has to employee special trained staff. This
gives the bank an opportunity to find the latent talent from among existing staff
that would have been otherwise wasted.

c) The more important function of a credit card, however, is simply to yield

direct profit for the bank. There is a scope and a potential for a better
profitability out of income / commission earned from the traders turn over.

d) This also provides additional customer services to the existing clients. It

enhances the customer satisfaction.

e) More use by the car holder and consequently the growth of banking habits in
general.

f) Better network of card holders and increased use of cards means higher
popularity and image of the bank

g) Savings of expense on cash holdings, i.e. stationery, printing and man power
to handle clearing transactions while considerably is reduced. It increases

(B) BENEFITS TO CARD HOLDER

The principal benefits to a card holder are:

a) He can purchase goods and services at a large number of outlets without cash
or cheque.The card is useful in emergency, and can save embarrassment.

b) The risk factor of carrying and storing cash is avoided. It is convenient for
him to carry credit card and he has trouble free travel and may purchase his
without carrying cash or cheque.

c) Months purchases can be settled with a single remittance, thus, tending to

reduce bank and handling charges.

d) The card holder has the period of free credit usually between 30-50 days of
purchase

e) Cash can usually be obtained with the card, either on card account or by
using it as identification when encasings a cheque at the bank.

f) Availing credit with minimum formality.

g) The credit card saves trouble and paper work to traveling business man.

(C) BENEFITS TO THE MERCHANT ESTABLISHMENT

The principal benefits offer credit card to the retailer is

a) This will carry prestigious weight to the outlets.

b) Increases in sale because of increased purchasing power of the cardholder

due to unbilled credit available to the card holder.

c) The retailers gain from the impulse buying and trading up the tendency to
buy the bigger or better article

d) Credit card ensures timely and certainly of payments.

e) Suppliers/sellers no longer have to send reminders of outstanding debits.

f) Systematic accounting since sales receipts are routed through banking

channels.

g) Advertising and promotional support on national scale.

h) Development of prestigious clientele base.

DISADVANTAGES OF CREDIT CARD:-

The following are the common disadvantages of the credit card:

a) Some credit card transactions take longer time than cash transactions because
of various formalities.

b) The customer tends to overspend out of immerse happiness.

c) Discounts and rebates can rarely be obtained.

d) The cardholder is responsible for charges due to loss or theft of the card and
the bank may not be party for loss due to fraud or collusion of staff, etc

e) Customers may be denied cash discount for payment through card.

f) It might lead to spending habits and cardholders may end up in big debts

i) Avoid the entire cost and security problem involved in handling cash.

j) Losses to bad debts and reduced an additional liquidity is

k) It also allows him to delegate spending power to add on members

l) Credit card is considered as a status symbol.

9

MARKETING STRATEGIES

American companies spend billions of dollars each year on marketing.

As a matter of fact, in 2001, U.S. advertising expenditures alone topped $230
billion,

more

than

doubling

the

$105.97

billion

spent

in

1980.

(Source: "Advertising: Exposure and Statistics

November 2003 newsletter of the Media Education Foundation)

Now, these figures may seem staggering to the independent professional

on a budget, but dont panic; there are lots of effective strategies you can utilize
that will help you grow your business fast. Here are some of my favorites:

Identify your niche.

One of the easiest ways to attract customers is to figure out which group
of prospective customers you get your very best results for and go after them
exclusively. Many professionals are afraid to do this claiming that theyll be
leaving someone out, but many marketing experts agree that niche marketing as
the easiest and
fastest way to get business.

10

Position yourself as an expert.

Why? Experts make more money and get more media attention and thats
free advertising! Lets face it; its easier to trust a specialist than a generalist
whos trying to be everything to everyone. Once youve identified your niche,
let the world know about how you can help. Provide free information products,
write articles and white papers about the problems your clients face and how
they can solve them.

Conduct workshops, seminars and tele-classes specifically geared

towards helping your prospective customers and before long youll be regarded
as an expert in your field. And, while youre at it dont forget to, collect names,
emails and addresses of prospects to keep filling your pipeline.

Develop ongoing relationships with complementary professionals

and build your referral team.

These are other professionals who sell non-competing services or

products to the same niche customers you are targeting. For instance, my clients
often need the services of bookkeepers, accountants and business attorneys.
Likewise, they refer business to me. Here are a couple of other examples:
Residential realtor, mortgage broker, real estate attorney, home improvement
contractor,

architect

and

11

interior

designer.

Commercial

printer,

copywriter,

graphic

designer.

Institute a system to keep track of all of the people who are

interested in your product or services, and find creative ways of
keeping in touch with them on a regular basis.

To start, go through your notes. Put together a list of all of the people
youve spoken to in the last 6-9 months whove showed interest in you but
havent become paying customers. Follow up with them in a variety of ways:
call them to touch base, use email, ask them to subscribe to a newsletter, send
them interesting articles, or invite them to join you at events. It takes numerous
impressions to make the sale; thats why you see commercials on TV over and
over again for the same products.
By Keeping track of all of the people whove showed interest and
keeping your business on their radar screen youll turn more of them into
paying customers.

Let your satisfied customers help you sell your products or

services.
Here

are

couple

of

ways

to

do

this:

Ask them for referrals - right away (if you were a car salesman you wouldnt
wait

for

the

new

car

to

12

get

dirty

and

dented!)

 Ask them to write testimonials for you, (also right away) and compile a list of
testimonials to use in your all of your marketing collateral.

Create a marketing calendar and keep to it consistently.

Scheduling marketing activities that take place weekly, bi monthly,

monthly and quarterly will help you to avoid the feast or famine syndrome that
most independent professionals fall prey to. And, by doing so, marketing will
become easier since it becomes a regular part of your business life.

Identify innovative ways to get more business from existing customers.

Its much easier to get business from customers who are already happy
with your services or products. So develop additional services or products to
keep customers coming back for more.

THE

MECHANICS

CREDIT CARD TRANSACTION

13

OF

Card transactions are processed through a chain of connected parties. The

five primary parties involved in processing a Visa or MasterCard credit card
transaction are:

1. THE CARD HOLDER

2. THE CARD ISSUER
3. THE MERCHANT
4. THE ACQUIRE
5. THE CARD ASSOCIATION

The card issuer is the bank that issues the credit card to the cardholder. The
merchant acquirer, often a bank, processes transactions on behalf of the
merchant. "Card Association" is another term used to describe Visa and
MasterCard.
The use of a card involves an exchange of value between a consumer and a
business. The card represents an offer for payment in exchange for the
merchants goods or services. The sales draft itself is the cardholders promise
to pay. When an acquirer accepts a draft from merchants, the bank is buying the
value represented by the draft and paying the merchant the face value of that
sales draft. Collecting payment through the interchange systems is a two-part
process

1. Clearing:

14

During the clearing process the acquirer provides the appropriate issuer
with information on the sale. No money is exchange during clearing. Clearing
involves the exchange of data only. The acquirer provides data required to
identify the cardholders account and provide the dollar amount of the sales.
When the issuing bank gets this data, the bank posts the amount of the sale as a
draw against the cardholders available credit and prepares to send payment to
the acquirer.

2. Settlement:

The second step is the actual exchange of funds. The issuer sends a
record of money that is being transferred from its account to that of the
acquirer. From this account the acquirer pays the merchant. Funds are settled
between issuers and acquirers through accounts with large banks that are
members of the Federal Reserve System and have been selected for that
purpose. Payments to merchants are made usually through the Federal
Reserves Automated Clearing House (the ACH) which is an electronic funds
transfer system.

3. Transaction Processing

15

Transaction processing involves front-end processing and back-end

processing: Front-end processing involves authorization and data capture
services and message connections via various communication networks to pint
of sale devices.
Back-end processing provides financial accounting for acquirers and issuers and
prepares and submits clearing and settlement data into the Visa and MasterCard
interchange networks.

1. Front End Processing

16

Authorization is the acknowledgement by the issuer that a

particular account may be charged for the amount of the sale. The preferred
method to obtain an authorization and the one that will receive the lower
interchange rate is to swipe a cards magnetic strip through the point of sale
terminals card reader. If the card cannot be electronically read by the terminal
for any reason, the information may be keyed into the terminal in order to get
an electronic response. The request is then routed through the processors VAP
or MIP to the issuers authorization center. The response is returned to the
merchants terminal. The terminal records the response code which becomes
part of the transaction and is included in the clearing data sent through
interchange to the issuer

Authorization may also be obtain through other methods such as voice

authorization. The merchant can call an 800 number to verbally provide
cardholder information and receive an operators response. Other methods such
as electronically generated audio responses (ARU) that permit the merchant to
use the telephone like a key pad to enter sale information can also be used. If
for any reason the issuer or its authorization center cannot be reached, the card
Associations will act as stand-in processors to provide authorizations.

Electronic Draft Capture

17

Draft capture is the process of transferring sales draft data into electronic
format so that it may be sent through the interchange networks for clearing and
settlement. Data identifying the cardholder account and expiration date is put
into the point of sales terminal, either by swiping the card thorough a card
reader or manually keying the information into the terminals keypad. The
amount of the sales is then entered and an authorization requested. Once an
authorization code has been received, the terminal is prompted to store data on
the completed sale in its memory.
.

2. Back-End Processing

Back-end processing involves the various accounting functions that

enable transactions to be recorded to the proper merchant or cardholder
18

account. During back-end processing reports are created for distribution to the
acquirers that include:

1) Settlement data
2) Security/fraud data
3) Retrieval/chargeback data
4) Funds disbursements data

Transactions for internet and other card not present environments work
similarly but can have additional processing steps. Both Visa and MasterCard
have Internet authentication programs (not to be confused with authorization)
named Verified by Visa (By) and MasterCard Secure Code (MCSC) that do
alter the transaction process somewhat. If the cardholder is registered with one
of these programs, they must provide a pre-registered password at the time of
purchase. This password is then passed along as part of the information flow of
the transaction (these programs and other techniques for controlling fraud are
discussed in more detail later in this section).
Visa and MasterCard offer both signature debit and credit cards to consumers.
The primary difference between signature debit transactions and credit
transactions are that debit cards are linked to a bank account.
Rather than offering the cardholder 30 days of float and the option to finance
ongoing balances, debit cards simply debit the cardholders bank account for
authorized purchases. Signature debit transactions (which are sometimes also
referred to as offline debit, a misleading reference and not to be confused with
an offline EFT debit transaction) are different from PIN debit transactions in
that the transaction does not involve use of a PIN number at the time of

19

purchase. PIN transactions also are processed on entirely different networks

referred to as EFT networks and are discussed in Section IV.

CREDIT CARD OPERATIONS OF BANK

RBI Guidelines

20

Pursuant to the announcement made in the Annual Policy Statement

2004-05, the Reserve Bank of India had constituted a Working Group on
Regulatory Mechanism for Cards. The Group has suggested various regulatory
measures aimed at encouraging growth of credit cards in a safe, secure and
efficient manner as well as to ensure that the rules, regulations, standards and
practices of the card issuing banks are in alignment with the best customer
practices. The following guidelines on credit card operations of banks have
been framed based on the recommendations of the Group as also the feedback
received from the members of the public, card issuing banks and others. All the
credit card issuing banks / NBFCs should implement these guidelines
immediately.

Each bank / NBFC must have a well documented policy and a Fair
Practices Code for credit card operations. In March 2005, the IBA released a
Fair Practices Code for credit card operations which could be adopted by banks
/ NBFCs. The bank / NBFC's Fair Practice Code should, at a minimum,
incorporate the relevant guidelines contained in this circular.

Guidelines
1.

for

Implementation

Issue

of

21

cards

a) Banks / NBFCs should independently assess the credit risk while issuing
cards to persons, especially to students and others with no independent financial
means. Add-on cards i.e. those that are subsidiary to the principal card, may be
issued with the clear understanding that the liability will be that of the principal
cardholder.

b) As holding several credit cards enhances the total credit available to any
consumer, banks / NBFCs should assess the credit limit for a credit card
customer having regard to the limits enjoyed by the cardholder from other
banks

on

the

basis

of

self

declaration/

credit

information.

c) The card issuing banks / NBFCs would be solely responsible for fulfillment
of all KYC requirements, even where DSAs / DMAs or other agents solicit
business

on

their

behalf.

d) While issuing cards, the terms and conditions for issue and usage of a credit
card should be mentioned in clear and simple language (preferably in English,
Hindi and the local language) comprehensible to a card user. The Most
Important Terms and Conditions (MITCs) termed as standard set of conditions,
as given in the Appendix, should be highlighted and advertised/ sent separately
to the prospective customer/ customers at all the stages i.e. during marketing, at
the time of application, at the acceptance stage (welcome kit) and in important
subsequent communications

2.

Interest

rates

and

22

other

charges

a) Card issuers should ensure that there is no delay in dispatching bills and the
customer has sufficient number of days (at least one fortnight) for making
payment

before

the

interest

starts

getting

charged.

b) Card issuers should quote annualized percentage rates (APR) on card

products (separately for retail purchase and for cash advance, if different). The
method of calculation of APR should be given with a couple of examples for
better comprehension. The APR charged and the annual fee should be shown
with equal prominence. The late payment charges, including the method of
calculation of such charges and the number of days, should be prominently
indicated. The manner in which the outstanding unpaid amount will be included
for calculation of interest should also be specifically shown with
Prominence in all monthly statements. Even where the minimum amount
indicated to keep the card valid has been paid, it should be indicated in bold
letters that the interest will be charged on the amount due after the due date of
payment. These aspects may be shown in the Welcome Kit in addition to being
shown

in

the

monthly

statement.

c) The bank / NBFC should not levy any charge that was not explicitly
indicated to the credit card holder at the time of issue of the card and getting his
/ her consent. However, this would not be applicable to charges like service
taxes, etc. which may subsequently be levied by the Government or any other
statutory

authority.

d) The terms and conditions for payment of credit card dues, including the
minimum payment due, should be stipulated so as to ensure that there is no

23

negative

amortization.

e) Changes in charges (other than interest) may be made only with prospective
effect giving notice of at least one month. If a credit card holder desires to
surrender his credit card on account of any change in credit card charges to his
disadvantage, he may be permitted to do so without the bank levying any extra
charge for such closure

3.

Wrongful

24

billing

a) The card issuing bank / NBFC should ensure that wrong bills are not raised
and issued to customers. In case, a customer protests any bill, the bank / NBFC
should provide explanation and, if necessary, documentary evidence to the
customer within a maximum period of sixty days with a spirit to amicably
redress

the

grievances.

b) To obviate frequent complaints of delayed billing, the credit card issuing

bank / NBFC may consider providing bills and statements of accounts online,
with

4.

suitable

Use

of

DSAs

security

DMAs

built

and

therefore.

other

agents

a) when banks / NBFCs outsource the various credit card operations, they have
to be extremely careful that the appointment of such service providers does not
compromise with the quality of the customer service and the bank / NBFCs
ability to manage credit, liquidity and operational risks. In the choice of the
service provider, the bank / NBFCs have to be guided by the need to ensure
confidentiality of the customers records, respect customer privacy, and adhere
to fair practices in debt collection.

b) The Code of Conduct for Direct Sales Agents (DSAs) formulated by the
Indian Banks Association (IBA) could be used by banks / NBFCs in
formulating their own codes for the purpose. The bank / NBFC should ensure
that the DSAs engaged by them for marketing their credit card products
scrupulously adhere to the bank / NBFCs own Code of Conduct for credit card
operations which should be displayed on the bank / NBFCs website and be
25

available

easily

to

any

credit

card

holder.

c) The bank / NBFC should have a system of random checks and mystery
shopping to ensure that their agents have been properly briefed and trained in
order to handle with care and caution their responsibilities, particularly in the
aspects included in these guidelines like soliciting customers, hours for calling,
privacy of customer information, conveying the correct terms and conditions of
the product on offer, etc.

Protection

of

Customer

Rights

Customers rights in relation to credit card operations primarily relate to

26

personal privacy, clarity relating to rights and obligations, preservation of

customer records, maintaining confidentiality of customer information and fair
practices in debt collection. The card issuing bank / NBFC would be
responsible as the principal for all acts of omission or commission of their
agents (DSAs / DMAs and recovery agents).

I.

Right

to

privacy

a) unsolicited cards should not be issued. In case, an unsolicited card is issued

and activated without the consent of the recipient and the latter is billed for the
same, the card issuing bank / NBFC shall not only reverse the charges
forthwith, but also pay a penalty without demur to the recipient amounting to
twice

the

value

of

the

charges

reversed.

b) Unsolicited loans or other credit facilities should not be offered to the credit
card customers. In case, an unsolicited credit facility is extended without the
consent of the recipient and the latter objects to the same, the credit sanctioning
bank / NBFC shall not only withdraw the credit limit, but also be liable to pay
such penalty as may be considered appropriate
c) The card issuing bank / NBFC should not unilaterally upgrade credit cards
and enhance credit limits. Prior consent of the borrower should invariably be
taken

whenever

there

is

any

change/s

in

terms

and

conditions.

d) The card issuing bank / NBFC should maintain a Do Not Call Registry
(DNCR) containing the phone numbers (both cell phones and land phones) of
customers as well as non-customers (non-constituents) who have informed the
27

bank / NBFC that they do not wish to receive unsolicited calls / SMS for
marketing of its credit card products. The DNCR should be set up within two
(2) months from the date of this circular and wide publicity should be given to
the arrangement
e) The intimation for including an individuals telephone number in the Do Not
Call Registry (DNCR) should be facilitated through a website maintained by the
bank / NBFC or on the basis of a letter received from such a person addressed
to the bank / NBFC.

f) The card issuing bank / NBFC should introduce a system whereby the DSAs/
DMAs as well as its Call Centers have to first submit to the bank / NBFC a list
of numbers they intend to call for marketing purposes. The bank / NBFC should
then refer to the Do Not Call Registry (DNCR) and only those numbers which
do not figure in the Registry should be cleared for calling.

g) The numbers cleared by the card issuing bank / NBFC for calling should
only be accessed. The bank / NBFC would be held responsible if a Do Not Call
Number (DNCN) is called on by its DSAs / DMAs or Call Centre/s.

h) The card issuing bank / NBFC should ensure that the Do Not Call Registry
(DNCR) numbers are not passed on to any unauthorized person/s or misused in
any

manner.

28

I.)Banks / NBFCs/ their agents should not resort to invasion of privacy viz.,
persistently bothering the card holders at odd hours, violation of "do not call"

(ii)

Customer

confidentiality

a) The card issuing bank / NBFC should not reveal any information relating to
customers obtained at the time of opening the account or issuing the credit card
to any other person or organization without obtaining their specific consent, as
regards the purpose/s for which the information will be used and the
organizations with whom the information will be shared. Banks / NBFCs
should satisfy themselves, based on specific legal advice that the information

29

being sought from them is not of such nature as will violate the provisions of
the laws relating to secrecy in the transactions. Banks / NBFCs would be solely
responsible for the correctness or otherwise of the data provided for the
purpose.

B) In case of providing information relating to credit history / repayment record

of the card holder to a credit information company (specifically authorized by
RBI), the bank / NBFC may explicitly bring to the notice of the customer that
such information is being provided in terms of the Credit Information
Companies (Regulation) Act, 2005.

c)

Before reporting default status of a credit card holder to the Credit

Information Bureau of India Ltd. (CIBIL) or any other credit information

Company authorized by RBI, banks / NBFCs may ensure that they adhere to a
procedure, duly approved by their Board, including issuing of sufficient notice
to such card holder about the intention to report him/ her as defaulter to the
Credit Information Company. The procedure should also cover the notice
period for such reporting as also the period within which such report will be
withdrawn in the event the customer settles his dues after having been reported
as defaulter. Banks / NBFCs should be particularly careful in the case of cards
where there are pending disputes.

The Disclosure/ release of information, particularly about the default,

should be made only after the dispute is settled as far as possible. In all cases, a
well laid down procedure should be transparently followed. These procedures
should also be transparently made known as part of MITCs

30

d) The disclosure to the DSAs / recovery agents should also be limited to the
extent that will enable them to discharge their duties. Personal information
provided by the card holder but not required for recovery purposes should not
be released by the card issuing bank / NBFC. The card issuing bank / NBFC
should ensure that the DSAs / DMAs do not transfer or misuse any customer
information during marketing of credit card products.

(iii)

Fair

Practices

in

debt

collection

a) In the matter of recovery of dues, banks / NBFCs may ensure that they, as
also their agents, adhere to the extant instructions on Fair Practice Code for
lenders (circular DBOD. Leg. No. BC. 104 /09.07.007 / 200203 dated May 5,
2003) as also IBAs Code for Collection of dues and repossession of security.
In case banks / NBFCs have their own code for collection of dues it should, at
the minimum, incorporate all the terms of IBA's Code.

31

b) In particular, in regard to appointment of third party agencies for debt

collection, it is essential that such agents refrain from action that could damage
the integrity and reputation of the bank / NBFC and that they observe strict
customer confidentiality. All letters issued by recovery agents must contain the
name and address of a responsible senior officer of the card issuing bank whom
the customer can contact at his location.

c) Banks / NBFCs / their agents should not resort to intimidation or harassment

of any kind, either verbal or physical, against any person in their debt collection
efforts, including acts intended to humiliate publicly or intrude the privacy of
the credit card holders family members, referees and friends, making
threatening

and

anonymous

calls

or

making

false

and

misleading

representations.

6.

Redresses

of

Grievances

a) generally, a time limit of sixty (60) days may be given to the customers for
preferring

their

complaints

32

grievances.

b)

The card issuing bank / NBFC should constitute Grievance Redresses

machinery within the bank / NBFC and give wide publicity about it through
electronic and print media. The name and contact number of designated
grievance redresses officer of the bank / NBFC should be mentioned on the
credit card bills. The designated officer should ensure that genuine grievances
of credit card subscribers are redressed promptly without involving delay.

c) The grievance redresses procedure of the bank / NBFC and the time frame
fixed for responding to the complaints should be placed on the bank / NBFC's
website. The name, designation, address and contact number of important
executives as well as the Grievance Redresses Officer of the bank / NBFC may
be displayed on the website. There should be a system of acknowledging
customers' complaints for follow up, such as complaint number / docket
number, even if the complaints are received on phone.

d) If a complainant does not get satisfactory response from the bank / NBFC
within a maximum period of thirty (30) days from the date of his lodging the
complaint, he will have the option to approach the Office of the concerned
Banking Ombudsman for redresses of his grievance/s. The bank / NBFC shall
be liable to compensate the complainant for the loss of his time, expenses,
financial loss as well as for the harassment and mental anguish suffered by him
for the fault of the
Bank and where the grievance has not been redressed in time.

7. Internal control and monitoring systems

33

With a view to ensuring that the quality of customer service is ensured on

an on-going basis in banks / NBFCs, the Standing Committee on Customer
Service in each bank / NBFC may review on a monthly basis the credit card
operations including reports of defaulters to the CIBIL, credit card related
complaints and take measures to improve the services and ensure the orderly
growth in the credit card operations. Banks / NBFCs should put up detailed
quarterly analysis of credit card related complaints to their Top Management.
Card issuing banks should have in place a suitable monitoring mechanism to
randomly check the genuineness of merchant transactions.

8.

Right

to

impose

penalty

The Reserve Bank of India reserves the right to impose any penalty on a
bank / NBFC under the provisions of the Banking Regulation Act, 1949 for
violation of any of these guidelines.

Different Types of Credit Cards

34

Different Types of Credit Cards

Credit cars are of various types, every one has to select credit cards on
the basis of the pros and cons of each type of credit card and at the same time
the nature of use. This article gives an insight into the several types of credit
cards available in the market
Today, credit card customers enjoy more options and choices than ever before.
To gain new customers, credit card companies compete by offering new
services and cards to customers. No matter what your needs, chances are good
that there is a card out there that would be ideal for you. If you are looking for

35

the right card, you can begin by considering the many types of cards available
to you:

Low Interest Credit Cards

These types of credit cards offer very low interest. In some cases, these
cards just charge a few percent interests. The reasons for this are numerous. In
most cases, the low interest rate is for a limited time only. After a set number of
months, you will begin paying higher interest rates. In some cases, low interest
credit cards are not really credit cards at all - they are debit cards linked to a
low-interest loan such as a line of credit. Check your agreement to find out what
type of card you have. If you need to consolidate debts or if you like the idea of
having low interest for a while, this type of credit card can be perfect for you.

Instant Approval Credit Cards

These cards are really a product of our fast-paced society. The idea
behind this type of credit card is that once you fill out your application, you will
be told whether you are approved or not right away. The approval process only
takes a few minutes. Instant approval credit cards are very popular online and
applicants

can

apply

via

the

internet

or

over

the

phone.

If you are very impatient or need credit right away, these types of cards
can be for you. However, you should be aware that these cards do not guarantee
that you will be approved right away - sometimes, more time is needed to
process your application. Another drawback to these cards is that they rely

36

heavily on your credit score. If you have poor credit or any extenuating
financial circumstances, these types of cards may not be for you.

Balance Transfer Cards

Balance transfer cards are a type of temporary low-interest card that is

meant to help you consolidate your debt. They work this way: if you have
several credit cards with a balance, you can get a balance transfer card. You
then transfer all your credit card debt onto the new card and work to pay it off.
Since the new card has a low interest rate, you can quickly repay your bills.

If you are in debt, a balance transfer card can be a great way to get out of
debt. It offers the convenience of one bill and low rates. However, some cards
have high fees. Also, if you run up your other cards after consolidating your
debts or if you are unable to pay off your new card in the limited time before
the low interest rate increases, you may find yourself even more in debt than
before.

Rewards Credit Cards

Rewards credit cards offer you points, rewards, or bonuses for
every cash purchase made with your credit card over time. As you accumulate
rewards or points, you can redeem your bonus for entertainment events,
purchases, travel, and other fun prizes. Some cards even offer customers extra
automatic-enter sweepstakes and draws. Each time you use your card, you are
entered

into

draw

to

37

win

specific

prizes.

These types of cards are really a marketing tool for card companies.
Companies know that customers love rewards and prizes and so offer these
enticements to lure customers. The major advantage of these cards is that they
can help you get more cash value for your money. They can also be fun and
rewarding for almost any credit card customer. However, not all reward credit
cards are a deal. Some charge high fees to offset the costs of the bonuses. Some
also have very low points systems, meaning that you need to spend a lot with
your credit card to get any rewards at all. Read the fine print carefully before
signing.

Cash

Back

Credit

Cards

Cash back credit cards give you money rewards. When you make a
purchase with this type of credit card, you get some points based on the amount
of money you have spent with your credit card. When you accumulate enough
points, you get cash back. On most cards, you can get back about 1% of your
total purchases.

These cards are great for those who are budget-conscious as they give
you some money back from your purchases. However, there are several
drawbacks to these types of cards. Some cards have low cash-back percentage

38

rates. Some charge high fees or have limits on how much money you can get
back each year. Most cards only offer you cash back advantages on purchases not on your balance. If you decide this card is right for you, do compare several
card offers to find the best cash back credit card option.

Airline Credit Cards

This type of card allows you to accumulate frequent flyer points on all
your credit card purchases. If you travel a lot or love to travel, this card can help
you accumulate points for a free trip or for a discount ticket. In many cases,
these cards are great because they allow you to gather points for every
purchase. However, these cards can also charge high fees. In some cases, your
points will expire if you do not use them within a specified time. Worse, some
airline credit cards make use of a point system that is not very user-friendly.
You may have to slowly accumulate an enormous amount of points to qualify
for a trip. If you do not love to travel and if you do not use your Credit card a
lot, then, your ability to get rewards you like may be very limited.

Prepaid Debit Cards

These cards are sometimes called junior credit cards. They are not truly
credit cards at all, since you are not getting credit or loans from the credit card
company. Instead, these cards work by having you deposit some money into the
card account. You can then use your card to charge any amount up to the
amount in the account. When you add more money, you can charge more to
your

card.

39

Secured Credit Cards

Secured credit cards use collateral to ensure that the card company will
be paid back. Often, these cards are used by people with no credit or bad credit.
With secured credit cards, you can enjoy credit card convenience even if you do
not qualify for traditional cards. However, you will also have to cope with the
additional fees and low credit limits that these credit cards have.

Credit Cards for Bad Credit

Bad credit credit cards are designed for people with poor credit histories.
These cards generally have very low credit limits and charge extra fees. This is
because they are designed for people who are considered far less likely to repay
their debts. If you have a bad credit rating, these types of credit cards can be a
great way to rebuild your credit history. These cards can also allow you to have
credit even if you would be rejected for most other cards due to your credit
history.

Student Credit Cards

Student credit cards are cards meant to attract college and university
students. These cards often offer sign-up bonuses for students. They are also
easier to apply for, since credit card companies recognize that students have
much

shorter

credit

histories

than

the

average

customer.

If you are a student, student credit cards can be a great option. They are

40

simple to use and can help you build a good credit rating before you graduate.
However, there are some disadvantages to student credit cards. These cards may
have no reward programs and may have fewer benefits, including fewer
bonuses and services, than other cards.

Business Credit Cards

Business credit cards are created especially for business use. They offer
many of the same advantages as traditional credit cards, but also offer services
that can really help a business. With some business credit cards, for example,
you can enjoy higher interest rates, extra cards for business employees, monthly
reports on your expenses, and services that let you keep your personal and
business expenses separate on the same card. These advantages mean that using
this

card

for

your

business

41

is

more

convenient.

Types of Credit
Cards offered
By
Indian Banks

Types of Credit Cards offered by Indian Banks

42

Silver Cards
Silver credit cards rank lowest among the metal named cards, and,
because of lower prestige when compared to gold and platinum cards, are
commonly known as basic and standard credit cards. Silver credit cards come
with advantages such as lower annual membership fees if there is any, and a
lower threshold salary which banks use to evaluate your application in case you
should apply.

Silver credit cards will provide you with almost the same credit limit as
other cards provided you have a good credit history. You can also avail of 0%
interest balance transfer schemes which are made available for a period of 6-9
months for silver card holders.

There are also some disadvantages to using silver credit cards. One
would be the lower cash advance limits, less rewards and promotional
packages, and less travel perks compared to gold and platinum cards.
HDFC Bank, ICICI offer silver credit cards through their HDFC Bank Silver
cards and ICICI Sterling Silver credit card

43

Gold and Platinum Cards

Gold and platinum credit cards are a status symbol for any credit card
holder, bringing prestige since getting gold and platinum cards usually require
that you have good credit rating and a higher income levels. Gold and platinum
cards offer higher limit for cash advance withdrawals and sometimes can
provide higher credit limits as compared to standard or silver cards.

If you have a gold or platinum card, you also get better perks and
privileges such as travel insurance, extended warranties for appliance purchases
and special deals on specific products, and purchase protection insurance.
You can also engage in some loyalty schemes that are offered for gold and
platinum credit card holders which can sometimes involve cash back promos
and reward points systems.
Some popular gold and platinum cards available are the American Express Gold
card, and the ICICI Solid Gold Credit Card.

It is not possible to cover them the exact offerings of these cards but I
will highly advice you to check all these websites of the banks to get all the info
about the credit cards they are offering. Also try to talk to your friends who are
having credit cards to get more info.

CHAPTER 2
44

DEBIT CARD
A debit card (also known as a bank card or check card) is a plastic card
that provides an alternative payment method to cash when making purchases.
Functionally, it can be called an electronic cheque, as the funds are withdrawn
directly from either the bank account or from the remaining balance on the card.
In some cases, the cards are designed exclusively for use on the Internet, and so
there is no physical card.

In many countries the use of debit cards has become so widespread that
their volume of use has overtaken the cheque and, in some instances, cash
transactions.

Like credit cards, debit cards are used widely for telephone and Internet
purchases and, unlike credit cards, the funds are transferred immediately from
the bearer's bank account instead of having the bearer pay back the money at a
later date.

Debit cards may also allow for instant withdrawal of cash, acting as the
ATM card for withdrawing cash and as a cheque guarantee card. Merchants
may also offer cash back facilities to customers, where a customer can
withdraw cash along with their purchase.

Types of debit card systems

45

Online Debit System

Online debit cards require electronic authorization of every transaction
and the debits are reflected in the users account immediately. The transaction
may be additionally secured with the personal identification number (PIN)
authentication system and some online cards require such authentication for
every transaction, essentially becoming enhanced automatic teller machine
(ATM) cards. One difficulty in using online debit cards is the necessity of an
electronic authorization device at the point of sale (POS) and sometimes also a
separate PIN pad to enter the PIN, although this is becoming commonplace for
all card transactions in many countries. Overall, the online debit card is
generally viewed as superior to the offline debit card because of its more secure
authentication system and live status, which alleviates problems with
processing lag on transactions that may only issue online debit cards. Some online debit systems are using the normal authentication processes of Internet
banking to provide real-time on-line debit transactions. The most notable of
these are Ideal and POL

Offline Debit System

Offline debit cards have the logos of major credit cards (e.g. Visa or
MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and
46

other countries, but not the United States) and are used at the point of sale like a
credit card (with payer's signature). This type of debit card may be subject to a
daily limit, and/or a maximum limit equal to the current/checking account
balance from which it draws funds. Transactions conducted with offline debit
cards require 23 days to be reflected on users account balances. In some
countries and with some banks and merchant service organizations, a "credit" or
offline debit transaction is without cost to the purchaser beyond the face value
of the transaction, while a small fee may be charged for a "debit" or online debit
transaction (although it is often absorbed by the retailer). Other differences are
that online debit purchasers may opt to withdraw cash in addition to the amount
of the debit purchase (if the merchant supports that functionality); also, from the
merchant's standpoint, the merchant pays lower fees on online debit transaction
as compared to "credit" (offline) debit transaction

Electronic Purse Card System

Smart-card-based electronic purse systems (in which value is stored on
the card chip, not in an externally recorded account, so that machines accepting
the card need no network connectivity) are in use throughout Europe since the
mid-1990s, most notably in Germany (Geldkarte), Austria (Quick), the
Netherlands (Chipknip), Belgium and Switzerland (CASH). In Austria and
Germany, all current bank cards now include electronic purses.

Prepaid Debit Card

47

Prepaid debit cards, also called reload able debit cards or reload able
prepaid cards, are often used for recurring payments. The payer loads funds to
the cardholder's card account. Prepaid debit cards use either the offline debit
system or the online debit system to access these funds. Particularly for
companies with a large number of payment recipients abroad, prepaid debit
cards allow the delivery of international payments without the delays and fees
associated with international checks and bank transfers. Providers include
Caxton FX prepaid cards, [ Escape prepaid cards and Travelex prepaid cards. [
Whereas, web-based services such as stock photography websites (stockpot),
outsourced services (odes), and affiliate networks (Media Whiz) have all started
offering prepaid debit cards for their contributors/freelancers/vendors.

BENEFITS OF DEBIT CARDS

The following are the benefits of the debit card services

48

FREE WITH OUR BANK ACCOUNT

Obtaining a debit card is easy. If we qualify to open a bank account, we usually

get a debit card, if our bank offers the service.

NO BACKGROUND CHECK

When we are applying for a debit card, the ban does not need to look into our
credit history. All we need is the documentation to open a bank, account, and
money in our bank when we use our debit card.

CASH WITHDRAWALS

The customer can withdraw a minimum of Rs. 100/- and a maximum Rs.10,
000/- per day

CONVENIENCE

A Debit card fees us from carrying a lot of cash or a cheque book. In case, we
are an international traveler, we dont need to stock up on Travelers Cheques
or cash. We can use our debit card to withdraw Cash from over 500,000 ATMs
around the world in over 100 countries. We can withdraw in the local currency
of the country we are in, limited only by the money we have back home in our
account, and Business Travel Quota (BTQ) limit arability.

FAIR EXCHANGE
49

If we return merchandise or cancel services paid for

with a Debit card, the

transaction is treated as if it were made with cash or a check. Customers usually

get cash back for offline purchases; for on-line transactions, the amount is
credited to our account.

STATEMENT OF ACCOUNT
A statement of transactions can be obtained from the customers branch. For
example, a mini statement containing the last four transactions and balance can
be obtained at a State Bank Group during the working hours of the customers
branch.

BANKING CUM SHPPING CARD

Your Debit card can be used as ATM card at any ATM across the world, as
well as for making purchase at merchant locations. You can also withdraw cash
from any of the 12000 ATMs in India.

WIDELY ACCEPTED, INTERNATIONALLY VALID

FEATURES OF DEBIT CARD

The following are features of Debit cards

50

A) It is a combination of a Cheque and ATM card. Therefore, there are no fees

for using the ATM for cash withdrawal, or as a debit card for purchase.

B) The Debit Card services in meant for withdrawals against the balance
already available in the designated account.
C) It is the card holders obligation to maintain sufficient balance in the
designated account to meet withdrawals and service charges.

D) A Debit card is more affordable than credit card. We just our bank account
for all our transactions.
No credit period. Our bank account is debited immediately.

E) No credit check is required to get a Debit card.

F) Use of card is terminated without notice, upon the death, bankruptcy or

insolvency of the cardholder or for other valid reasons.

G) Spending is limited to our bank balance.

DRAWBACKS OF DEBIT CARDS

NO GRACE PERIOD
A) Unlike a credit card, debit card transactions are on a pay now basis
LIMITED PROTECTION
51

B) Using a debit card may mean we have less protection than we would have
with a credit card for undelivered or defective goods.

52

53

Process Debit Card Transactions

A successful business will usually accept debit cards as a part of their
overall profile of payment solutions. If you dont process debit cards, you may
not be taking full advantage of all the potential that your merchant account can
deliver. There are essentially two ways you can accept debit cards, online and
offline.

Off line debit card transactions

An offline debit card transaction is still the way most merchants accept
debit cards. This is essentially the same as processing credit cards. You swipe
your customers debit card through a credit card terminal and have them sign
the receipt.

If you choose to accept debit cards offline, be sure that the debit card has
a VISA or MasterCard logo. Otherwise, the debit card wont be approved and
you wont be able to process the debit card offline

54

Online debit card transactions

The most advantageous way to process debit cards is to do it online. You
will still be able to accept debit cards at the point of sale, but you will need to
install a PIN pad on your credit card terminal.

An online debit card transaction works much like a credit card

transaction, except that after your customer swipes his or her debit card, they
will enter a PIN instead of signing the receipt.

At this point the encrypted debit card information is sent to the

customers bank for authorization, and youll receive the funds just as you
would for a credit card transaction.
Your business has many advantages when you accept debit cards.

For example, you pay a flat fee for each debit card transaction that you
process, instead the flat fee plus percentage rate that you are charged when you
accept credit cards. Over time, this can potentially save you a lot of money.
Another advantage when you process debit cards is that you cant be
charged higher downgrade fees.
In a credit card transaction, you are usually charged the discount rate.
However, some transactions are considered to be a higher risk or expense to the
bank, and you are charged a higher rate as a result.

55

But when you accept debit cards, you always pay the same flat rate, with
no danger of the rate increasing.

You can also cut down on checkout time when you accept debit cards. It
takes an average of 30 seconds to hand over the pen, wait for the customer to
sign the receipt, and then take the pen back.
If you process 20 credit card transactions a day, youre losing 100
minutes a day just passing a pen back and forth! Thats almost two hours

56

Plastic Fraud
State-of-the-art thieves are concentrating on plastic cards. In the past, this
type of fraud was not very common. Today, it is a big business for criminals.
Plastic cards bring new convenience to your shopping and banking, but they can
turn into nightmares in the wrong hands. This pamphlet describes credit and
debit cards and some common schemes involving card fraud with tips to help
you avoid them

The following are the types of frauds

1. Stolen Cards at the Office

2. Extra Copies of Charge Slips
3. Discarded Charge Slips
4. Unsigned Credit Cards
5. Loss of Multiple Cards
6. Strange Requests for Your PIN Numbers
7. Legitimate Cards
8. Altered Cards
9. Counterfeit Cards

New Technology

57

New technology is making it more difficult for criminals to use, alter, or

counterfeit credit and debit cards. Some of the innovations are already in use.

These security features have been added to major credit cards:

Holograph
A three-dimensional, laser produced optical device that changes its color and
image as the card is tilted.
Fine-line printing
A repeated pattern of the card company name positioned as background for the
company logo.
Ultra-violet ink
Special ink that is visible only under ultra-violet light, which will display the
credit card company's logo.

Credit

Card

Credit Card is either Visa or MasterCard which is the

58

Data:

Most

popular

and

in

some

instance

American

Express.

The Top 10 Credit Card Issuers in India are

as follows,

ICICI

Bank

5.07

Mn

HDFC

Bank

4.42

Mn

SBI

Cards

2.65

Mn

2.54

Mn

1.3

Mn

Citibank
HSBC

Cards

ABN

Amro

0.78

Mn

Axis

Bank

0.57

Mn

0.495

Mn

Deutsche

Bank

American

Express -

0.45

Data Courtesy - The Reserve Bank of India

CHAPTER 5

59

Mn

QUESTIONNARIES

1. Meaning of credit card

Credit is a privilege and a convenience. Credit lets you charge a meal on a
credit card, pay for an appliance on an installment plan, take out a loan to buy a
house, or pay for schooling. Credit allows you to make a purchase without
ready cash.
A credit card enables you to buy things now and pay for them later. You get
credit by promising to pay in the future for something you receive in the
present. Credit usually costs something, and what is borrowed must be paid
back.
2. The reason for the neediness of credit
Convenient, hassle-free shopping. When you use a credit card to make a
purchase, you don't have to carry a lot of cash, pay by check, or present
additional identification. A credit card also simplifies and speeds up catalog
ordering and currently is virtually the only way to make Internet purchases.
Emergency help. Credit cards are the ultimate financial security blanket. They
can get you through nearly any emergency situation.

60

Easier budgeting. With a credit card, you can make purchases and pay them off
on a schedule that fits your budget. Credit cards also allow you to take
advantage of sales and special offers.
3. Reason to establish a good credit history
Establishing a good credit history is an important part of your personal and
financial future. It can help open doors for you or keep them locked.
A variety of people and businesses make decisions affecting your future that are
based on your credit history. Banks and other lenders consider your credit
report when reviewing applications for mortgages, revolving lines of credit, or
other loans. Landlords sometimes use credit reports to decide among rental
applicants. And a potential employer may even assess an applicant's credit
report before extending a job offer.

4. Meaning of debit card

Debit Card is an electronic purse, which allows the holder to withdraw cash
from ATMs and also enables him to purchase goods or services from the
member establishments. Debit Cards are mostly issued in collaboration either
with VISA or MasterCard.

61

CONCLUSION
21ST Century banking has become wholly customer-driven & technology
driven by challenges of competition, rising customer expectations & shrinking
margins, banks have been using technology to reduce cost & enhance
efficiency, productivity & customer convenienence. Technology intensive
delivery channels like net banking, mobile banking, etc have created a win-win
situation by extending great convenienence. & multiple options for customer.

From educating customers about credit cards there is a need to educate

them about the differentiating factors of the cards. Because visa and master
card are advertising regularly and thereby increases awareness. The strategy
should be to emphasize on its differentiating characteristics.

They also need to identify potential customers and target those using
mailers. As internet is growing at a fast rate the net users can be targeted by
having interactive sites. The prospective companys card personality could also
be used in the home page to solve customer queries in the Best Possible
Manner.

62

BIBLIOGRAPHY
BOOKS
INOVATION IN BANKING & INSURANCE
FINANCIAL MARKET & SERVICES
INDIAN BANKING INDUSTRIES
INDIAN BANKING
TIMES OF INDIA NEWS PAPER (1st OCT 2010)

WEBSITE
WWW.GOOGLESERCH.COM
WWW.YAHOO.COM
WWW.RBI.ORG
WWW.WIKIPEDIA .COM
WWW.INFOSEE.COM
WWW.INDIANMBA.COM
WWW.INDINBANKING.ORG

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