Plastic Money

PLASTIC MONEY
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
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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.

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HISTORY OF CREDIT CARDS

In 1914 there was credit system that was used by Western Union to give to their more prominent customers in the interest of good customer service. Prominent (prestigious) customers were given a metal card that was used to defer payments (interest free) on services used by them. This credit system was called

Metal Money

In 1924 General Petroleum Corporation (an oil company) saw the success and being aware of the value of goodwill this could offer to their customers, also issued their own metal money for gasoline and automotive services. This was first offered to their employees followed by selected customers then the general public after its great success. During the 1920s and 1930s this form of credit card system spread to other companies such as Railroad, hotel chains, airline, oil companies and department stores In the late 30s American Telephone and Telegraph (AT&T) introduced their credit card called the Bell System Credit Card. The use of such credit cards greatly increased after World War II due to the rapid growth of businesses, increase in travel and the great demands for goods and services and thus, it popularity grows significantly.

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In 1950, the first universal credit card was introduced by Diners Club, Inc (invented by Diners' Club founder Frank McNamara). This was a new kind of credit card which set the foundation on which todays card credit is established, unlike the other cards where they could only used for specific goods and services, the Diner Club had a more general use. It was first used by members for restaurant services but quickly expanded beyond that service to cover general travel and entertainment expenses thus covering a variety of establishments. Cardholders were charged an annual fee and billed on a monthly or yearly basis. During the 1950s, because of its convenience and efficiency, its popularity increased and many merchants were very eager to accept the card because customers spend a lot more than if it was cash since they can charge it to their cards

In 1951, the first bank to implement this credit system was the Franklin National Bank in New York Customers would submit an application for a loan and were screened for credit. Approved customers were then given a card (Charge-It card) to make retail purchases. This credit card system was similar to todays system where consumers could make a purchase using the card at participating merchants. This merchant would copy the customers

Information from a sales slip then obtains authorization from the bank thus, completing the purchase. The bank would then, in turn, reimburse this participating retailer and collect the debt from the consumer at a later date with a flat fee to cover the costs of providing this credit loan. This
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system was very successful and after a couple of years, other banks impressed with this credit system jumped on board and offered their customers similar services.

In 1958, the American Express Company (a travelers check business) entered the credit card business with their version of the universal credit card Dont leave home without it. Their credit card was used for travel and entertainment purposes and accepted at participating airline merchants, restaurants and hotels. Their credit system policy at the time (which changed in 1987) required cardholders to pay off their balances each month.

In 1959, the Bank of America in California introduced the Bank of America card. They were the first to introduce the revolving credit card. This means customers were now given the option to make regular monthly payments on the balance owed rather than having to pay off the entire balance at one time. In other words, customers could carry a balance from month to month. Many other banks then followed offering this revolving credit option.

In 1965, Bank of America foresaw more income potential and control and began issuing license agreements to other banks of all sizes in the US. These licensing agreements allowed other banks to issue BankAmerica Blue, White, and Gold BankAmerica card and also to interchange transactions through these issuing banks
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In 1966 a group of 14 US banks came together to form a new bankcard processing association that provides the ability to exchange information on credit card transactions.

In 1967 a group of four California banks formed a new Association entity called Master Charge (Renamed MasterCard in 1979) which is now known as

MasterCard International

This was done to compete with the BankAmerica card (later became Visa in 1977). This new bankcard processing association would expand their services and increase their income potential, thus, these small banks formed a mutual relationships with large national or international banks.

In 1969 banks interested in issuing cards of their own, became members of either the Master Charge program (MasterCard Association) or BankAmerica card program (Visa Association). This also means that most independent bank charge cards would now change over to either credit card programs. This was mutually beneficial to all banks and small financial institutions since, they shared card program costs. Both organizations issued credit cards through their member banks for their customers. Also, they both lay down standards for credit card processing. In 1977 Bank Americard spreading its credit card business globally had difficulty
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achieving this due to the association of "America" in Bank America Card. Thus, its name was changed to Visa. This changing of name was followed shortly (2 years after) by Master Charge to Master Card.

In 1979 Master Charge changed its name to Master Card. Also, the electronic processing of credit cards improved through electronic dial-up terminals and magnetic stripes on the back of credit cards. This allowed consumers credit cards swiped by merchants to accessed issuing bank card holder information. This method decreased fraud, increased speed of processing authorizations and decreases the usage of paper.

In the early 1980s the first Automatic Teller Machines (ATMs) came into existence. This gave credit card holders access to cash in different currencies from different countries around the world as well as locally.

ATMs give consumers the opportunity to have access to cash from their bank account or from their credit card. Also, this gives an extra benefit to card holders since they could make deposits 24 hours a day from most countries around the world.

2005 and beyond: Today, MasterCard, American Express, VISA, and Discovery, are the most popular and also have the most respected symbols when it comes to credit cards. The credit card/payment system will continue to evolve as a new technology payment system developed through the advancement in science and technology. Read articles below under the heading: Additional Info. On credit Card- future credit cards

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that are in the making for the near future. Only a few are listed but there are other bigger futuristic developments out there in the making

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ADVANTAGES OF CREDIT CARD

(1) 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 customers.

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

h) customer- base of the bank

i) It brings into banks fold high net worth customers by introducing various types of credit card like Gold Card, Executive Card.

j) It brings in new customers from various merchants outlet which accepts credit cards against sale of their goods/services.

k) It creates a brand name and popular image for the bank.

l) Large scale use of credits card and shops etc accepting them help to increase deposit base of the bank

m) It increases interest income of the bank when card users avail of loan facilities to settle the bills.

n) This may increase the chances of relationship banking and there by retaining the customers.

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(2) 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.
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h) The card holder has the option of taking extended credit up to a pre arranged limit without reference to anyone, in additional to an initial credit and interest free period. Future, revolving credit becomes automatically available as the outstanding balance is reduced.

i) It provides a proof of spending through banking channels to strengthen his position in case of disputes with sellers.

j) It also gives him exposures to banking operation since systematic accounting for spending and payments are routed through banking channels.

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

l) Credit card is considered as a status symbol

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(3) BENEFITS TO THE RETAILER:-

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.

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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

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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.

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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:

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Residential realtor, mortgage broker, real estate attorney, home improvement contractor, architect and 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 a couple of ways to do this:

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

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Plastic Money THE MECHANICS OF CREDIT CARD TRANSACTION

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

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1. CLEARING:-

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.

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3. TRANSACTION PROCESSING:

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.

A. Front End Processing

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

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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.

B. Back-End Processing

Back-end processing involves the various accounting functions that enable transactions to be recorded to the proper merchant or cardholder 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
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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 purchase. PIN transactions also are processed on entirely different networks referred to as EFT networks and are discussed in Section IV.

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Plastic Money CREDIT CARD OPERATIONS OF BANK

RBI GUIDELINES:-

Pursuant to the announcement made in the Annual Policy Statement 200405, 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 was 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.

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GUIDELINES FOR IMPLENTATION:-

1. Issue of 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.
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during marketing, at the time of application, at the acceptance stage (welcome kit) and in important subsequent communications

2. Interest rates and 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.

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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 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 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

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bank / NBFC may consider providing bills and statements of accounts online, with suitable security built therefore.

4. Use of DSAs / DMAs and 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 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
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customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc.

5. Protection of Customer Rights

Customers rights in relation to credit card operations primarily relate to 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).

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
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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 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
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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.

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"

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 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
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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

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

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issuing bank / NBFC should ensure that the DSAs / DMAs do not transfer or misuse any customer information during marketing of credit card products.

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.

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.
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6. Redresses of Grievances

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

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.

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Plastic Money DIFFERENT TYPES OF CREDIT CARDS

Credit cars are of various types, everyone 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 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
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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 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.

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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 a draw to 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.
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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 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,
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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.

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.

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Credit Cards for Bad Credit

Bad 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 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.

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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.

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Plastic Money TYPES OF CREDIT CARDS OFFERED BY INDIAN BANKS

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

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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 ill 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.

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Plastic Money 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.

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TYPES OF DEBIT CARD SYSTEMS

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 on-line 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 other countries, but not the United States) and are used at the point of sale
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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.

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Prepaid Debit Card:-

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

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Plastic Money ADVANTAGES OF DEBIT CARDS

The following are the benefits of the debit card services:

1. 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.

2. 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.

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

4. 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

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have back home in our account, and Business Travel Quota (BTQ) limit arability.

5. Fair Exchange 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.

6. 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.

7. Banking cum Shipping 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.

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FEATURES OF DEBIT CARD

The following are features of Debit cards

1. 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.

2. The Debit Card services in meant for withdrawals against the balance already available in the designated account.

3. It is the card holders obligation to maintain sufficient balance in the designated account to meet withdrawals and service charges.

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

5. No credit check is required to get a Debit card.

6. Use of card is terminated without notice, upon the death, bankruptcy or insolvency of the cardholder or for other valid reasons.

7. Spending is limited to our bank balance.

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DISADVANTAGES OF DEBIT CARD

1.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). 2.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, and dollar and cent amount, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks. 3. 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. 4. 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. 5. 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.

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DIFFERENCE BETWEEN CREDIT CARDS AND DEBIT CARDS

1. The credit card is a pay later product whereas a debit card is a pay now product.

2. In the case of credit card, the holder can avail of credit for 30 days to 45 days whereas in a debit card the customers account is debited immediately.

3. No sophisticated telecommunication system is required in credit card business. The debit card programme requires installation of sophisticated communication network.

4. Opening a bank account and maintaining a required amount are not essential in a credit card. A bank account and keeping required amount to the extent of transaction are essential in a debit card system.

5. Possibility of risk of fraud is high in a credit card. The risk is minimized through personal identification number in debit card programme

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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

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NEW TECHNOLOGY INTRODUCED FOR CREDIT CARDS

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 Data: Credit Card is either Visa or MasterCard which is the most popular and in some instance American Express.

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Plastic Money RESEARCH AND METHODOLOGY Objective:

Most people either personally own or at least know about credit cards. Credit cards are small, rectangular pieces of plastic that can be used to purchase items in stores and on the Internet in place of cash. All of the many different types of credit cards in existence come with very specific and individual credit terms and conditions that state when payments must be made on credit balances, how much interest must be paid on outstanding credit balances, and what will happen to a credit card holder if payments are not made on time - which usually consists of the need to pay late fees. Credit cards which have been used over decades all over the world because they are easy to use, convenient, and simple to obtain. They can also bring us into a financial trouble if used to purchase extremely expensive articles. One needs to use credit cards with diligence and care. When a consumer uses a credit card he needs to use it with a thought that he owes a responsibility that comes along with the credit card of paying the credit. The basic concept behind a prepaid charge card is that it does not allow a person to spend money they do not have, while still providing the convenience of the plastic money. A pre-paid charge card is associated with an account that has money in it. When used, money is electronically withdrawn from that account. The account holder can add money to their pre-paid charge account at any
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time, or can transfer the money from another separate account on a scheduled basis and the card agency charges the account holder a small monthly/yearly fee each time the card is used. Prime candidates for pre-paid charge cards are people who have owned a credit card and have developed bad credit, young adults who have never owned a credit card and need practice, parents who want to give a card to their children but do not trust them with official credit, and people who never seem to have enough cash on hand. Debit cards are very similar to pre-paid charge cards except that they are normally associated with a persons regular checking or savings account at their local bank. While a debit card may have a Visa or MasterCard logo on it, when the credit card is used, money is automatically withdrawn from the person's checking or savings account. Debit cards may or may not have fees associated with them, and the terms and conditions associated with debit cards will vary depending on a person's bank. Often, banks offer good deals on debit cards if a person agrees to have his or her regular payroll check directly deposited into their checking or savings account on a bi-weekly or monthly basis. Before you rush and get one of these cards, you should first look around and find the best offer possible. Most cards offer you some rewards and incentives, along with online access to your account. The best cards are accepted around the world, and offer you ATM access for instant cash. If a

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card does not offer you these types of features, you should pass it by and look for one that does. Other things to look for with cards are that they include no annual fees, and excellent customer support. Customer support is very important with these types of offers, as you don't want a card that does not offer you great customer support. If you encounter a problem, you want a company that is going to be there when it matters the most. If you take your time and research cards, you will find the best fit for your particular credit situation. There are many to choose from, especially if you look online. You should always compare features and rates, and look for companies that offer you cards with excellent features at the lowest rates. This way, you can get everything you love from traditional cards while avoiding the hassle and worries of traditional credit instruments and build up your credit score with a great payment history again very fast.

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MAJOR FINDINGS Q1. What is your annual income?

40% 35% 30% 25% 20% 15% 10% 5% 0% 2,00,000 3,00,000 5,00,000 5,00,000 10,00,000 Above 10,00,000

Out of sample size of 100 37% people have an annual income of 2,00,000 32% people have an annual income between 3,00,000 5,00,000 18% people have an annual income between 5,00,000 10,00,000 13% people have an annual income above 10,00,000

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Q2. What is your occupation?

60% 50% 40% 30% 20% 10% 0% Service Business Other

Out of sample size of 100 38% of the people were in service 59% of the people have their own business 3% opted others

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Q3. Which banks card do you use?

35% 30% 25% 20% 15% 10% 5% 0% ICICI SBI CITI HDFC Others

Out of sample size of 100 17% people use ICICI card 29% people use SBI card 11% people use CITI card 10% people use HDFC card 33% people use other banks card

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Plastic Money Q4. How long have you been using the card?

40% 35% 30% 25% 20% 15% 10% 5% 0% Less than 1 year 3 Years 6 Years Above 6 Years

Out of sample size of 100 15% less than 1 year 36% 3years 33% 6years 16% above 6 years

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Plastic Money Q5. Which Card do you prefer?

60% 50% 40% 30% 20% 10% 0% Debit Card Credit Card Smart Card

Out of sample size of 100

59% of the people prefer Debit cards 25% of the people prefer Credit cards 16% of the people prefer Smart cards It was noted that majority of the young generation preferred credit cards, since the limit to purchase goods is not limited to the extent of balance maintained in their account. however, the middle age generation and the old age generation prefers debit cards since they can track the amount spent also the limit is to the extent of balance maintained in their account which according to them is safe. Smart cards are preferred by people who travel by bus and taxi

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Plastic Money 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 convenience. Technology intensive delivery channels like net banking, mobile banking, etc have created a win-win situation by extending great convenience & 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.

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