PLASTIC MONEY

(With special reference to Credit

Cards, Debit Cards & ATM Cards)

-DISHA PANIKER
T.Y.B.B.I (V SEM)
 PLASTIC MONEY

Everybody has talked about the checkless,

cashless society. They said it would be here 10
years from now. We think it’s here today.
—John G. McCoy, chair of City National Bank and
Trust, Columbus, Ohio (1973)

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CHAPTER 1
INTRODUCTION TO BANKING SYSTEM

BANKING:
“Accepting for the purpose of lending or investment of deposits of money
from public, repayable on demand in the form of cheques, drafts or orders.”
Today banks have become a part and parcel of our life. There was a time when
the dwellers of the city alone could enjoy their services.
Now banks offer access to every common man and their activities extend
to areas hitherto untouched. Apart from their traditional business oriented
functions, they have now come out to fulfill national responsibilities.

INDIAN BANKING SYSTEM:

Banking system plays a vital role in the economic development of a
country. The structure of the banking system in India consists of two parts:
• Unorganized sector
• Organized sector
The unorganized sector comprises money lenders and indigenous bankers. The
organized sector consists of Commercial banks, Co-operative banks and
Regional rural banks.

COMMERCIAL BANKS:

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Commercial banks are the oldest banking institution in the banking sector
they consist of the predominant segment of the banking system in India. They
cater to the needs of trade, transportation and other activities with a wide
network of branches throughout the country. Commercial banks command a
major share in the total banking operation.
• Primary functions of commercial banks
The primary function of commercial banks is called traditional function
or core function. They are as follow:
1. Accepting of deposits from the public
2. Creation of credit
3. Lending of funds
4. Use of cheque system
5. Remittance of fund
• Secondary functions of commercial Banks:
1. Agency functions
2. Miscellaneous functions or general utility function
 Safe custody of valuables.
 Issue of letter of credit.
 Traveler’s cheque.
 Merchant banking.
 Credit cards.
 Debit cards.
 Tellers system. Etc.

CREDIT CARDS:
Credit card is a plastic card that enables it users to purchase goods or
services from certain retail and services establishments get paid by the bank

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operating the plan. The bank assumes the risk and responsibility of collecting
the dues from the customers.

DEBIT CARDS:
Debit card is a plastic card issued by the banks to enable its customers to
get access to his or her bank account for payment by simply using the card.
When a customer makes any purchase using the card, his/her bank account is
directly debited to the extent of the purchase amount.

ATM CARDS:
Banks offer this card as a free service to its deposit holders. ATM cards
are used to withdraw cash from bank accounts when bank counters closed or
even when counters are open to save on time.

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CHAPTER 2
DESIGN OF STUDY

• OBJECTIVE OF STUDY
The object of this research is:
• To study the convenience of plastic money in recent era.
• To identify the factors which affect the status of paper money and
increasing the usage of plastic money & why the plastic money usage has
increased
• To study the safety of plastic money.

• HYPOTHESIS
• People are more cautious in money matters.
• People have changed their attitude towards plastic cards.

• SCOPE OF THE STUDY

The study concentrates on the different types of plastic money in brief. It
concentrates more on credit card, debit card and ATM cards. The project covers
the impact of plastic money and also the increasing use of plastic money in
India

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• LIMITATIONS
• I have restricted my project on ‘Plastic Money’ to credit card, debit cards
and ATM cards only

• It has been restricted to the extent of individual’s only.

• Survey has been conducted on micro level basis to know the preferences
of plastic money.

• Only 25 customers of different banks have been considered for

undertaking the study and the findings of the study have been listed out.

METHODOLOGY
• Primary study has been undertaken on micro level basis on focusing only
a few individuals.

• Secondary data is collected by undertaking extensive library research as

well as from various websites and books.

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CHAPTER 3
AN OVERVIEW ON PLASTIC MONEY

Look in your wallet. If you are like an average middle-class, living in a

metropolitan you probably must have at least one thin plastic card that you use
to pay for things at many merchants. Take out one of those cards. The card you
picked is about 33/8” long, by 21/8” wide, weighs about a fifth of an ounce, has a
magnetic stripe on the back and has a 13 to 16 digit account number embossed
on the front. It is called a payment card. Once cardboard, now plastic, the card
itself may become an anachronism.

The plastic note is same as paper but the only difference is that they are
made of plastic. They are more secured as compared to that of paper notes.
In traveling and shopping people used to carry huge cash which was much
unsecured and also increasing crime rate. Then the cards were introduced in the
world to resolve the issue of carrying huge cash. These cards are known as
Plastic Money. The usage of plastic money (Cards) has increased in the mode of
payment of huge amount and time by time there are lots of different types of
plastic money introduced which enhanced the features of plastic money like we
can use it anywhere in the world and etc. Now the world is getting globalized so
every card is accepted everywhere with the power of VISA which interconnect
the different countries.

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In the last half of the twentieth century, payment cards—credit, debit, and
charge cards—have quietly revolutionized how we pay for goods and services.
It is increasingly common to find merchants who do not take cash or cheques,
and increasingly rare to find merchants who refuse payment cards.

Payment cards have also revolutionized how we coordinate the timing of

when we purchase goods and services and when we pay for them. The popular
media often focus on how credit cards is making it much quicker and easier to
borrow, encourage people to spend beyond their means and get mired in debt.
Although removing the hassle from the process of borrowing has allowed some
people to borrow too much, credit cards have enabled many more of us to
achieve a better standard of living. The millions of people who finance
purchases on credit cards want to enjoy life earlier than their current incomes
and savings permit. Credit cards enable them to do so.

Payment cards can save cardholders time. Different studies provide

different estimates of how long it takes people to pay with various payment
instruments at the counter. And as we are all aware, there is a lot of variance
across merchants depending on their particular equipment and setup—not to
mention their clerks. There is agreement that credit cards are faster than checks,
but there is disagreement as to how much faster.

The answer will almost certainly vary by retail category and other
variables. One industry source suggests that the difference in favor of cards is as
large as fifty-six seconds. Whether cards are as fast as cash is also a matter of
dispute. To use cash, of course, requires spending some time getting it. This is
easier today with the proliferation of ATM machines and cards, but for the card
industry’s first few decades it required trips to the bank window. Time savings

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of only a few seconds per transaction become worth quite a bit when billions of
transactions are involved.

CHAPTER 4
HISTORY OF PLASTIC MONEY

The manner in which people pay each other has seen few revolutions as
fundamental as the spread of electronic money. E-money has altered how we
pay for things: most of us now use plastic cards and their digits for many of our
daily purchases. And it has altered when we pay for things: most of us defer
some payments until our monthly charge or credit bills arrive, and many of us
finance some purchases over time. History teaches us how significant both of
these transformations have been.

The Evolution of Money

Perhaps the only more fundamental development in the history of money
is the birth of money itself. Long before credit cards and checks, people found
ways to pay for things they wanted.

Cash, Check, or an Ox?

For many millennia, people bartered—twenty of my arrows for two of
your bushels of wheat; six of your vases for two of my loincloths. As
civilization developed, people discovered the convenience of a unit of account,
launching the first major transformation in the development of money as a
means of exchange and a store of value. Over the next centuries, and today,
money is still being transformed, but always with a focus on improving its
convenience and usability as a unit of account, a means of exchange, and a store

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of value. The Iliad and the Odyssey, which appear to reflect customs around
850–800 BC, refer to exchanges measured in oxen. A large tripod (an object
with three legs serving as an altar or a sacrificial basin in ancient and classical
times) was worth twelve oxen and a skillful female slave four. That didn’t mean
you had to pay twelve oxen for the large tripod; you could pay three skillful
women or perhaps gold or silver worth twelve oxen.

An ox wasn’t money because, although a fine unit of account, it wasn’t a

great means of exchange or store of value. Around two centuries later, the
Lydians, building on a millennia-old tradition of using precious metal for
exchanges, stamped out coins of fixed weights. Convenient to exchange, easily
stored, and readily counted, these were the first money.
It took industrialized societies another 2,500 years to accept that money
was valuable even if not made of precious metal as long as people accepted it
for exchange and used the same unit of account. Trust replaced metal.
Today, people exchange units of account—such as the dollar or the euro—
which they convert into goods and services. Cash, checks, electronic transfers of
funds among accounts, and payment card systems are ways of exchanging these
units. Each is a medium for facilitating the exchange of value among buyers and
sellers. And each is a variety of money.

Money, unlike air, is not a free good for society. It requires resources:
producing physical money, processing checks, or keeping the books for
electronic money. One way or another, people have always paid for the money
they use. That is obvious for private payment systems such as checks and cards.
It is less obvious, but nonetheless true, for government payment systems based
on coin or paper—for instance, mints are usually impressive buildings with
large staffs, and the “inflation tax” is one of the oldest levies. (The inflation tax

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is imposed when the government prints more money to buy things, the price
level increases as a consequence, and the real value of money held by
consumers and businesses therefore declines.)

History shows what it takes to have a successful medium of exchange. A

large number of buyers and sellers must agree to use the same medium. To
become a standard, the medium must be an efficient form of exchange—
seashells worked better than oxen. Reliability is a key as well— there may be
episodes where, as Sir Thomas Gresham described, bad money drives good
money out of circulation and into people’s rainy-day stashes, but in the long run
only reliable media of exchange survive. (Gresham, an adviser to Elizabeth I,
was an early observer of this phenomenon, now known as Gresham’s Law.)

Four major innovations have marked the history of money:

(1) The birth of money in the form of metallic coins,
(2) The creation of checks that promised payment in money,
(3) The creation of paper money, and
(4) The emergence of electronic money through payment cards and other
methods.

The use of coin, which has been handed down to us from remote
antiquity, has powerfully aided the progress of commercial organization, as the
art of making glass helped many discoveries in astronomy and physics; but
commercial organization is not essentially bound to the use of the monetary
metals. All means are good which tend to facilitate exchange, to fix value in
exchange; and there is reason to believe in the further development of this
organization the monetary metals will play a part of gradually diminishing
importance. The manner in which people pay each other has seen few

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revolutions as fundamental as the spread of electronic money. E-money has

altered how we pay for things: most of us now use plastic cards and their digits
for many of our daily purchases. And it has altered when we pay for things:
most of us defer some payments until our monthly charge or credit bills arrive,
and many of us finance some purchases over time. History teaches us how
significant both of these transformations have been.

Paper money was first used in China around the seventh century AD,
only to be outlawed 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 has 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.

Australia leads the world in plastic banknote technology. Due to the

problem faced with the paper note the invention of plastic money has been
introduced. The paper money has small life cycle and can’t be recycled but as
compared with the plastic money which has long life cycle and can be recycled.
Plastic money is secured and cannot be copied. As we know that
Australia was the first country to have all polymer banknotes, but the rest of the
world is also growing at a fast pace.

There one problem arise that we cannot keep the huge amount of cash
with us so they give the idea of Plastic cards which known as plastic money
accepted worldwide and we can keep the huge amount with us while going

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anywhere in the world. The plastic money makes the society as cashless
societies.
As the usage of plastic cards are increasing the number of supplier are
also increased. Some suppliers (Bankers) are charging the hidden charges and
high interest rate. The agent who convince the people to get the credit card by
offering the wonderful packages but in reality agent is hidden some important
fact which was disclose after the receiving of the bill.

In the 1950s, payments cards were extremely exclusive even though they
had annual fees of only $25 to $30. Cards were only useful during this period
for paying at upscale restaurants, hotels, and other travel and entertainment
destinations.

At the start of the 1960s, only 7 percent of households had either a credit
or a charge card. The chart tracks the growth of credit cards and their diffusion
across the income distribution beginning in 1970. (The lowest 20 Percent of
incomes are in IQ1; the highest are in IQ5.) While poorer households are less
likely to have cards in any given year than wealthier households, they had
impressive gains in card ownership, For example the proportion of households
in the bottom-income quintile with credit cards grew from 2 percent in 1970 to
38 percent in 2001.

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Overall, between 1970 and 2001, the percentage of households with credit cards
more than quadrupled, from about 16 percent to almost 73 percent. In the
meantime, the percentage of households with charge cards went down and up
several times with a through in 1977 (at about 8 percent) and a perk in 1989 (at
about 13 percent). In 1980’s, debit cards was unimportant until around 1990.
About 53 percent of households had debit cards in 199s2, and increased to
almost 70 percent by 2001.

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CHAPTER 5
E-COMMERCE, E-PAYMENTS, AND M-
COMMERCE

Some of the most interesting developments in payment

systems are occurring because of two gales of innovation that
came from outside the payment card industry: the rise of the
Internet, the spread of mobile phones, and the convergence of
the two. Now-a-days have access to the Internet from their
computers at home or work. The fraction of people with
Internet access at home has more than doubled from 5 percent
in 1999 to 45 percent in 2003 and 36 percent of home Internet
users had broadband connections in 2003, up 49 percent from
the previous year. Then there are mobile phones. There are
about 130 million subscriptions registered in the United States
—covering about 60 percent of the adult population. But this is

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a technology that is very much driven by developments in Asia

and Europe with spillover to the States, as we shall see.

There are an estimated 1.2 billion mobile phone

subscribers in the world. Of particular importance are the
phones that can handle substantial streams of data; these are
known as 3G, for “third-generation” mobile phone technology.
(A somewhat less powerful technology, known as 2.5G, has also
been important.) In Japan in particular, access to data services
including Internet access has been available on mobile phones
since February 1999, when NTT DoCoMo’s “i-mode” service
debuted. As of May 2003, there were 38 million subscribers to
mobile data services in Japan, along with 35 million in Europe.
Every computer, mobile phone, and personal digital assistant
that is connected to a communications network—the Internet,
the telephone system, or as is increasingly the case, both—
provides a platform for making purchases. As Malcolm
Williamson, the chair of Visa International put it in 2000: Just as
we were beginning to understand e-commerce, wireless
technology was born. It didn’t take long to figure out how the
Internet could be delivered over a huge distributed base of cell
phones, palm computers, pagers and other devices. So in
addition to e-commerce, we had a brand new channel—mobile,
or “m-commerce.” And the potential number of access points
for payment cards jumped from 400 million PCs to something
approaching a billion wireless devices that will soon exist in the
global marketplace.

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CHAPTER 6
TYPES OF CARDS:

There are different types of plastic money available in the market today
Be it credit cards, debit cards, add-on cards, charge cards, co-branded cards,
affinity cards or Diners Club cards. More and more Indians are using them as a
convenient mode of payment.

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• Credit card
A credit card is plastic money that is used to pay for products and services at
over 20 million locations around the world. All you need to do is produce the
card and sign a charge slip to pay for your purchases. The institution which
issues the card makes the payment to the outlet on your behalf; you will pay this
'loan' back to the institution at a later date.
• Debit card
Debit cards are substitutes for cash or check payments, much the same way that
credit cards are. However, banks only issue them to you if you hold an account
with them. When a debit card is used to make a payment, the total amount
charged is instantly reduced from your bank balance.
A debit card is only accepted at outlets with electronic swipe-machines that can
check and deduct amounts from your bank balance online.
• Charge card
A charge card carries all the features of credit cards. However, after using a
charge card you will have to pay off the entire amount billed, by the due date. If
you fail to do so, you are likely to be considered a defaulter and will usually
have to pay up a steep late payment charge.

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When you use a credit card you are not declared a defaulter even if you miss
your due date. A 2.95 per cent late payment fees (this differs from one bank to
another) is levied in your next billing statement.
• Amex card
Amex stands for American Express and is one of the well-known charge cards.
This card has its own merchant establishment tie-ups and does not depend on
the network of MasterCard or Visa.
This card is typically meant for high-income group categories and companies
and may not be acceptable at many outlets. There are a wide variety of special
privileges offered to Amex cardholders.
• MasterCard and Visa
MasterCard and Visa are global non-profit organizations dedicated to promote
the growth of the card business across the world. They have built a vast network
of merchant establishments so that customer’s world-wide may use their
respective credit cards to make various purchases.
• Smart card
A smart card contains an electronic chip which is used to store cash. This is
most useful when you have to pay for small purchases, for example bus fares
and coffee. No identification, signature or payment authorisation is required for
using this card.
The exact amount of purchase is deducted from the smart card during payment
and is collected by smart card reading machines. No change is given. Currently
this product is available only in very developed countries like the United States
and is being used only sporadically in India.
• Diners Club card
Diners Club is a branded charge card. There are a wide variety of special
privileges offered to the Diners Club cardholder. For instance, as a cardholder
you can set your own spending limit. Besides, the card has its own merchant

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establishment tie-ups and does not depend on the network of MasterCard or

Visa.
However, since this card is typically meant for high-income group categories, it
may not be acceptable at many outlets. It would be a good idea to check
whether a member establishment does accept the card or not in advance.
• Photo card
If your photograph is imprinted on a card, then you have what is known as a
photo card. Doing this helps identify the user of the credit card and is therefore
considered safer. Besides, in many cases, your photo card can function as your
identity card as well.
• Global card
Global cards allow you the flexibility and convenience of using a credit card
rather than cash or travelers checks while travelling abroad for either business
or personal reasons.
• Co-branded card
Co-branded cards are credit cards issued by card companies that have tied up
with a popular brand for the purpose of offering certain exclusive benefits to the
consumer.
For example, the Citi-Times card gives you all the benefits of a Citibank credit
card along with a special discount on Times Music cassettes, free entry to Times
Music events, etc.
• Affinity card
The card issuer ties up with popular organizations/ institutions which are often
non-profit organizations (Citi-WWF card or the Stanchart-Cricket cards) to
offer an affinity card. When the card is used, a certain percentage is contributed
to the organization /institution by the card issuer.
• Add-on card

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An add-on card allows you to apply for an additional credit card within the
overall credit limit. You can apply for this card in the name of family members
like your father/ mother/ spouse/ brother/ sister/ all children above 18 years of
age. Your billing statement would reflect the details of purchases made using
the add-on card. You are liable to make good all the payments for the purchases
made using the add-on card(s).

These cards are performing the function of money in different ways. These
cards are accepted worldwide, in which you can utilize your own money and
also bank’s money. The card through which you spend your own money is
known as debit card. The card through which you spend the amount of bank as
loan is called credit card.

CHAPTER 7
CREDIT CARDS

This little strip of plastic, and the unique global partnership that supports it,
has transformed the way we shop. The way we pay our bills. The way we bank.
The way we travel. The way we live.
—Paul Chutkow, Visa: The Power of an Idea (2001)

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A successful credit card program requires the participation of not just

customers but store owners as well. . . . It was a chicken-and-egg dilemma.
Which came first, the customers or the merchants?
Rather than recruit cardholders, he decided to create them. He would mail
cards to anyone who did business with Bank of America, free of charge. . . .
Fresno’s shop owners knew for a fact that, on the day the program began, some
60,000 people would be holding BankAmericards. That was a powerful number,
and it had its intended effect.
—Joseph Nocera, A Piece of the Action (1994)

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.[1] 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.

This simple payment card has been around since at least the beginning of
the last century. Hotels, oil companies, and department stores issued cards
before World War I. In response to customer requests, Sears began offering
lines of credit in 1910 to customers of “unquestionable responsibility,” although
the Sears card came more than a decade later. Some large retailers gave cards to
their wealthier customers that identified them as having a charge account with
the store. By the 1920s, several department stores allowed cardholders to pay
off their bills in monthly installments. Metal “charge-plates” with embossed
consumer information were introduced by department stores in 1928. During
the 1920s as well, oil companies issued “courtesy cards” for charging gas. By

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the end of World War II, charge cards were no longer a novelty, but they were
about as far from the cards of today as barter was from coin.

A credit card is different from a charge card: a charge card requires the
balance to be paid in full each month. In contrast, credit cards allow the
consumers a continuing balance of debt, subject to interest being charged. Most
credit cards are issued by banks or credit unions, and are the shape and size
specified by the ISO/IEC 7810 standard as ID-1. This is defined as
85.60 × 53.98 mm (3.370 × 2.125 in) (33/8 × 21/8 in) in size.

• How credit cards work?

Credit cards are issued after an account has been approved by the credit
provider, after which cardholders can use it to make purchases at merchants
accepting that card. Merchants often advertise which cards they accept by
displaying acceptance marks – generally derived from logos – or may
communicate this orally, as in "Credit cards are fine" (implicitly meaning
"major brands"), "We take (brands X, Y, and Z)", or "We don't take credit
cards".
When a purchase is made, the credit card user agrees to pay the card
issuer. The cardholder indicates consent to pay by signing a receipt with a
record of the card details and indicating the amount to be paid or by entering a
personal identification number (PIN). Also, many merchants now accept verbal
authorizations via telephone and electronic authorization using the Internet,
known as a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants to verify in a few

seconds that the card is valid and the credit card customer has sufficient credit
to cover the purchase, allowing the verification to happen at time of purchase.

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The verification is performed using a credit card payment terminal or point-of-

sale (POS) system with a communications link to the merchant's acquiring
bank. Data from the card is obtained from a magnetic stripe or chip on the card;
the latter system is called Chip and PIN in the United Kingdom and Ireland, and
is implemented as an EMV card.

For transactions at which the buyer is not present and the card not shown
(e.g., e-commerce, mail order, and telephone sales), merchants additionally
verify that the customer is in physical possession of the card and is the
authorized user by asking for additional information such as the security code
printed on the back of the card, date of expiry, and billing address.

Each month, the credit card user is sent a statement indicating the
purchases undertaken with the card, any outstanding fees, and the total amount
owed. After receiving the statement, the cardholder may dispute any charges
that he or she thinks are incorrect. Otherwise, the cardholder must pay a defined
minimum proportion of the bill by a due date, or may choose to pay a higher
amount up to the entire amount owed. The credit issuer charges interest on the
amount owed if the balance is not paid in full (typically at a much higher rate
than most other forms of debt). Some financial institutions can arrange for
automatic payments to be deducted from the user's bank accounts, thus avoiding
late payment altogether as long as the cardholder has sufficient funds.

• Interest charges
Credit card issuers usually waive interest charges if the balance is paid in
full each month, but typically will charge full interest on the entire outstanding
balance from the date of each purchase if the total balance is not paid.

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The precise manner in which interest is charged is usually detailed in a

cardholder agreement which may be summarized on the back of the monthly
statement. The general calculation formula most financial institutions use to
determine the amount of interest to be charged is APR/100 x ADB/365 x
number of days revolved. Take the Annual percentage rate (APR) and divide by
100 then multiply to the amount of the average daily balance (ADB) divided by
365 and then take this total and multiply by the total number of days the amount
revolved before payment was made on the account. Financial institutions refer
to interest charged back to the original time of the transaction and up to the time
a payment was made, if not in full, as RRFC or residual retail finance charge.
Thus after an amount has revolved and a payment has been made, the user of
the card will still receive interest charges on their statement after paying the
next statement in full.

The credit card may simply serve as a form of revolving credit, or it may
become a complicated financial instrument with multiple balance segments each
at a different interest rate, possibly with a single umbrella credit limit, or with
separate credit limits applicable to the various balance segments. Usually this
compartmentalization is the result of special incentive offers from the issuing
bank, to encourage balance transfers from cards of other issuers. In the event
that several interest rates apply to various balance segments, payment allocation
is generally at the discretion of the issuing bank, and payments will therefore
usually be allocated towards the lowest rate balances until paid in full before
any money is paid towards higher rate balances. Interest rates can vary
considerably from card to card, and the interest rate on a particular card may
jump dramatically if the card user is late with a payment on that card or any
other credit instrument, or even if the issuing bank decides to raise its revenue.

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PARTIES INVOLVED
• Card holder:
The holder of the card used to make a purchase; the consumer.

• Card issuing bank:

It is the financial institution or other organization that issues the credit
card to the cardholder. This bank bills the consumer for repayment and bears
the risk that the card is used fraudulently. American Express and Discover
were previously the only card-issuing banks for their respective brands, but
as of 2007, this is no longer the case. Cards issued by banks to cardholders in
a different country are known as offshore credit cards.

• Merchant:
The individual or business accepting credit card payments for products or
services sold to the cardholder.

• Acquiring bank:
They are the financial institution accepting payment for the products or
services on behalf of the merchant.

• Independent sales organization:

They are the Resellers (to merchants) of the services of the acquiring
bank.
• Merchant account:
This could refer to the acquiring bank or the independent sales
organization, but in general is the organization that the merchant deals with.

• Credit card association:

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An association of card-issuing banks such as Visa, MasterCard, Discover,

American express, etc. that set transaction terms for merchants, card-issuing
banks, and acquiring banks.

• Transaction network:
It is the system that implements the mechanics of the electronic
transactions. May be operated by an independent company, and one
company may operate multiple networks.

• Affinity partner:
Some institutions lend their names to an issuer to attract customers that have
a strong relationship with that institution, and get paid a fee or a percentage of
the balance for each card issued using their name. Examples of typical affinity
partners are sports teams, universities, charities, professional organizations, and
major retailers.
The flow of information and money between these parties — always through
the card associations — is known as the interchange, and it consists of a few
steps.

TRANSACTION STEPS
• Authorization:
The cardholder pays for the purchase and the merchant submits the
transaction to the acquirer (acquiring bank). The acquirer verifies the credit
card number, the transaction type and the amount with the issuer (Card-
issuing bank) and reserves that amount of the cardholder's credit limit for the
merchant. An authorization will generate an approval code, which the
merchant stores with the transaction.

• Batching:

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Authorized transactions are stored in "batches", which are sent to the

acquirer. Batches are typically submitted once per day at the end of the
business day. If a transaction is not submitted in the batch, the authorization
will stay valid for a period determined by the issuer, after which the held
amount will be returned back to the cardholder's available credit (see
authorization hold). Some transactions may be submitted in the batch
without prior authorizations; these are either transactions falling under the
merchant's floor limit or ones where the authorization was unsuccessful but
the merchant still attempts to force the transaction through. (Such may be the
case when the cardholder is not present but owes the merchant additional
money, such as extending a hotel stay or car rental.)

• Clearing and settlement:

The acquirer sends the batch transactions through the credit card association,
which debits the issuers for payment and credits the acquirer. Essentially, the
issuer pays the acquirer for the transaction.

• Funding:
Once the acquirer has been paid, the acquirer pays the merchant. The
merchant receives the amount totaling the funds in the batch minus the
"discount rate," which is the fee the merchant pays the acquirer for
processing the transactions.

• Chargeback:
A chargeback is an event in which money in a merchant account is held due
to a dispute relating to the transaction. Charge backs are typically initiated
by the cardholder. In the event of a chargeback, the issuer returns the

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transaction to the acquirer for resolution. The acquirer then forwards the
chargeback to the merchant, who must either accept the chargeback or
contest it.

• Credit cards in India

Credit cards in India are gaining ground. A number of banks in India are
encouraging people to use credit card. The concept of credit card was used in
1950 with the launch of charge cards in USA by Diners Club and American
Express. Credit card however became more popular with use of magnetic strip
in 1970.
Credit card in India became popular with the introduction of foreign banks in
the country. Credit cards are financial instruments, which can be used more than
once to borrow money or buy products and services on credit. Basically banks,
retail stores and other businesses issue these.

• Major Banks issuing Credit Card in India

 State Bank of India credit card (SBI credit card)
 Bank of Baroda credit card or BoB credit card
 ICICI credit card
 HDFC credit card
 IDBI credit card
 ABN AMRO credit card
 Standard Chartered credit card
 HSBC credit card
 Citibank Credit Card

• Global player in credit card market

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MasterCard
In 1966 the aforementioned group of California banks formed the
Interbank Card Association (ICA). With the help of New York's Marine
Midland Bank, now HSBC Bank USA, these banks joined with the ICA to
create "Master Charge: The Interbank Card". The card was given a significant
boost in 1969, when First National City Bankjoined, merging its
proprietary Everything Card with Master Charge.
In 1979, "Master Charge: The Interbank Card" was renamed simply
"MasterCard". In the early 1990s MasterCard bought the British Access
card and the Access name was dropped. In 2002, MasterCard International
merged with Euro pay International SA, another large credit-card issuer
association, which for many years issued cards under the name Eurocard.
In 2006, MasterCard International underwent another name change to
MasterCard Worldwide. This was done in order to suggest a more global scale
of operations. In addition, the company introduced a new corporate logo adding
a third circle to the two that had been used in the past (the familiar card logo,
resembling a Venn diagram, remains unchanged). A new corporate tagline was
introduced at the same time: "The Heart of Commerce".
• MasterCard is a product of MasterCard International and along with
VISA are distributed by financial institutions around the world.
Cardholders borrow money against a line of credit and pay it back with
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interest if the balance is carried over from month to month. Its products
are issued by 23,000 financial institutions in 220 countries and territories.
In 1998, it had almost 700 million cards in circulation, whose users spent
$650 billion in more than 16.2 million locations.
• VISA Card
VISA cards is a product of VISA USA and along with MasterCard is
distributed by financial institutions around the world. A VISA cardholder
borrows money against a credit line and repays the money with interest if the
balance is carried over from month to month in a revolving line of credit.
Nearly 600 million cards carry one of the VISA brands and more than 14
million locations accept VISA cards. Visa Inc. (NYSE: V) is a global payments
technology company headquartered in San Francisco, California. Visa connects
consumers, businesses, financial institutions and governments in more than 200
countries and territories, enabling them to use digital currency instead
of cash and checks. The company facilitates the processing of transactions on
behalf of financial institutions and merchants through VisaNet, one of the
world’s most advanced processing networks capable of handling more than
10,000 transactions per second. In 2009, Visa’s global network processed 62
billion transactions with a total volume of $4.4 trillion.
Visa does not issue cards, extend credit or set rates and fees for
consumers; rather, Visa provides financial institutions with Visa-branded
payment products that they then use to offer credit, debit, prepaid and cash-
access programs to their customers. In 2008, according to The Nilson Report,
Visa held a 38.3% market share of the credit card marketplace and 60.7% of
the debit card marketplace in the United States.
Visa has operations across Asia-Pacific, North America, Central and
South America, Caribbean, Central and Eastern Europe, Africa and Middle

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East. Visa Europe is a separate membership entity that is an exclusive licensee

of Visa Inc.’s trademarks and technology in the European region.

• American Express
The world's favorite card is American Express Credit Card. More than 57
million cards are in circulation and growing and it is still growing further.
Around US $ 123 billion was spent last year through American Express Cards
and it is poised to be the world's No. 1 card in the near future. In a regressive
US economy last year, the total amount spent on American Express cards rose
by 4 percent. American Express cards are very popular in the U.S., Canada,
Europe and Asia and are used widely in the retail and everyday expenses
segment. `American Express is best known for its iconic Green, Gold, and
Platinum charge cards, and offers credit cards of similar color levels in most
countries.
In 1999, American Express introduced the Centurion Card, often referred
to as the "black card," catering to an even more affluent and elite customer
segment. The card initially charged a $1000 annual fee at the time of its
introduction (today, it is $2500 with an additional one-time initiation fee of
$5,000). The Centurion product offers a variety of exclusive benefits. There
have always been rumors of a super-exclusive card that gives American
Express' richest and most powerful customers special perks. It was this rumor
that caused Amex to profit from the word-of-mouth and sparked the launch of
Centurion.
As of 2005, the US Centurion card has a $2,500 annual fee, while other
American Express cards range between no annual fee (for Blue and many other
consumer and business cards) and a $450 annual fee (for the Platinum Card).
Annual fees for the Green card start at $55 (without Membership Rewards),
while Gold card annual fees start at $125.

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American Express has several co-branded credit cards, with most falling into
one of two categories:
 Airlines and hotels: e.g. Delta Air Lines, Virgin Atlantic, British
Airways, Singapore Airlines, Qantas, JetBlue Airways, Starwood Hotels &
Resorts Worldwide, Hilton Hotels, and others
 Retailers: e.g. Costco, David Jones, Holt Renfrew, Harrods and others.

• Diners Club International

Diners Club is the world's No. 1 Charge Card. Diners Club cardholders
reside all over the world and the Diners Card is a all-time favorite for corporate.
There are more than 8 million Diners Club cardholders. They are affluent and
are frequent travelers in premier businesses and institutions, including Fortune
500 companies and leading global corporations.

CHAPTER 8
DEBIT CARDS

A debit card (also known as a bank card or check card) is a plastic card
which provides an alternative payment method to cash when making purchases.
Functionally, it can be called an electronic check, 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.

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The use of debit cards has become widespread in many countries and has
overtaken the check and in some instances cash transactions by volume. Like
credit cards, debit cards are used widely for telephone and Internet purchases,
and unlike credit cards the funds are transferred from the bearer's bank account
instead of having the bearer to pay back on a later date.
Debit cards can also allow for instant withdrawal of cash, acting as the ATM
card for withdrawing cash and as a cheque guarantee card. Merchants can also
offer "cash back/cash out" facilities to customers, where a customer can
withdraw cash along with their purchase.

• TYPES OF DEBIT CARD:

There are currently three ways that debit card transactions are processed;
Although many debit cards are of the Visa or MasterCard brand, there are many
other types of debit card, each accepted only within a particular country or
region. They are-
Online debit card / PIN debit, offline debit card/ signature debitand Electronic
Purse Card

• ONLINE DEBIT CARD:

Online debit cards require electronic authorization of every transaction and
the debits are reflected in the user’s 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

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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 have been forgotten or not authorized by the owner
of the card.

• OFFLINE LINE DEBIT CARD:

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
other countries, but not the United States) and are used at the point of sale like a
credit card. 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 2–3 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 transactions.

• ELECTRONIIC PURSE CARD:

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) were tried throughout Europe from the
mid-1990s, most notably in Germany, Austria, Belgium, The major boom in
smart card use came in the 1990s, with the introduction of the smart-card-based

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SIM used in GSM mobile phone equipment in Europe. With the ubiquity of
mobile phones in Europe, smart cards have become very common.

ADVANTAGES AND DISADVANTAGES

ADVANTAGES:
Debit and check cards, as they have become widespread, have revealed
numerous advantages and disadvantages to the consumer and retailer alike.
Advantages are as follows;
• 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.
• Use of a debit card is limited to the existing funds in the account to which
it is linked (except cases of offline payments), thereby preventing the
consumer from racking up debt as a result of its use, or being charged
interest, late fees, or fees exclusive to credit cards.
• For most transactions, a check card can be used to avoid check writing
altogether. Check cards debit funds from the user's 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 holder's personal information.
• 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.
• Unlike a credit card, which charges higher fees and interest rates when a
cash advance is obtained, a debit card may be used to obtain cash from an

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ATM or a PIN-based transaction at no extra charge, other than a foreign

ATM fee.

DISADVANTAGES:
The Debit card has many disadvantages as opposed to cash or credit:
• Some 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 not even be known by
the client).
• 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.
• 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-
based credit transaction is equally easy as theft using a signature-based
debit transaction.
• In many places, laws protect the consumer from fraud a lot 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

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card, which is often waived by the bank, the consumer may be held liable
for hundreds of dollars in fraudulent debit transactions. The consumer
also has a much 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,
whereas with a credit card, this time may be up to 60 days. 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.
• In the UK and Ireland, among other countries, a consumer who purchases
goods or services with a credit card can pursue the credit card issuer if the
goods or services are not delivered or are un-merchantable. While they
must generally exhaust the process provided by the retailer first, this is
not necessary if the retailer has gone out of business. This protection is
not provided by legislation when using a debit card but may be offered to
a limited extent as a benefit provided by the card network, e.g. Visa debit
cards.
• When a transaction is made using a credit card, the bank's money is being
spent, and therefore, the bank has a vested interest in claiming its money
where there is fraud or a dispute. The bank may fight to void the charges
of a consumer who is dissatisfied with a purchase, or who has otherwise
been treated unfairly by the merchant. But when a debit purchase is made,
the consumer has spent his/her own money, and the bank has little if any
motivation to collect the funds.
• In some countries, and for certain types of purchases, such as gasoline
(via a pay at the pump system), lodging, or car rental, the bank may place
a hold on funds much greater than the actual purchase for a fixed period
of time. However, this isn't the case in other countries, such as Sweden.
Until the hold is released, any other transactions presented to the account,
including checks, may be dishonored, or may be paid at the expense of an
overdraft fee if the account lacks any additional funds to pay those items.
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• While debit cards bearing the logo of a major credit card are accepted for
virtually all transactions where an equivalent credit card is taken, a major
exception in some countries is at car rental facilities. In some countries
car rental agencies require an actual credit card to be used, or at the very
least, will verify the creditworthiness of the renter using a debit card. In
these unspecified countries, these companies will deny a rental to anyone
who does not fit the requirements, and such a credit check may actually
hurt one's credit score, as long as there is such a thing as a credit score in
the country of purchase and/or the country of residence of the customer.

• WHAT IS THE DIFFERENCE BETWEEEN A DEBIT CARD AND

A CREDIT CARD?

The difference between a "debit card" and a "credit card" is that the debit
card deducts the balance from a deposit account, like a checking account, where
the credit card allows the consumer to spend money on credit to the issuing
bank. In other words, a debit card uses the money you have and a credit card
uses the money you don't have. "Debit cards" which are linked directly to a
checking account are sometimes dual-purpose, so that they can be used as a
credit card, and can be charged by merchants using the traditional credit
networks. A merchant will ask for "credit or debit?" if the card is a combined
credit+debit card. If the payee chooses "credit", the credit balance will be
debited the amount of the purchase; if the payee chooses "debit", the bank
account balance will be debited the amount of the purchase.
The "debit" networks usually require that a personal identification number be
supplied. The "credit" networks typically require that purchases be made in
person and often allow cards to be
charged with only a signature, and/or

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picture ID. However, most merchant agreements in the United States forbid
picture ID as a requirement to use a Credit Card.

CHAPTER 9
ATM CARD

An ATM card (also known as a bank card, client card, key card or cash
card) is a card issued by a bank, credit union or building society.
It can be used:

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• at an ATM for deposits, withdrawals, account information, and other types

of transactions, often through interbank networks
• at a branch, as identification for in-person transactions
• at merchants, for EFTPOS (point of sale) purchases

Unlike a debit card, in-store purchases or refunds with an ATM card can
generally be made in person only, as they require authentication through a
personal identification number or PIN. In other words, ATM cards cannot be
used at merchants that only accept credit cards.
However, other types of transactions through telephone or online banking may
be performed with an ATM card without in-person authentication. This includes
account balance inquiries, electronic bill payments or in some cases, online
purchases.

In some countries, the two functions of ATM cards and debit cards are
combined into a single card called a debit card or also commonly called a bank
card. These are able to perform banking tasks at ATM's and also make point-of-
sale transactions, both functions using a PIN. Europe's Maestro is an example of
network that link bank accounts with point-of-sale equipment.
Magnetic stripe cloning can be detected by the implementation of magnetic card
reader heads and firmware that can read a signature embedded in all magnetic
stripes during the card production process. This signature known as a
"MagnePrint" or "BluPrint" can be used in conjunction with common two factor
authentication schemes utilized in ATM, debit/retail point-of-sale and prepaid
card applications.

ATM Cleaning Cards are the primary means of cleaning ATM machines
to ensure that the machine stays functioning properly.

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An automated teller machine (ATM) is a

computerized telecommunications device that
provides the customers of a financial institution
with access to financial transactions in
public space without the need for a human 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 that
contains a unique card number and some security information, such as an
expiration date or Security is provided by the customer entering a identification
number" personal identification number (PIN).

Using an ATM, customers can access their bank in order to make

withdrawals (or credit card cash advances) and check their account balances as
well as purchasing mobile cell phone prepaid credit. ATMs are known by
various other names including automated transaction machine, automated
banking machine, money machine, bank machine, cash machine, hole-in-the-
wall, cash point etc.

HISTORY OF ATM CARDS:

Don Wetzel has been credited with developing the first modern ATM.
The idea came to him in 1968 while waiting in line at a Dallas bank, after which
he proposed a project to develop an ATM to his employer, Docutel.22 A major
part of the development process involved adding a magnetic stripe to a plastic
card and developing standards to encode and encrypt information on the stripe.

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A working version of the Docutel ATM was sold to New York’s Chemical
Bank, which installed it in 1969 at its Rockville Center (Long Island,
N.Y.)Office Although the Docutel ATM did use the modern magnetic stripe
access card, the technology remained primitive compared with today’s. The
Docutel ATM only dispensed cash and was an offline machine. To enable
payment processing, the machine printed a transaction record that was MICR
encoded.

By the early 1970s, ATM technology advanced to the system we know

today. ATMs were first accessed primarily with credit cards, but in 1972, City
National Bank of Cleveland successfully introduced a card with an ATM but
not a credit function.24 ATMs were
developed that could take deposits, transfer
money from checking to savings or savings to
checking, provide cash advances from a
credit card, and take payments.

CHAPTER 10
IMPACT OF PLASTIC MONEY

Impact of credit cards on Money Demand:

From a psychological standpoint, human need for money is proportional to
what each specific person is interested in buying and what they think is within
range. Therefore in some people, credit card dependency can breed an

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overestimation of what they can afford. The result of this state is an increase in the
demand for money to either repay the borrowed credit or supplement credit
purchases with additional funds.
Short Term
In the short term, credit cards allow customers to purchase products and
services they would not normally be able to afford. This stimulates the economy at
large.
Long Term
Individually, each consumer pays interest on purchases not repaid by the
end of the month. Consumers who cannot or do not repay this debt can become
trapped in a financial quagmire which in the long term can have the opposite
effect on the economy at large.
Plastic money boosts retail spending
The growth in the value of transactions has been much more modest, hitting
Rs 5,900 crore in 2005-6. With credit card transactions notching up a whopping
Rs 33,900 crore in the same period, debit cards have a long way to go.
Positive for our society
Credit cards have replaced what are obviously less consumer-friendly, less
flexible and far more expensive forms of transaction, actuation and lending.
Previously people had to collect cards from all of the different local stores and
wonder how much credit they would give, because they wouldn't tell. And
previously, if people wanted to borrow cash, they had to go somewhere, bare their
soul.
It's really annoying to stand on line at the cashier behind people who are
using cheques. So tremendous advantages to the retailers that used to have to tie
up their capital in a business that they weren't really very good at -- lending -- and
in doing so, considerably muddy their customer relationships by having to apply
collection pressure and so forth. Hence cards have provided a dominantly superior

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transaction medium and a far more flexible, cheaper, more efficient way of
borrowing for the consumer.

CHAPTER 11
PLASTIC MONEY IN INDIA

In the last two years, spending pattern through plastic money has changed
drastically. Travelling, dining and jewellery are the top three purchases that
Indians make through credit cards. Four years ago, it was jewellery and apparel
purchases that formed the largest chunk of purchases through plastic money. Fuel
accounts for a very small portion of credit card purchases as these are largely paid
through debit cards.

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The credit card companies say that consumers spend Rs 50,000 crore annually
which is expected to grow at 50% over the next 2-3 years. “Travel has become
much larger a segment than what it was a few years ago. Airline tickets, both
domestic and international, are now bought through credit cards making it the
largest category for credit card purchases. With air travel becoming affordable and
eating out a regular feature in Indian households, the trend will only gain
momentum in future feels experts. Travel and dining corner about one-fourth of
the total credit card purchases which signifies the shift in Indian spending habits.
Earlier, purchases of both consumer durables and jewellery items were larger than
the hospitality segment. Going forward, this trend should continue said an
industry expert.
Jewellery, consumer durables, fuel purchases, apparel are a much smaller segment
than travel and dining which comprise the largest chunk of credit card purchases.
Eating out has in fact become a big concept now while travel and hotel bills along
with dining, account for about 25-35 % of the total value of purchases through
credit cards, purchase of jewellery accounts for 10-11 % of the purchases. Apparel
purchases account for 8-10 % and consumer durables like TV and mobile phones
account for nearly 6-7 % of the purchases through plastic money.
Four years ago, the figures were largely skewed in favor of jewellery and apparel
purchases while travel and hospitality was a small component.
With 87% of all transactions in plastic money happening through credit cards,
debit cards in India continue to be used largely for cash withdrawals. There are
about 65 million debit cards in India of which State Bank of India alone accounts
for 25 million debit cards. ICICI Bank is said to have 11 million cards. This is
largely in line with the fact that both the players are the biggest banks in India and
will have the highest number of savings accounts.
Utility payments are another segment where more payments are being made
through plastic money in the last two years. Credit card is one of the

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fastest growing businesses in financial services in India. There are currently 25

million credit cards in India and ICICI Bank is the largest player with 8.5 million
cards issued. Citibank, SBI-GE Card and HDFC Bank are the other prominent
players in the sector.
Indians are still not sure of the plastic money. Credit cards spend as a proportion
of the total expenditure by Indians is one of the lowest in the world. While Indians
swiped plastic money worth $6 billion in 2006, credit card users in Korea
cumulatively spent $136 billion.
Indians spend just 1% of their total purchases through credit cards while the
Koreans make one-fifth of their total purchases through credit cards. The world
average however around 9%.The very low levels of penetration in India offer
immense potential for credit card companies. Also, there are fewer credit card
companies than those in other parts of the world. The high growth in spending is
attracting a lot of entrants into the segment.
What is drawing a large number of companies and financial institutions including
Life Insurance Corporation of India (LIC) to India is the 61% year-on-year growth
being witnessed in retail spending, the highest in the world.
Interestingly, even among the rich, credit card ownership in India is the lowest in
the world. While 90% of the affluent in Hong Kong have credit cards and the
corresponding figure for Sydney stands at 87%, in India, only 28% of the affluent
have credit card.
Manila, Jakarta, Taipei , Hong Kong have 48-76% of the affluent population
owning credit cards, according to Visa research in Asia. Seoul has 84% of its
affluent population owning a credit card. Korea, however, has a history of defaults
on credit cards where the government had to bail out the credit card companies.
Sources in the industry say with such low penetration levels there are at least half
a dozen companies that are looking to roll out credit card operations in India. AIG,
Barclays, and LIC are some of the companies eager to enter the Indian market.

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Punjab National Bank (PNB) is also learnt to be in negotiations to launch another

credit card.
While PNB is still in talks with financial institutions, Barclays has rolled out some
of its products even as it continues to negotiate with players for future product
offerings. Unlike the retail banking segment where Indian banks dominate the
market, in the credit card space, foreign banks have managed to garner a sizeable
chunk of the pie.
This is largely due to the fact that while the Reserve Bank of India has imposed
many restrictions on foreign banks, there are no restrictions on credit card
companies. Citibank, ABN Amro, HSBC and Standard Chartered are some of the
foreign banks that have a significant India portfolio.

CHAPTER 12
FUTURE OF PLASTIC MONEY IN INDIA.

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 cardholder’s base.

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It’s 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 (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 sophisticated 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

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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.
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.

CHAPTER 13
PLASTIC CARD VULNERABILITIES

In one survey conducted in the United States in 1993, a group of 14 credit card
fraudsters admitted to employing over 100 different ways of using credit cards to
obtain funds dishonestly.

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• Alteration and Counterfeiting

The first area of vulnerability lies within the card itself. Ever since plastic
cards were introduced, attempts have been made to alter or counterfeit them in
order to obtain funds illegally.
Cards used to perpetrate fraud are generally lost or stolen cards which could
be used intact or altered by re-embossing and re-encoding, or counterfeit cards
that are entirely new. In order to counterfeit a card it is necessary to know the
details of a current valid cardholder -- hence the desire of offenders to obtain
legitimate credit card details from sources such as the Internet (a method which is
being used increasingly by offenders in Australia). Blank, white plastic cards are
then embossed with stolen numbers, the magnetic stripe is encoded with matching
numbers, and the signature panel on the card installed. Identifying logos and
colour printing are added to mimic a real card. Sometimes information on the
card's magnetic strip is obtained is "card skimming". This is when a legitimate
card is obtained for a few seconds to enable it to be passed over a magnetic tape
reader so that a counterfeit copy may be made.
Another technique is "buffering", which involves modifying the information
stored in the magnetic strip of the card or obtaining security codes electronically.
Although magnetic stripe cards are relatively easy to forge, smart cards are more
difficult to counterfeit, but there are claims that they are not absolutely tamper-
proof.

PIN Fraud
Other vulnerabilities arise out of the way that the individual making use of the
card authenticates his or her identity when using the card. This is mainly a
problem with debit cards used in electronic card reading machines, which can
verify the identity of cardholders by requiring them to enter a PIN or password. In
order to enhance the security of the system, the user's PIN is encrypted before it

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travels through the network, thus making it difficult for the PIN to be discovered
by hacking into the network.
A more substantial security risk arises from the manner in which the PIN is
communicated to the cardholder, recorded and remembered by the cardholder, and
used by the cardholder at a terminal during a transaction. Although cardholders
are clearly warned of the dangers associated with disclosing their PIN, writing it
on the card, or keeping it in the same place as the card, a considerable proportion
of cardholders refuse to heed such advice, thereby placing them at risk of loss - for
which they will be personally responsible.

• Hacking
Credit card information is illegally obtained either by hacking into databases of
account numbers which are held by Internet service providers, or by intercepting
account details which travel in unencrypted form. In Sydney, on 27 March 1998,
for example, a computer hacker was sentenced to 18 months’ imprisonment for
having illegally obtained access to an Internet Service Provider’s database of
credit card holders and published details relating to 1,225 cardholders resulting in
the business losing more than $2 million (R. v Stevens unreported decision of the
NSW District Court, 27 March 1998). There are also many online scams
perpetrated by customers who make use of false credit card details, as well as
merchants who fail to honor online agreements.

ATMs and EFTPOS terminals have also been targeted by offenders who have
done everything from stealing entire ATMs laden with cash, using stolen cards
and PINs to make unauthorized cash withdrawals, to interfering with bank
computers in order for sums in excess of account credit balances to be withdrawn.
In the United States it has been estimated that 40 per cent of ATMs have been
subjected to fraud.

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CONCLUSION

From the study it is concluded that, now-a-days plastic money is not only
restricted to the rich or the upper middle class people but even the lower middle
class people are taking the benefits of the plastic cards 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 the most important strength of plastic cards. The
survey has told that the customer prefer those banks which provide quality
services so the quality services are the basic strength for bank. The easy procedure
for obtaining a debit or credit card is also strength of plastic card. Inflation is a

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positive point for banks as due to increased inflation is purchasing power is

decreasing and people are more inclined towards use of credit card.

BIBLIOGRAPHY

Paying with Plastic

By David Sparks Evans, Richard Schmalensee

Plastic Money

http://www.cse.ohio-state.edu/~rakowskm/plasticmoney.htm
• Plastic money trick: Credit today grows cash tomorrow, Economic
Times, 01/24/2008

• Banking Service. http://www.indiasbankingservice.blogspot.com/

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• Impact of credit cards on Money Demand

http://.www.wiki.answers.com/Q/What_is_the_impact_of_credit_cards_o
n_demand_for_money
• Secret History of the Credit Card
http://www.pbs.org/wgbh/pages/frontline/shows/credit/interviews/kahr.html

• Plastic Card Fraud

Russell G. Smith and Peter Grabosky, Australian Institute of Criminology

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