credit cardt-plstic money
TRANSCRIPT
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Plastic Money - Current Market & Future Potential
INTRODUCTION
The topic which I intend to do for my thesis is an overall study of the
Plastic Money (Credit Cards), the pros and cons of it, the existing
companies and the market scenario.
The concept of ‘Buy Now, Pay Later’ dates back the to late 1960s &
70s with the introduction of plastic money in the western nations. It
originated because the people wanted a convenient and rapid means of
accessing their bank accounts. Also, the exorbitant price of money
changing hands between the consumer, merchants and the banks led to
the diffusion of this concept in the banking system.
For spendthrifts and habitual borrowers plastic money induces
spontaneous and on-the-spur spending. But its advantages in terms of
convenience, flexibility and safety far outweigh its pitfalls. Provision for
easy repayment give the card the liquidity of cash along with the
accountability of credit card.
In the past 20 years these cards have proliferated the world market so
successfully that they have altered the face of retail banking. With the
power of plastic ruling the world, India cannot remain behind. With a
slow and steady move towards scruples trading the country is moving
towards cashless transactions.
The plastic money market is bubbling with activity with both Indian and
foreign banks vying to expand their market presence. While the foreign
banks have been hogging the limelight Indian banks are the slumbering
giants. The latter have the advantage of a large customer base, branch
network along with low service charges. These advantages need to be
tapped to realize the full potential of these banks.
There are about 1.4 million people with plastic-money cards in their
pockets which is over four times the 1990 figure of 3 lacs. Amazingly,
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nearly 40% of them are holding more than one credit card, perhaps to
stretch their outstanding permissible limit per card.
Seeing the growth rate and sensing the potential, many companies and
business establishment are jumping into the fray by joining hand with
the banks that are issuing cards - thereby nurturing the so called Co-
branded Cards.
The adage, ‘consumer is the king’ is at last becoming a reality with nifty
banks making efforts to upgrade and differentiate their services to widen
their client base.
Although any bank can issue its own credit card, its ability to establish a
merchant network that accepts those cards will always be limited by
the geographical reach. Today both Master and Visa through their
‘association of banks’ offer their acceptance networks and brand
names to almost any bank that wants to make use of them. Huge cost of
building infrastructure has let to the hegemony of these two players in
the market today.
Although the role of plastic is still in the infancy as it is restricted to less
than 1% of population in India, the average spending through cards
which was around Rs. 15,000 in 1996 is moving up steadily at the
annual rate of 12%.
The factors inhibiting the growth of plastic money could range from
poor infrastructure, lack of bureau for checking credit worthiness of people, the guilt associated with credit purchases, to the homongous
amount floating in the parallel economy which cannot be tapped through
the plastic cards.
This study provides an insight into the current scenario of the plastic
money market and looks into the potential for the growth of the same in
the coming years.
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ORIGIN
The credit card had its beginning in an embarrassing incident that took
place in the early 1950’s in America. The story goes that Mr.
McNamara, a New York businessman took his friends out to dinner. At
the end of meal he discovered that he had forgotten his wallet at home,
the proprietor was kind enough to allow him a later settlement of bill.
As McNamara stepped out of the restaurant he had the brainwave for
the introduction of credit cards - system of availing instant credit upon
confirming the identity of card holder. Thus was born the Diners Club
Cards, the pioneer of today’s multibillion dollar plastic money
business.
Diners Club adopted a promising approach by recruiting various hotels
and restaurants to act as member establishments for accepting the cards.
Not only did these establishments pay a commission on members
purchases but the members also paid an annual subscription fee. Diners
Club vetted its members for credit worthiness and guaranteed payment
to participating establishment. Thus was born the first ‘Travel and
Entertainment Card’. It was followed by American Express which is
now a dominant force in the Travel and Entertainment cards industry,
and by 1959 by Carte Blanche, after many vicissitudes is now a part of
Citi Bank empire together with Diners Club. In the present time
American Express leads the travel and entertainment (T&E) card
industry.
The next great leap-forward came from Bank of America, which in
other banks. Such card holders could use their card 1966 offered to
license its successful blue, white and gold Bank America card to at any
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accepting merchant establishments around the globe. Later in 1977 all
the national and international Bank America licenses were pulled
together under the single name of Visa.
Not to be outdone, a rival group of American Banks came together in
1966 under the name of Interbank, later renamed Master Charge and
later still Master Card. Ever since Master Card and Visa and their
affiliates have carved the world credit card market.
In the 1980s credit card concept was launched in India through the
Diners Club card, and soon, within a couple of months both Visa and
Master card entered into the Indian market.
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TYPES OF CARDS ON OFFER
CREDIT CARDS
A credit card is an instrument that identifies the holder as possessing a
credit account and entitles him, upon presentation to obtain goods or
services from a merchant establishment on the basis that payment for
them will be made by the issuer of the card. The retailer/merchant
establishment pays some commission to the issuing bank, because ithelps the retailer to gain greater access to customer. Thus a credit card
provides card holder with both payment mechanism and an automatic
loan.
Credit card offers great flexibility. The cardholder has the option to treat
it as a charge card by paying monthly bill in full with no interest, or
paying only 5-10 % of the bill and roll over the rest as long the balanceis under the pre-determined limit set on each card. Interest charged on
unpaid amount is around 2.5% and their are no black marks here as is
the case with charge card in case of late payments. Period of repayment
is entirely upto the card holder. If he is disciplined and pays off the
outstanding amount quickly it might even turnout to be cheaper than
conventional consumer loan.
CHARGE CARD
Charge card is similar to the credit card with exception that in a charge
card the cardholder has to settle the entire amount on the due date
indicated on his card statement (i.e. normally 15 days). In this, no
extended credit can be obtained and there is no option to revolve credit.
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Any default attracts an interest penalty of 2.3% to 4% and black mark
against the cardholders credit worthiness.
DEBIT CARD
Credit card provides two services bundled together in one product - (i) a
payment mechanism and (ii) an automatic loan i.e. simple way of
borrowing money for retail purchases. Separation of these services has
led to the development of Debit Card.
Debit card has a microprocessor and a memory integrated circuit chip.
Valid for a fixed prepaid amount, the card gets debited after every
transaction and can be reloaded after the value is exhausted. For a
prepaid amount the user gets a card with a Personal Identification
Number (PIN) and has to pay an initial fee for using the card. The
cardholder has to insert the card into a Merchant Location Terminal
(MLT) to formalize the transaction. Corresponding to the amount, the
value on the card gets deducted. The bank sends the cardholder a
monthly statement of his transactions. Lack of funds in the account is
treated as an overdraft leading to the interest payment and black marks.
Thus, there is no revolving credit facility provided, and the card holder
is accessing his own money.
SMART CARD
Smart Card is a plastic card embedded with a microchip that can store
far more information on it other than loading of credit spent by the
cardholder. This memory chip acts as a miniature accountant, carrying
users passbook and allowing him to deposit/withdraw cash. It is a
multipurpose card and can be used as an information library and for
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identification too.Thus Smart Card provides easy accountability of
credit and debit cards along with liquidity of cash.
The user of Smart Card guarantees the value loaded into the card so the
customer knows that only ‘good money’ will be transferred to his/her
own card. Likewise, any recipient of the value from a customer knows
that the money is good.
PRODUCT DIFFERENTIATION
Since Credit-Card per se is perceived as a near commodity
choice. The purchase decision is largely based on price and
service. This results in intense price and service competition.
However, with the acquiring of new customers becoming more
and more difficult, there have been numerous introduction in
the marketplace For e.g.
Affinity Cards
These are actually meant to attract the potential card members
by incorporating an emotional appeal i.e. affinity towards a
particular association. Citibank was the first to introduce the
affinity cards for the members of the alumni association of
modern school, Barakhamba road. Thereafter, Standard
Chartered has also introduced affinity cards for premier
institutions such as IIT Delhi, Doon School, Sanawar. We shall
discuss these in detail in the introduction on Co-branding.
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Product Innovation
However it is Standard Chartered Bank, an ambitious player in
consumer lending that has been most innovative in terms of
introducing a more personalised and customised card. It was
the first to introduce:
Photo-Card
It carries a photograph of the cardholder, thereby ensuring thesecurity of the card and eliminating the lost card liablity.
Picture-Card
It is a lifestyle product. It enables one to actually customise one’s
credit card thus providing the distinguishing factor. The
cardholder can place any picture on the card, which can range
from being a photograph of his child or his automobile or some
other exciting moment in his life.
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TRANSACTING PROCEDURE
Banks issue the card to individuals, businessmen as well as corporate.
The basic procedure for obtaining the card remains the same with
certain alterations for people asking for add on card.
PROCEDURE FOR OBTAINING THE CARDS
For establishing confidence in client, banks require a standard
application form to be filled. Along with this application potential
customers have to submit
• Income/salary statements.
• Photocopies of income tax return (IT) filed for the last financial year
and acknowledge by an income tax officer.
• Income Tax Officer’s assessment order / photocopy of form 16 TDB
/ promotion letter (with salary details) / appointment letter (with
salary details) / monthly pay slips / annual salary certificate on
comapny’s letterhead certified by an authorized signatory under
official seal.
• For self employed - photocopy of ITR acknowledged by an income
tax officer (ITO), for the last financial year or ITO assessment order
or advance tax paid challans (minimum 2 quarters)
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TERMINOLOGY
Issuer : An issuer is an affiliate (usually a bank or financial
institution) which has entered into an agreement with Visa/Master Card
and can issue cards in their name.
Acquirer : An acquirer is an affiliate who has an agreement with
Visa/Master card to acquire credits card charge slips from merchants
and reimburse. Some banks are both Issuers and Acquirers, while some
are only Acquirers.
Credit Limit : There is a ceiling limit on the amount that a person can
use for purchase or can borrow on his credit card. This credit limit is
approved at the time when the credit card is issued to the holder by the
credit issuing bank. Available credit limit is the approved limit less
outstanding transactions, if any.
Credit Acceptance : A merchant tied up by a Master Card/Visa -
issuing bank will need to display the Master Card/Visa logo at his
outlet. Any other Master Card/Visa issued by other banks also becomes
acceptable at the same outlet.
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CARDHOLDER - MERCHANT TRANSACTIONS PROCEDURE
When the cardholder presents his card to the merchant........
• Checks for the expiry date, validity of the card in India, whether it
(the merchant) has a tie up with the agency (Visa / Mastercard /
Amex).
• The merchant compares the cards embossed number with the number
in the Hot Card Bulletin - to ensure whether the card is valid for use.
• If the number is not on the bulletin, and the charged amount is within
the floor limit, the merchants obtains the card impression on the sale
slip, by using imprinter. He also fills amount and the date of the
transactions.
• If the charged amount exceeds the “floor limit” on the establishment,
the merchant phones the nearest authorization centre. The centre
assess and ascertains the holders account and other details. Then the
centres gives the merchant the go-ahead and approval number, if
authorization is possible within the limit available on the holders
account.
• The floor limit varies from Rs. 0 - 27,000 depending on the merchant
type. However the banks are free to decide on a floor limit lower
than the maximum given by Visa/Master card for each merchant
category.
• Three copies are made (for the bank / member establishment /and the
customer).The sales slip is presented to the cardholder who signs it.
This signature is than compared with the one on the card’s reverse,
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and the copy of the sales slip is given to the card holder. By this
procedure the merchant has also confirmed the identity of the
presenter, and the steps in the transactions between the merchant and
the cardholder are complete.
MAINBANK - MERCHANT TRANSACTION PROCEDURE
Agreement : Merchants enter into an agreement with the banks, to
become merchant establishments for honouring cards presented at their
outlets. The bank reimburses the establishment after deducting
commission within a specified period. The payment terms varying from
bank to bank are incorporated in the agreement between the merchant
and the bank.
Merchant Service Fee : Bank’s charges are deducted from the
merchant establishments claims submitted against credit card sale. The
Merchant Service Fee varies between 2%-4% and is fixed through
negotiations between the merchants and the banks.
Floor Limit : It is the maximum amount of merchandise /service which
the merchant is authorized to sell to a cardholder on any loan occasion,
without getting authorization. The limit is as per transaction (per card,
per day). Each outlet has a separate limit depending on the merchant
type.
Authorization Centre : It is a centre established by the bank to enable
merchants to get authorization in case the cardholder’s transaction
exceeds the floor limit amount or to do a double check on transactions.
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MARKETING AND PROMOTIONAL
SCHEMES
The issuer banks generate their revenues from three sources. These are:
• The initial entry fee as well as the annual subscription fee that a card
holder pays.
•
Interest that the bank earns on all outstanding amounts - in case of credit cards with roll-over facility.
• A percentage return on all transactions done by member
establishments.
All these funds enable the banks to widen their customer base and
increase their business and revenue opportunities. This also gives the
banks a competitive edge over their rivals in the market. Banks who
manage their own retailer network incur prohibitive expenses in terms
of technology and back up services as compared to other card issuers
who piggyback on Visa and Mastercard network. Though these issuers
have to share their incomes with Visa and Mastercard, they earn in
terms of volumes through their wide network. Thus, wider acceptance
with the merchant establishments and better marketing tie ups are
essential to enable users to get the best possible benefits.
There are a handful of banks that have seized the opportunities of the
last five years to respond to the new competitive environment in a
manner that has put their competitors at a disadvantage. These banks
and member establishment are using different schemes to augment their
services. Other than the conventional incentives and discounts on
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purchases, the following are some of the promotional offers given by
them.
CITIBANK
Citibank cards continue to grow at a heady pace of 40% without it’s
system going haywire, much in contrast with it’s competitors who are
groping in the dark. The two most important levers that it figured to pry
open the market were - a strong technological backup and an effective
sales and distribution strategy.
Citibank had the foresight to invest in new technology to deal with huge
volume of transactions that a huge credit card base usually throws up.
Today the system is geared to process 15mn charge slips, post 8mn
credit card payments, authorize 5mn card transactions and 6mn
telephone calls. Citibank has a service standard in the industry of
settling payments for a member establishment within 24 hours.
On the promotion side the manner in which Citibank executed it’s
strategy was classic. In keeping with it’s retail product orientation
Ctibank relied on advertising to fuel aspirations and then used it’s direct
sales network to scoop the fence sitters.
On the basis of the lesson that Citibank learned from the experience of
the Indian banks (which were saddled with a large subscriber base but
low usage levels) it concentrated on systematically creating an
expanded bundle of services that would prompt the card holder to use
the card. To begin with Citibank credit cards were accepted at a large
number of establishments, then, to expand the scope of card usage it
tied up with other product marketers. The latest in line with this strategy
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of tie-ups is the launch of the Times Card in association with the Times
of India (Bennett, Coleman & Co.) and Mastercard.
Citibank’s association with British Airways enables it’s Diners Club
card members to avail special privileges and become member of British
Airways Executive Club i.e. Frequent Flyer Program (FFP)
Citibank has also got special offers in terms of affinity cards for the
alumini of Modern School, people serving in the Indian Army and the
Indian Air Force. It has also linked up with Classic Golf Resort, Philips
India, Indian Oil Corporation, World Wildlife Fund and the Vysya Bank
to provide better services to it’s card holders and broaden it’s client
base.
The bank has also found alternative means of promotion in places where
it has not been able to make a headway in tying-up with other
marketers. Dial-a-draft facility allows the card holder to get demand
draft on phone so that the user can use this demand draft to pay off for
the goods in places where the cards are yet to be accepted.
A fervent bid to push card volumes and card spends has led many banks
to change their marketing strategies to keep up in this dynamic business.
One such bank is the American Express.
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AMERICAN EXPRESS
AMEX had carefully shielded itself from the battle by nurturing a small
niche at the top end of the market - the brand perception of their card
was - ‘a status symbol for a select few’. But today, when the
consumerist wave is hitting the country, and credit card usage is
expanding in the burgeoning middle class, AMEX is quitely junking
most of the essential of this niche strategy. It’s distinctly upscale
positioning is gradually being made more mass market. Instead of it’s
policy of inviting select members to join up, it is appointing sales
agents. In addition, it has launched its member-get-member scheme.
But to prevent the AMEX brand from being completely robbed of it’s
exclusive status, it is slowing down the pace of change. More
specifically the advertising today has shifted emphasis - the
premimumness of the brand is not being touted now. Instead AMEX is
talking more about the tangible benefits that the card offers.
OTHERS
In this gigantic market, banks are restoring to innovative marketing
schemes to expand their reach in specific niches. Many banks are opting
for co-branded cards. These cards sport the name of the company the bank has tied up with. The benefit : servicing and promotion costs can
be mutually shared and each can piggyback on the customer base.
While Bank of India has tied up with the Taj group of hotels for it’s
Mastercard, Travel agent Thomas Cook has joined hands with
HongKong Bank. Bank of Baroda has also joined hands with Bharat
Petroleum Corporation Ltd. to launch the Bharat BOB Card Premium
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a co-branded multipurpose fuel card. Mastercard has also clinched a
deal with Indian Railways under which Mastercard will be accepted at
all reservation counters, irrespective of the bank.
Seeing the boom in the credit card market Bank of America is
strengthening it’s acquiring business and is also planning to enter the
card business as an issuer, in the near future.
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OVERVIEW OF VARIOUS CARD ISSUERS
ISSUER BANK CLASSIFICATION OF CARDS
1 ANZ GRINDLAYS SILVER - MASTERCARD
GOLD- MASTERCARD
VISA INTERNATIONAL
2 AMERICAN EXPRESS AMERICAN EXPRESS CARD CHARGE CARD
CORPORATE CARD
3 CITI BANK CLASSIC - VISA / MASTER CARDPREFERRED - VISA / MASTERCARD
DINERS CLUB CARD CHARGE CARD
US $ VISA CARD
4 STANDARD CHARTERED BANK CLASSIC - VISA / MASTER CARD
EXECUTIVE - VISA / MASTER CARD
GOLD - VISA / MASTER CARD
5 HONGKONG & SHANGHAI BANK CLASSIC VISA / MASTER CARD
GOLD VISA / MASTER CARD
US $ MASTER CARD
6 BANK OF BARODA BOB CARD CHARGE CARD
BOB SILVER
BOB EXCLUSIVEBHARAT BOB CARD PREMIUMBOB CARD GLOBAL
7 CENTRAL BANK OF INDIA CENTRAL MASTER CARD
8 BANK OF INDIA INDIA MASTER CARD
TAJ CARD CHARGE CARD
9 CANARA BANK CANCARD VISA / MASTER CHARGE CARDCANCARD PROPRIETOR CHARGE CARD
10 VIJAYA BANK VIJAYA GOLD CHARGE CARDVIJAYA CLASSIC CHARGE CARD
11 ANDHRA BANK ANDHRA GOLD CHARGE CARD
ANDHRA CLASSIC CHARGE CARD
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MARKET SHARE
WORLD MARKET INDIAN MARKETMASTER CARD 300 MILLION 9,15,000
VISA 442 MILLION 6,00,000
MULTINATIONAL BANKS NO. OF CARDS TODAY
CITI BANK 10,00,000STANCHART BANK 2,50,000
ANZ GRINDLAYS 62,000 >1,00,000
AMERICAN EXPRESS 80,000
HONGKONG BANK 40,000 80,000
INDIAN BANKS NO. OF CARDS TODAY
CANARA BANK 250,000BANK OF BARODA 200,000
ANDHRA BANK 160,000
CENTRAL BANK 100,000
BANK OF INDIA 75,000
VISA / MASTER CARD 90,000 105,000
AMERICAN EXPRESS 17,000
DINERS CLUB CARD 29,000 40,000
AVERAGE CARD SPEND
ANNUAL GROWTH IN
THE ECONOMICS TIMES
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COMPARISON : PREFERRED EXECUTIVE CARD
BOB CARD CITI BANK STANCHART ANZEXCLUSIVE PREFERRED EXECUTIVE SILVER CARD
ELIGIBILITY (Rs) 100,000 96,000 90,000 84,000
(post tax annual income)
ADD ON CARDS
Entry Fee N.C. 1,000 400 500 Annual Fee 1,000 2,000 1,100 500Renewal Fee 1,000 2,000 1,100 500 Add on Card Fee 1,000 1,000 500 200
BILLING
Cycle Monthly Monthly 50 days 2 weeks
Charge Pattern +2 weeks +3 weeks +3 weeks +0 days
CREDIT LIMIT 45,000 70,000 20,000 100,000
Minimum amount due 10% 5% 5% 10%
CASH ADVANCE
Primary Card Limit 10,000 39,000 8,000 100,000 Add on card limit 10,000 combined combined combinedService Fee 3% 2.50% 1.50% 2.50% ATM cash limit n.a. 39,000 8,000 n.o
FACILITIES
Card on Phone N Y Y NDraft on Phone N Y Y N
Rewards Plan N Y N NDiscounts at Hotels Y Y Y NDiscounts at Hospitals N N Y NDiscounts on car rental N Y Y YCommission free T.C. N Y N N
TRAVEL SERVICES
Air Booking Y Y Y YRail Booking Y Y Y YCar Hire Y Y Y YTravel Packages Y Y Y YTravel Agent Cox & Kings Travel House TCI Sita Travels
INSURANCE
Air Insurance 10 10 8 4Non Air Insurance 5 2 4 2Enhanced Insurance N.O. N.O. N.O. N.O.Spouse Insurance N.O. N.O. 2.50% N.O. Add on card insurance Y (same as
primary card)Y (same as primary
card)N.O. Y
On purchases N.O. 40,000 N.O. N.O.
REPLACEMENT 72 Hrs 24 Hrs 72 Hrs 72 Hrs
LOSS LIABILITY 1000 0 200 1000
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COMPARISON : CHARGE CARDSINCOME SLAB : Rs 36,000 - Rs 75,000
AMEX CARD ANDHRA BOB CARD CANCARD CANCARD INDIA CARD VIJAYA
CLASSIC PROP. VISA CLASSIC
ELIGIBILITY 75,000 60,000 75,000 60,000 60,000 50,000 36,000
(post tax annual income)
ADD ON CARDS NO LIMIT 2 NO LIMIT 3 2 2 3
FEE
Entry Fee 1,200 600 N.C. 200 250 200 300
Annual Fee 2,100 300 100 200 400 250 100
Renewal Fee 1,800 300 100 200 400 250 N.C.
Add on card Fee 950 450 100 150 300 125 100
BILLING
Cycle 3 weeks Monthly 3 weeks monthly monthly monthly monthly
Charge Pattern + 3 weeks + 2 weeks + 3 weeks + 2 weeks + 2 weeks + 3 weeks + 10 days(Bank starts levying
CREDIT LIMIT
Interest on outstanding 2.50% 2.50% ~ 2.50% 2.50% 2.50% 2%Primary card limit 2500 per
week5000 25,000 25,000 5,000 2,500 per
mth. Add on card limit 2500 per N.O. 5000 5000 2500 N.O.
Service Fee 0% 3% 3% 3% 3% 2.50% 3%
ATM cash limit N.A. N.A. N.A. 5000 5000 5000 2000 per day
FACILITIES
Card on Phone No No No No No No NoDraft on Phone No No No No No No No
Rewards Plan Yes No No No No No No
Discounts at Hotels Yes No No Yes Yes No NoDiscounts at Hospitals No No No Yes Yes No No
Discounts on car rental Yes No No No No No No
Commission free T.C. No No No No No No No
TRAVEL SERVICES
Air Booking Yes Yes Yes Yes Yes Yes YesRail Booking Yes Yes Yes Yes Yes Yes Yes
Car Hire Yes Yes Yes Yes Yes Yes Yes
Travel Packages Yes Yes Yes Yes Yes Yes Yes
Travel Agent AmEx No No No No No No
INSURANCE
Air Insurance 1 None 1 4 2Non Air Insurance 1 None 1 2 1
Enhanced Insurance N.O. N.O. N.O. N.O. 5
Spouse Insurance N.O. N.O. N.O. N.O. N.O.
Add on card insurance Yes^ Yes ^ N.O. Yes^ Yes^ N.O.
On purchases Yes N.O. N.O. N.O. N.O.
REPLACEMENT 48 Hrs. 48 Hrs 48 Hrs 240 Hrs 240 Hrs 24-48 Hrs 48 Hrs
LOSS LIABILITY 1000 1000 1000 1000 1000 1000 1000
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COMPARISON : GOLD CHARGE CARDSINCOME SLAB : Rs 60,000 to Rs 120,000
ANDHRA
GOLD
CITIBANK
DINERS
TAJ PREMIUM VIJAYA GOLD
ELIGIBILITY (Rs) 1,20,000 96,000 1,00,000 60,000
(post tax annual inc)
ADD ON CARDS 2 3 2 3
FEES
Entry fees 1500 Not charged Not charged 1500
Annual fees 500 3500 400 500
Renewal fees 500 2500 400 Not charged
Add-on fees 1000 1500 200 500
BILLING
Cycle Monthly Monthly Monthly Monthly
Charge pattern* + 2 weeks + '3 weeks +'3 weeks +10 daysCREDIT LIMIT 50,000 None 20% of GAI 1,00,000
Int.on outstanding 2.50% 2.5-4.5% 2.50% 2%
CASH ADVANCE
Primary card limit 10,000 10,000 5000 10,000 p. m.
Add-on card limit 10,000 5000 2500 Not offered
Service fees 3% 3% 2.50% 3%
ATM cash limit N.A. 10,000 5000# 2000 per day
FACILITIES
Card on phone No Yes No No
Darft on phone No Yes No No
Rewards plan No Yes No NoDiscount at hotels No Yes No No
Discount at hospl No No No No
Dis. on car rental No Yes No No
Comm. free T.C's No Yes No No
TRAVEL SERVICES
Air booking Yes Yes Yes Yes
Rail booking Yes Yes Yes Yes
Car hire Yes Yes Yes Yes
Travel Packages Yes Yes Yes No
Travel partner No Travel House No No
INSURANCE
Air insurance 3 15 4 4Non-Air 1(air & non air ins.) 2 2 2
Add-on card Yes Yes Not offered Not offered
Spouse Not offered Not offered Not offered Not offered
On purchases Not offered 50,000 Not offered Not offered
REPLACEMENT 48 hrs 24 hrs 24-48 hrs 24 hrs
LOSS LIABILITY 1000 0 1000 1000* : card company starts levying sevice charge after these many days/ weeks of dispatching the bill
# : a seprate card is needed to access cash from ATM's ^ : same amount as primary card
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COMPARISONS OF GOLD CARDSIncome slab : 120,000 to 240,000 p.a.
ANZ CARD HONGKONG STAN CHARTELIGIBILITY (Rs) 240,000 175,000 120,000
(post tax annual inc)
ADD-ON CARDS 2 2 2
FEES
Entry fees 1000 500 1000
Annual fees 1500 1500 2000
Renewal fees 1500 1500 2000
Add-on fees 750 500 1000
BILLING
Cycle 2 weeks monthly 52 daysCharge pattern* 0days 3weeks 3weeks
CREDIT LIMIT 100,000 40000 30000
REVOLVING CR
Mini. amt due 10% 5% 5%Int.on outstanding 2.50% 2.50% 2.95%
CASH ADVANCE
Primary card limit 100,000 40000 12000 Add-on card limit combined # combined combined
Service fees 2.50% 2.25% 1.50%
ATM cash limit 100,000 32000 12000
FACILITIES
Card on phone No No Yes
Darft on phone No No YesRewards plan No No No
Discount at hotels No Yes Yes
Discount at hospl Yes No Yes
Dis. on car rental No Yes YesComm. free T.C's No Yes Yes
TRAVEL SERVICES
Air booking Yes Yes YesRail booking Yes Yes Yes
Car hire Yes Yes Yes
Travel Packages Yes Yes Yes
Travel partner Sita Travels Thomas Cook TCI
INSURANCE
Air insurance 10 10 10Non-Air 5 3 5
Add-on card Yes Yes 10
Spouse Not offered Not offered Not offered
On purchases Not offered Not offered 20000
REPLACEMENT 72 hrs 72 hrs 72 hrs
LOSS LIABILITY 1000 0 200# shared by primary and add-on cards* : card company starts levying sevice charge after these many days/ weeks of dispatching the bill
COMPARISONS OF CLASSIC CARDSINCOME SLAB : Rs 50,000 to 60,000CITIBANK STANCHART HONGKONG CANCARD
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ELIGIBILITY (Rs) 50000 60000 72000 60000
(post tax annual inc
ADD-ON CA RDS 2 1 2 2
FEES
Entry fees 200 100 300 250
Annual fees 750 700 500 400
Renewal fees 750 700 500 400
Add-on fees 350 350 200 300
BILLING
Cycle monthly 50 days monthly monthly
Charge pattern* + 3 weeks + 3 weeks + 3 weeks + 2 weeks
CREDIT LIMIT 30000 12000 14000 10000
REVOLVING CR
Mini. amt due 5% 5% 5% 10%
Int.on outstanding 2.95% 2.95% 2.75% 2.50%CASH ADVANCE
Primary card limit 18000 4800 6000 25000
Add-on card limit Combined Combined Combined Not offered
Service fees 2.50% 1.50% 2.50% 3%
ATM cash limit 18000 4800 20000 3000
FACILITIES
Card on phone Yes Yes No No
Darft on phone Yes Yes No No
Rewards plan Yes No No No
Discount at hotels Yes Yes Yes Yes
Discount at hospl No Yes No Yes
Dis. on car rental Yes Yes Yes NoComm. free T.C's Yes No No No
TRAVEL SERVICES
Air booking Yes Yes Yes Yes
Rail booking Yes Yes Yes Yes
Car hire Yes Yes Yes Yes
Travel Packages Yes Yes Yes Yes
Travel partner Travel House TCI Sita Travels No
INSURANCE
Air insurance 5 4 6 4
Non-Air 1 2 2 2
Add-on card Yes Not offered Yes Yes
Spouse Not offered 2.50% Notoffered 2%
On purchases 15000 Not offered Not offered 25000
REPLACEMENT 24 hrs 72 hrs 48 - 72 hrs 240 hrs
LOSS LIABILITY 0 200 1000 1000
RISKS IN THE BUSINESS
TO THE BANKS :
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Banks excited at the projected 40% growth rate1 in the plastic money
industry are apprehensive about the potential corresponding increase in
fraud cases . Some banks register upto 7% fraudulent case in a year.
1. Default in payments - Currently banks have huge amounts of
funds blocked with willful defaulters. Lack of reliable data /
infrastructure to check the credit worthiness of individuals has led to the
situation where people without sufficient resources have become
eligible for availing credit facilities. The marketers in India find it morecost effective to just right-off the unpaid amount in their balance sheets,
after trying to recover it for six months, than to pursue it throughout the
litigational labyrinths.
2. Multiple Imprints or Record of Charge (ROC) Pumping - It
refers to the expedient system by which merchants make multiple
charge slips instead of the relevant number when a cardholder gives in
his plastic card.
3. Lost/Stolen Cards - These account for 60% of fraud in India. In
case of loss all multinational banks and some Indian banks limit the
liability of the cardholder upto Rs. 0 (for Gold card) and Rs. 1000 (for
Classic card) if card is used after lost / stolen card has been reported.
These banks transfer their risks to insurance companies and generally
replace the lost card within three days. Some banks carry the risk
themselves and investigate the loss before determining the liability of
cardholders. These banks take about a month to replace the missing
card.
1 Singh Prasana,‘The Changing Brand Battle’, A & M.
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To combat this, banks have started the Photocard Option which
provides the photograph of the cardholder on the card. They are also
providing information about the lost/stolen cards through the Hot Card
Bulletin which is continuously upgraded and sent to merchant
establishments to provide them with the current status. But the success
of this measure is debatable.
A majority of the credit card losses are skewed towards the issuer as the
risk on the cards is carried by the issuer. Visa and Mastercard have aformal set of guidelines known as charge back rules. Once a card
holder has informed the bank of the loss of the card, he is subject only
to a minimum liability, which most banks fix at Rs.1000 regardless of
how much the card is used fraudulently. Before the hot card date, the
fraud loss is the issuer’s responsibility. However, if a merchant accepts
a hot listed card, the issuer is entitled to ‘charge back’ the transaction
to the merchants, through the acquirer. If a merchant is found guilty of
willful fraud, his bank is liable.
Visa offers its members a national merchant alert service which
acquiring banks can refer to in order to check on the credentials of the
merchants whose business they woo. It also has its risk identification
service which monitors every single transaction through Visa Net. This
enormous database helps zero in on cardholders and locations prone to
fraudulent activity.
Master Cards security and risk management team organizes regular
training programs for banks and member establishments on fraud
prevention.
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Delivering new cards to members by courier has drastically cut fraud
arising from non-receipt of cards.
TO CARD HOLDERS :
The main problem with credit card is that it is easy to get in over the
head. A majority of card users utilize their maximum limit . Credit cards
charge higher interest than some of the other forms of borrowing. While
a credit card offers convenience, that convenience can be expensive if
the card holder is slow in paying off his outstanding dues. In terms of
the annual percentage rate that an individual is charged towards paying
off his debt, the figure ranges from anywhere between 22% to 34% p.a.
depending upon the roll over period ( 30 / 45 days ).
To combat these problems potential card owners decide upon the mode
of payment before selecting a card. In India, for the majority of people
who believe in paying off their balances in full , the prerequisites
would include a card with a low or no annual fee and a long grace
period (i.e. the amount of time between the purchase and when the bank
begins charging the interest on the purchase).
For the individuals who believe in utilizing the revolving credit
facility, the prime concern is the cost of using the services offered along
with the card. This is in fact the annual percentage rate or the interest
paid on outstanding balances. It is the cost of borrowing money and it
takes into account all the finance charges.
Many credit cards come with extras like travel rebates. Usually an
individual is better off worrying about the APR’s. When it comes to
gold or platinum cards some frequent travelers like and use the extraservices that they give, and since they are offered to better credit risks
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( as in the case of American Express Cards ) they usually come with
higher credit limits.
Unsolicited offers for special discounts, giving out the credit card
number over the phone, putting addresses on credit card receipts - all
these can be very risky. Plastic money is money, after all.
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ANALYSIS : OBSERVATIONS &
INFERENCE
The Indian credit card market which is growing at a rapid pace next
only to USA and Taiwan, is projected to reach 10mn. cards by the year
2000. More pessimistic estimates put this figure at 5mn. Although the
credit card business is still nascent, restricted to about 2% of the total
population the average card spending is increasing every year. The
fastest growing segment is the salaried class and the self employed
professionals, which is growing at an annual rate of 30%.
From the survey conducted it was revealed that majority of people
(56%) owned a single credit card and barely (10%) of the people had
more than two cards. About 62% of the respondents showed an
inclination towards shifting more of their spending from cash to cards,
38% of the respondents were either unsure or negative in their response
to shifting their spending pattern. Another fact revealed through the
survey was that 60% of the respondents had an inclination for paying
their monthly bills in full. Only 10% of the respondents utilized the
revolving credit facility.
Banks issuing cards feel that they have to fight the Indian mindset about
settling bills in cash. A corollary to this averseness to using cards could
be the existence of the parallel economy which inhibits people from
paying their bills through their cards (which require accounted money).
Another reason for this behaviour could be the high interest rates that
the banks charge on outstanding balances. Calculated at the rate of
2.5% - 2.9% for a cycle of 30 / 45 days, the annual rates range from a
minimum of 22.5% to a maximum of 34.8% , much higher than what is
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available against normal borrowings or borrowings against fixed
deposits. In such a scenario, charge cards (currently offered by limited
banks viz. American Express and Citibank) which do not have a
revolving credit option would be more suitable to the Indian market.
In the survey conducted, Citibank topped the list as the most prefered
issuer of cards followed by Standard Chartered Bank, AMEX and
Hongkong Bank. In comparison the nationalized banks account for a
miniscule percentage of the cards issued. However, in terms of
preference for banks where people prefer to do their daily transactions,
nationalized banks topped the list. This could be due to their larger
presence and lower service costs.
So far the nationalized banks have treated their card business as their
auxillary and not their prime business. In the future , however there may
be a change in this scenario as large Indian banks are likely to spin off
their credit card division as subsidaries. BoB card division has started
functioning as a separate entity which gives it operational freedom to
develop it’s own marketing tie-ups.
Among the factors that were identified as important in selection of a
card , most respondents rated wide acceptability of the cards at the top,
followed by ease of getting the card, interest rates, flexibility of
repayment, credit limit, additional benefits and cash withdrawal facility.
In terms of the respondents experience with different cards, Cancard
featured at the top w.r.t. acceptability and AMEX came at the bottom of
the list. AMEX limited acceptability may be due to it’s limited network
and exclusive status. Mastercard, AMEX and Citibank’s Diners Club
card enjoy a high credit limit. Cancard on the other hand has very low
limit.
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Diner’s card offers good cash withdrawal facility through Citibank’s
voluminous network. Mastercard which is issued by almost all issuer
banks has widespread ATM. All cards rate low on respondents
experience with interest rates. People want the banks to charge low
interest rates on outstanding balances.
Mastercard and Visa have ratings close to good in terms of flexibility of
repayment while Cancard features at the bottom. Almost all cards have
a good rating in terms of ease of procuring a card. AMEX rates at the
top w.r.t. additional offerings.
However, when comparing expectations with the overall experience of
respondents, Mastercard tops the list followed closely by Visa. AMEX
retains it’s position as an exclusive card providing special benefits to
it’s niche clientele.
When comparing the services offered by different cards respondentsopted for joint cards as an important expectation. Next in the line of
preference for services were merchandise offerings, insurance policies,
incentives and discounts and billing in hotels and restaurants.
In order of importance of merchandise offerings by different cards,
Cancard featured on the top of the list followed by Diners, Master and
AMEX. Lowest on the list was Visa. In terms of joint cards Stancharttopped while AMEX was at the bottom. Cancard also topped in
providing incentives and discounts, as well as insurance policies
followed by Diners. AMEX featured low w.r.t. travel related services.
This could be because of intense competition from Hongkong Bank and
Citibank. Cash withdrawal facilities are high for both Matercard and
Visa. While all cards rate very low w.r.t. experience of billings in
hotels and restaurants.
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Overall Cancard enjoys a good rating for the services offered followed
by Mastercard and Diners. AMEX inspite of it’s exclusivity is rated low
for the services offered. Mastercard enjoys the maximum popularity for
both it’s cards as well as the services offered followed closely by visa.
Both AMEX and Diner’s occupy a separate niche and are rated almost
at par.
Maximum number (60%) of the respondents fall within the 21-30 years
age group. They are either young executives working for big business
houses or high value / frequent spenders with add-on card facilities.
Their incomes range from Rs. 150, 000 - Rs. 200,000.
From the information gathered through the survey and the feedback
received from bank officials it was revealed that this group holds the
potential as future card users. To increase their volume and value
spending through cards, banks can place greater emphasis on the
services utilizes by this section such as discounts-on food and beverages
at leading restaurants and discotheques, gifts and complementary offers.
Another recommendation would be, for the banks to hike their
advertising spending to build their brand image and create higher brand
recall like that of Citibank.
In addition, the survey also reveals that the frequency of use of cards is
between 3-5 for 32% of the users, followed by 6-8 times for 22% of the
users. Fewer percentage (12%) of the respondents use cards for greater
occasions i.e. between 9-11 times. In terms of billing, the maximum
amount spent in a month falls in the range of Rs.200,000 - Rs.300,000
by the maximum number of respondents (32%).
TECHNOLOGICAL INVESTMENT
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There are three phases of evolution of an electronic payment system and
it is essential for any institution seeking to deploy the payment system in
question to be aware of exactly which evolutionary phase the system
occupies at any one time.
• The inception phase i.e. the initial development of the technology
and the ironing out of the problems.
• The growth phase i.e. the period during which the effectiveness of
the technology is proven.
• The maturity phase i.e. the period during which the technology is
duly accepted and widely used. In this phase, to remain competitive
all competitors have to deploy the technology to remain at par with
their competitors.
Today in the Indian market plastic cards equipped with magnetic tape
such as credit cards are already well entrenched in the payment system.Other micro-chip card technology such as the one used in smart cards
have made an indent in the Indian market and are poised to have
perhaps an even greater impact on the payment and banking system.
Substantial investments would be necessary to expand the existing and
potential customer base. It would be beneficial if the bank went in for
the latest technology even though it is expensive, as the cost of obsolence may be higher later on.
Electronic authorization terminals (EAT) or electronic draft capture
terminals (EDC) have to be launched across merchant establishments.
VSAT connections, through Visa or Mastercard would have to be
accessed to provide on-line validation through these terminals.
The EAT / EDC terminal allows the merchant to validate a credit cardwithin 20 seconds of swiping it on the machine. These terminals go a
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long way in making card utilization easier and safer for card holders and
the merchants. It saves data entry costs besides hastening the pace of
the transaction, thus reducing the cost of the bank.
In February 1997 Master Card launched its Very Small Aperture
Terminals (VSAT) network, connecting it to its 22 issuer banks. Even
Visa has linked all its 21 issuer banks to its National Net Settlement
System (NNSS) for faster clearance and processing leading to faster
flow of funds.
These electronic payment options confer a number of benefits to the
retail banking industry of which winning new business is only one but
by far the most important one. By making the winning of new customers
the principal aim, the bank is more likely to deploy other effective and
workable systems.
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CARDS TOMORROW
SECURITY2
Today’s cards are not foolproof !
With the advent of plastic money, frauds involving credit cards have
seen a phenomenal rise across all national frontiers. It’s easy to use
someone else’s card and get away with it. Credit card frauds have been
a worldwide problem, as, many people use passwords or PIN numbers
to get access to their computers, to their ATM machines and to secure
buildings. The problem is that passwords and PIN numbers can easily
be lost or stolen. Mastercard alone suffers an annual credit card fraud
loss of 415 million dollars.
In Washington D.C., many companies have gathered to showcase new
ways to personalize card holder’s security using biometrix technology -
a means of identification that no one can steal or copy. Biometrix is a
set of technologies that can identify a person on the basis of his / her
physiological or behavioral characteristics. No one can copy a finger
print, filiment of an eye or the composition of the face. So scientists are
working on ways to capture and digitize unique characteristics to give
very personal security codes to the card holders. ‘As our society
becomes larger and more complex, there is an increasing need to verify
your identity to reduce fraud, to protect you and your assets, and to
ensure that no one robs you of your identity.” Says Paul Collier of
Indeticator.
Iris Scan uses the iris of the eye to create a kind of eye print. No two
irises are the same, not even those of identical twins. So the eye, with
2 Internet.
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it’s unique imprint, becomes a sort of natural security code. “The
IrisScan is an
The next step in biometrix identification is to integrate physiological
characteristics with the credit card. For example, an individual’s
fingerprint is scanned in a numerical code that’s assigned to it. The
code is loaded onto a computer chip that is then embedded into a smart
card. Merchant establishment uses fingerprint recognition software to
check a person’s identification. This card contains data information as
well as personal identification of an individual. If someone picks this
credit card there is no way one could create the same fingerprint.
Biometrix is not a replacement but an adjunct to the card
technology.
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Phenomena Abroad today, in India Tomorrow
INTERNET MONEY :
Sellers and shoppers both want the freedom to buy and sell on-line
using credit cards as easily as in the physical world. Credit card usage
will explode once a safe, secure and easy to use system is standardized.
According to the experts, SET is the light which will guide payment
safely over the Internet.
Secure Encryption Technology (SET) is a secure and easy to use
system that will allow Internet users to pay for Internet-based purchases
with their credit cards (Roger Clark Web Page). SET which is based on
encryption, protects credit card details but it cannot be used for detailed
messaging and so can be easily exported. It was developed by Visa,
Mastercard, Netscape, IBM and Microsoft.
The merchant will not see the credit card number in unencrypted form.
Only the bank or financial institution that verifies the credit card number
and the money to back up the transaction will have access to the
decrypted number. (Roger Clark Web Page).
However, credit card transactions are not worthwhile below a certain
amount, such as a couple of pence for an on-line newspaper. This has
led to the concept of electronic cash, which cannot be traced to a
particular buyer. Security is fundamental too electronic cash.
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ELECTRONIC CASH :
E-cash is designed for secure payments over the Internet. E-cash has the
privacy of the paper cash, while achieving the high security for safe
trading on the Internet. With E-cash the possibilities are unlimited. A
consumer can buy software or newsletter by E-mail, receive $ 5 owed
by a friend or just order a pizza.
Magdelera Yesil, CyberCash Vice President for marketing, believes that
ability to spend small amounts of cash at electronic news stands is “the
key to unleashing the projected explosion in entrepreneurial electronic
information publishing and commerce.” Electronic magazines,
newspapers and news services are prime products for the new money.
E-cash can provide security in the following ways :
• Finality ~ there is no chance for the users to renege on a transaction
as they might if they stopped payment on a cheque.
• Anonymity of payer and payee.
• Peer to peer transactions.
• Refundability if lost or stolen.
However, ubiquity is needed for E-money to work worldwide. This
means that various forms of E-money have to be made easy to use,
secure and routinised so that usage will spread. The rise and growth of
Internet and commercialization of the w.w.w. have provided strong
motivational circumstances for E-money to grow, expand and flourish.
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OBSERVATIONS: Consumers will have their doubts about how
secure E-cash is initially but they will become accustomed to it with
time as they need to adjust to the new technologies. Consumers are used
to having physical cash in their hand when purchasing. Primary research
conducted shows that the majority of respondents think that a trial
period is necessary for the consumers to get a feel of the new money
and for them to build up confidence. An old Chinese proverb says, “tell
me I may forget, show me , I may remember, but involve and I will
understand.”
With the E-cash client software, a customer withdraws E-cash from a
bank and stores it on his local computer. The user can spend this digital
money at any shop accepting E-cash without the trouble of having to
transmit credit card details over the net.
When using E-cash, the cash flows to it’s destination over the net. Thelack of structure and open architecture of the Internet requires security
measures to be taken against attempts by third parties to intercept the
digital money. E-cash provides high security by applying public key
digital signature techniques. Additional security features of E-cash
include the protection of E-cash withdrawals from the account with the
password that is known only to the user. Limits placed on the maximum
balances of E-money devices and the duration of validity of balances or
devices also serve to deter fraud as well as to contain any resulting
losses.
One of the unique features of E- cash is payer anonymity. When paying
with E-cash, the identity of the payer is not revealed automatically. This
way the payer stays in control of information about himself. ( E-cash
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home page). Smart cards can be used to store your E- cash allowing you
to carry your E-cash with you.
“In many ways E-cash, which can be backed by any currency or other
asset, represents the biggest revolution in currency since gold. It’s
diversity and pluralism is perfectly suited to the Internet. It could change
consumers financial lives and shake the foundations of financial
systems”. (Business Week, June’95)
In a new report ‘Internet Payments’ (from Jupiter), it is predicted that
smart cards, E-cash and E-cheques will be used to pay for almost half of
the dollar 7.3 bn in on-line commerce expected by the year 2000.( Nua
Newsletter, Feb.’97).
The primary research conducted shows that 32% of the companies
thought that the introduction of E-cash will contribute to consumers
feeling more secure while trading on the Internet. 20% of the
respondents believed that the E-money will still have an element of risk
involved, too much to transfer value through the Internet.
The general consensus is that security is a perception not a reality.
BENEFITS vs RISKS
Given that security is imperative to companies and consumers, why
are they willing to risk doing business on the net when it seems clear
that security problems prevail ? The primary research conducted
shows that 80% of the respondents feel that the benefits of doing
business on the net outweigh the risks involved. 32.5% of these were
large scale companies with 50 or more employees and 46% were small
companies with 10 or more employees.
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Consumer Perception
Do Not Know
11%
Yes
33%
Too Risky
19%
Perception
4%
Confidence
11%
No
Comments
22%
These companies stated that the instant international communication,
the easily accessible upto date information and relatively low cost far
out weighed the risks involved when going on-line. However, the
predominant view was that security is exaggerated and it is onlyconsumers perceptions that stop them using the net for transactions and
stop the net from realizing it’s true potential. If companies do not utilize
the applications of the net they will be left behind in the fiercely
competitive business environment.
Earlier the target was the corporate man and then the entertainment
traveler. In addition to targeting the untapped portion of this segment,
new issuers can also target women and first time credits. A first time
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credit could be a student or a married woman who never before had
credit in her name.
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CONSTRAINTS TO INTERNET MONEY IN
INDIA
• High cost of setting up infrastructure.
• Limited subscriber base to internet.
• Presence of parallel economy.
NEW CARDS / SERVICES3
• Test launch of Maestro - Citibank’s debit card in Bangalore in
Jan.’98.
• Model Finance Corporation in a technological tie-up with Verifone
launched a debitcard by the name Money Card in mid ‘97.
• Nanz supermarket in collaboration with Escorts finance have
introduced E-cash, to be used for payments at their outlets.
• Singh Motors, a petrol pump in Nehru place, Delhi, has installed a
smart card based system for running a prepaid card.
• Defence Servicers Officers Institute (DSOI) in Delhi is replacing
their existing liquor cards with Smart Cards.
• Maruti Udyog Ltd. Has issued smart cards to a selection of it’s
employees as identification cards (ID) for accessing selected areas.
• Unicef is in the process of using Smart cards for maintaining records
of village level water resources.
3 Times of India, Supplement.
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SUGGESTIONS
The banks battle today is more with cash than with other banks.
Considering the huge potential of the Indian market, it is in the interest
of the issuers to educate the consumers about the benefits of holding
credit card. The campaigns must also be convincing enough to clear the
myth that credit cards increase spending. Focus should be on changing
non-card related spending to card related spending. The issuers must
focus on service and pricing and must recognize the importance of the
billing and payment process to retain credit card holders.
The credit cards schemes would be successful only if they meet the
customers requirement of wider acceptability rather than fringe benefits
like non-crisis credit or prestige proposition. Emphasis should be on
offering a wider basket of services through credit cards enabling
purchases for a wide variety of products along with ATM usage, backed
by much more comprehensive merchant establishment network. The
banks must also increase the number of card holders by reducing the
initial-one time subscription fee.
The banks should step up advertising that will help to build a brand
image and create a higher brand recall like that of Citibank. With moreand more people willing to adopt to credit cards, banks should
undertake innovative strategies to increase card spends. Simultaneously,
to cater to high net worth customers and those with niche needs, banks
should provide more of premium plastic and CO-cards that piggyback
on the existing infrastructure, but provide holders with exclusive add-
ons.
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Future promotions could include : Telemarketing, direct sales, direct
mail, promotional advertising through media, common ATM services
between banks (to reduce cost of operations), schemes like card
carnival and sales executives contests and a plethora of augmented
services should be introduced to induce greater number of people to
adopt to plastic money.
LIMITATIONS
• The study is confined to Delhi only.
• Most of the information is subjective data collected through personal
interaction with people transacting in the plastic money market. As a
result the personal biases of individuals could affect the study.
However, to counter this the data has been verified from a number of
different sources to give it a measure of authenticity.
• Study was constrained by limited availability of data. Not all banks
could reveal their confidential marketing strategies and statistical
information.
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BIBLIOGRAPHY
• Singh Prasana, ‘The Changing Brand Battle’, A & M (1-15
May’97),Pg. 33 to 35.
• ‘Splurging on Plastic’Gentleman (Sept. 97), Pg. 82 to 85.
• K.Suresh, ‘Money Card : Wired for Money’, A & M (16-31
Oct.’97), Pg. 15.
• Edwin Sudhir R,‘Pick A Card, Any Card - And Relax’ The Sunday
Time of India (19th Nov.’97),19.
• Savitha G L,‘Playing the Cards Wrong’ The Sunday Times of India
(19th Nov.’97),19.
• Chandran Ramesh,‘It’s a Plastic Paradise’ The Sunday Times of
India (19th Nov.’97),19.
• Internet
• ‘The New Way to Pay’ The Times of India,(7th May’98).
Supplement.
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ANNEXURE
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A STUDY OF THE EXISTING MARKET IN PLASTIC
MONEY IN INDIA AND IT’S POTENTIAL IN 2001 A.D.
Dear Respondent,
We would be grateful if you could spare some of your time to
respond to the following questions. Needless to say, your response
would be treated as confidential and would be used only for the
purpose of the study.
Thank you for your time.
YEAR : 1997-98.
QUESTIONNAIRE
1. How many cards do you own ? (tick)
1___
2___
3___
4___
More than four (specify)___
2. Name the cards owned by you, according to the frequency of use.
1._____________
2._____________
3._____________
4._____________
5._____________
3. How did you get to possess your card(s) ? (tick)
a) Given by employer _____
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b) Bought it _____
c) Joint card (gifted) _____
d) Any other _____
4. Name the bank through which your card was issued.
Card Bank
_______________________________________________
_______________________________________________
5. Name the bank where you normally bank and do your transactions.
________________________________________________
6. Rank the card possessed by you on the basis of experience with
respect to the listed parameters.
5 Very Good
4 Good3 Fair
2 Bad
1 Very Bad
a) Acceptability at places you frequent the most ______
b) Credit limit ______
c) Cash withdrawal facility ______
d) Interest rates / charges paid ______
e) Flexibility of repayment ______
f) Ease of getting the card ______
g) Additional benifits,discounts,incentives ______
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7. Rank the card using the above scale in order of their importance
towards your selection of a card
a) Acceptability at places you frequent the most ______
b) Interest rate / charges paid ______
c) Cash withdrawal facility ______
d) Credit limit ______
e) Flexibility of repayment ______
f) Ease of getting the card ______
g) Additional discounts, incentives, insurance
coverage, other benefits. ______
8. Which of the following services offered along with the cards have
been utilized by you ? (Evaluate according to frequency of use )
Very often 1
Often 2
Sometimes 3
Rarely 4
Never 5
a) Joint cards ______
b) Merchandise offerings
through mailers ______
c) Incentive & discount schemes ______
d) Insurance policies ______
e) Travel related services ______
f) Cash withdrawal facility ______
g) Billing in hotels / restaurants ______
9. Rank the following services with respect to your preferences for them
in selecting a card (using the following scale). Very Imp. 1
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Important 2
Uncertain 3
Not Imp 4
Irrelevant 5
a) Joint cards ______
b) Merchandise offerings
through mailers ______
c) Incentive & discount schemes ______
d) Insurance policies ______ e) Travel related services ______
f) Cash withdrawal facility ______
g) Billing in hotels / restaurants ______
10. How often do you use your card(s) in a month ? (please tick)
a) 0 - 2 _____
b) 3 - 5 _____
c) 6 - 8 _____
d) 9 -11 _____
e) 12 & more _____
11. What is the average amount spent by you during a month through
your card ? (please tick)a) less than 1000 _____
b) 1001 - 2000 _____
c) 2001 - 3000 _____
d) 3001 - 4000 _____
e) 4001 & above _____
12. Normally you-
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a) utilize revolving credit facility and pay
interest on outstanding _____
b) keep outstanding amount as low as possible _____
c) pay monthly bills in full _____
13. Are you familiar with the concept of (please tick)
a) Credit Card _____
b) Charge Card _____
c) Debit Card _____ d) Smart Card _____
14. Are you likely to switch more of your spending from cash to cards ?
(please tick)
a) Yes _____
b) Not sure _____
c) No _____
15. If yes, which card would you go in for ? ____________________
16. Please provide the following details about yourself :
a) Name ________________
b) Age ________________
c) Occupation (please tick)
i) Business _____________
ii) Service _____________
iii) Student _____________
If in service, please give following details
a) Private sector __________ b) Govt. service __________
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d) Annual Income
i) 50,000 - 100,000 _________
ii) 100,001 - 150,000 _________
iii) 150,001 - 200,000 _________
iv) 200,001 - 250,000 _________
v) 250,001 - 300,000 _________
vi) 300,001 & above. _________
17. What other services would you want from your card in the future ?
___________________________________________________
___________________________________________________
___________________________________________________
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ANALYSIS
This study was designed to provide an insight into the existing market
for plastic money and it’s future potential.
METHODOLOGY : Confining our study to the geographical limits of
Delhi, we chose a sample of 100 people - 50 card holders and 50 non-
card users, using the probability sampling technique where every
individual fulfilling the above criteria had an equal chance of beingselected for the survey. Following are some of the facts that were
revealed through the survey :
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COMPARISON OF CARDS
Acceptability Credit Cash Interest Flexibility of Ease of Additional
Limit Withdrawl Rates repayment getting card benefits
CANCARD MASTER DINERS VISA VISA AMEX AMEX
5 4 4 3.08 3.8 4.2 4.2
MASTER DINERS MASTER AMEX MASTER MASTER DINERS
4.65 4 3.5 2.8 3.7 4.08 3.2
VISA AMEX VISA MASTER
AMEX VISA MASTER
4.42 4 3.31 2.77 3.2 4 2.8
DINERS VISA AMEX DINERS DINERS DINERS VISA
4.2 3.58 2.8 2.2 2.8 4 2.5
AMEX CANCARD
CANCARD CANCARD
CANCARD CANCARD CANCARD
3.8 1.5 1.5 2 1.5 4 1.5
COMPARISON OF SERVICES
Merchandise Joint Incentive Insurance Travel Cash Billing in
offerings Cards & disc Policy Services Withdrawal Hotels/Rest
CANCARD CANCARD
CANCARD CANCARD
VISA MASTER MASTER
5 5 5 5 3.8 4.08 2.8
DINERS MASTER DINERS DINERS DINERS VISA VISA
4.4 4.65 4 4.2 3.8 4 2.5
MASTER VISA VISA AMEX MASTER AMEX DINERS
4 4.42 3.5 4.2 3.7 4 2
AMEX DINERS MASTER VISA AMEX CANCARD CANCARD4 3 3.31 3.08 1.8 3 1
VISA AMEX AMEX MASTER CANCARD DINERS AMEX
3.58 3 2.6 2.77 1.5 2.6 1
ACKNOWLEDGEMENT
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We would like thank Dr. Chawla for his invaluable help in providing us
direction for pursuing our research study. Also, we would like to thank
Prof. Rajat Kathuria for his continued guidance throughout the project.
We would also like to extend our gratitude to Prof. K.K.Jindal for his
advice and support from time to time.
We wish to express our appreciation to all those with whom we
interacted and who’s thoughts and insights helped us in furthering our
knowledge and understanding of the subject.
For the same, our gratitude goes out to Mr. Sanjay Chaudhri (Manager
Sales - HKB), Mr. R. Bhaskaran (Hongkong Bank - Credit Card Sales
Officer), Mr. Shailesh (Master Card International - Manager Sales), Mr.
Manoj Verma (Citi Bank - Sr. Manager Credit Card Division), Mr.
Praveen Singh (Bank of Baroda - Manager Credit Card Division), Mr.
Milan Mehra (American Express Bank), Mr. Neeraj Swaroop ( Bank of America ) and Ms. Savita Chawla (Standard Chartered Bank - AM Card
Services).
Finally we would also like to record our thanks to all the respondents
who spared their valuable time to answer the questionnaire for our
survey.
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CONTENTS
Page No.
ACKNOWLEDGEMENT
1. INTR0DUCTION 1
2. ORIGIN 3
3. TYPES OF CARDS ON OFFER 5
4. TRANSACTING PROCEDURE 8
5. TERMINOLOGY 9
6. MARKETING AND PROMOTIONAL SCHEMES 12
7. COMPARISONS 17
8. RISKS IN THE BUSINESS 24
9. ANALYSIS - OBSERVATIONS AND INFERENCES 28
10. CARDS TOMORROW - SECURITY 34
11. PHENOMENA ABROAD 36
12. CONSTRAINTS TO INTERNET MONEY IN INDIA 41
13. NEW CARDS/SERVICES 41
14. SUGGESTIONS 42
15. LIMITATIONS 43
BIBLIOGRAPHY 44
ANNEXURE