nikita final copy

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Chapter 1Introduction

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Unlike others, man is a rational and social animal. Man always has searched forthings which made his life more comfortable on this earth. The history of inventionof, money presents an interesting study of ingenuity of the mind of primitive manto enable him consume what he did not produce. Man has never been able to makewith his hands all the things his heart desired. Even the primitive savage procuredfor himself either forcefully or through theft the grade which he did not himselfproduce.

Although in the beginning man tried to procure things which he did not

produce himself through force. He was soon convinced of the uncertainty andundesirability of the use of such unsocial methods. The use of such devices was notconducive to social order and settled way of life. He, therefore, thought of otherways to get the goods he did not produce but which were essential for hisexistence. The first rudiments of intelligence showed man the advantages of barter.First, by chance and later through some sort of planned action, some men producedcertain goods in quantities which exceeded their consumption. Then man havingsurplus of one commodity say fish - and needing another say salt-searched for aperson who required fish and had surplus salt to offer for fish. This act of directexchange of one commodity for another without mediation of money is barter.

The Inconveniences of Barter(1) Want of Double Coincidence of Wants(2) Want of a Common Measure of Value(3) Indivisibility of Commodities(4) Difficulty of Storing Wealth

Evolution of Money and Monetary SystemBarter system was compatible only with simple or primitive economy where men

were content with too few and simple requirements of life. With the growingcomplexities of social organisation, advantages of division of labour andmultiplicity of wants through time, the inconveniences of barter became morepressing. Men began to realise that exchange through barter was an outmodedmethod. A feeling that barter had outlived its utility and should bereplaced by some other more convenient form of exchange gained currency in thecommunity. The mind of man began to think of some device which, by eliminating


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the difficultiesof barter, would make for the social and economic progress of community. Thesearch for such a device resulted in the invention of money.

The introduction of money as a unit of account did not, however, remove all the

difficulties of barter. The problem of bringing the two parties together stillremained. The difficulty was removed when money which acted as the unit ofaccount also served as the medium of exchange. Corn was no longer exchanged formeat, it was sold for goat and goat was exchanged for meat. Money not only fixedthe ratios of exchange between different goods and services it also began tomediate in the exchange of goods. What was formerly a single and direct barterexchange of corn for meat became split into two separate money exchanges first ofcorn for goat and later of goat for meat. Instead of completing direct transactionspeople took to doing their business through an intermediary-money.

Early metallic money was by no means perfect in size, shape and weight. Forthousand of years the use of precious metals in the form of bars as a measure ofvalue had been a regular feature although the enforcement of correct weight andmeasure could not be achieved until seventh century B.C. indeed it lackedcongnizability which is one of the essential qualities of good money. Metallicmoney however, can be easily stolen. Merchants from very early times found byexperience that it was unsafe to take money with them while going out to makepurchases of goods and make other transactions needing money. They took withthem instead written documents issued by known financiers as evidence of their

command over certain quantity of money mentioned dearly on the face of thesedocuments with them-although these written documents-the present days travelerscheque and letters of credit issued by banks are lineal descendants of these earlywritten documents were not actual money, these were temporary substitutes formoney. People accepted them because they knew that these could be readilyexchanged for money on demand. These paper documents-a mere substitute ofactual money-represent the first stage of development of paper money.

Even after the development of paper money it was a bit difficult to deal with itbecause even that had certain shortcomings like:

Can be stolen, spoiled and misplaced.Every chance of being cheated.The amount is definite and certain.Cannot be used in heavy amounts Travelling became difficult with lot of cash.

And because of this plastic money came in picture.


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Age of plastic money:

Plastic money is of two types:

1.Debit card2. Credit Card- credit card has many types in itself which are

listed below

Debit card

Debit cards are substitutes for cash or check payments, much the same way thatcredit cards are. However, banks only issue them to you if you hold an account withthem. When a debit card is used to make a payment, the total amount charged isinstantly reduced from your bank balance.

A debit card is only accepted at outlets with electronic swipe-machines that cancheck and deduct amounts from your bank balance online

credit card

Credit cards are financial instruments, which can be used more than once to borrowmoney or buy products and services on credit.Allyou need to do is produce the cardand sign a charge slip to pay for your purchases. The institution which issues thecard makes the payment to the outlet on your behalf; you will pay this 'loan' back tothe institution at a later date. Basically banks, retail stores and other businessesissue these. Credit cards in India is gaining ground. A number of banks in India areencouraging people to use credit card. The concept of credit card was used in 1950with the launch of charge cards in USA by Diners Club and American Express.Credit card however became more popular with use of magnetic strip in 1970.Credit

card in India became popular with the introduction of foreign banks in the country.

Credit cards, one of the banking products that cater to the needs of retail segmenthas seen its number grow in geometric progression in recent years. This growth hasbeen strongly supported by the development in the field of technology, withoutwhich this could not have been possible.


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The history of phenomenal growth in the credit card segment traces way back to in1950, the time when Diners Club was established. The card provided selectmembers with credit at 22 restaurants in New York and collected a commission forpaying the bills promptly. The credit card industry got a further boost with thearrival of American Express in the arena in 1958. American Express began sellingtheir card as a prestige to hotels, restaurants, shops or airlines in America andslowly expanded the network across the world.

The success of these two players attracted many other banks to join the credit cardbusiness. The entire breed of new players saw a fresh opportunity of grantingunsecured loans at high interest rates to those credit cardholders who did not paytheir bills on time. These banks were not so concerned with collecting commissionsfrom shops but were thriving on high interest income from those who did not paytheir bills on time.

Starting from Diners Club, some 50 years ago, the card industry has been growing

with a rapid pace world over and so has been the growth in the domestic cardindustry. With only two players in domestic card industry, HSBC and Citibank inthe early 80s, the number swelled to over 25 in the year 2001. Credit cards in India,made their debut in 1981, and are on the verge of an unprecedented boom. Between1987 and 2001, the market has virtually grown to over 4 million cards with over 25-30% of compounded annual growth in new cardholders base.

Its not that only the card numbers have increased, but even the types of cards on

offer have seen a surge. Today the domestic card industry is flooded with differenttypes of cards ranging from gold, silver, global, co-branded credit cards, smart tosecure, the list is endless. Foreign banks have shouldered the major responsibility ofincreasing the card base and adding value-added services to the card products in thepast. This is also evident from the fact that the market share of these foreign banksis estimated to be well over 70%. But the scenario has changed dramatically in thelast of couple of years with the entry of State Bank of India (SBI), a domestic majorin the banking sector. More and more nationalised banks and private sector bankslike ICICI and HDFC Bank are aggressively launching credit card with value added

features.

There is immense growth potential in the domestic card industry. A glance at theIndian population reveals that Indias middle/upper middle class (target segment)represents a population of over 10 m. There are only 2 to 3 m cardholders, each

possessing an average of 2 cards. This is a very low figure given Indias hugemiddle to upper class population. There is no doubt that the domestic card industry


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has to yet to mature and offers significant long-term growth potential.

Given the lack of maturity of the domestic card industry, its growth will depend

upon building core retail business, with more sophisticated products. In theexpansion of domestic credit card market, the existing foreign players, SBI, othernationalised banks and the new domestic private sector banks are expected to playimportant role with complementary strategies.

Foreign banks with the advantage of technology and industry experience areexpected to concentrate on increasing card spending and customer loyalty in themajor cities. SBI, on the other hand is expected to capitalize its superior distributionnetwork to expand card acceptance in the smaller towns. The new private sector

banks would have the opportunity to capture significant market share by combiningthe strengths of foreign banks and nationalised bank like SBI.

Although at present the card market is mainly limited to Indias relatively bigger

cities and tourist locations only, there is also a potential in smaller cities. Domesticbanks, owing to their vast network and reach to smaller cities, can easily tap thispotential. They would be better off, penetrating into smaller cities and bringingcredit card to the masses rather than cannibalising other foreign banks existingcardholder base.

The efforts of these banks to increase the card base is going to be wholeheartedlysupported by the residents of these smaller cities with their higher disposableincome, changing lifestyle, increasing travel and the growth in the entertainmentsector.


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Chapter 2All about credit cards

Types of credit cards:

Charge card

A charge card carries all the features of credit cards. However, after using a chargecard you will have to pay off the entire amount billed, by the due date. If you failto do so, you are likely to be considered a defaulter and will usually have to pay upa steep late payment charge.

When you use a credit card you are not declared a defaulter even if you miss your

due date. A 2.95 per cent late payment fees (this differs from one bank to another)is levied in your next billing statement.

Amex card

Amex stands for American Express and is one of the well-known charge cards.This card has its own merchant establishment tie-ups and does not depend on thenetwork of MasterCard or Visa.This card is typically meant for high-income groupcategories and companies and may not be acceptable at many outlets. There are awide variety of special privileges offered to Amex cardholders.

MasterCard and Visa

MasterCard and Visa are global non-profit organisations dedicated to promote thegrowth of the card business across the world. They have built a vast network ofmerchant establishments so that customers world-wide may use their respectivecredit cards to make various purchases.

Smart card

A smart card contains an electronic chip which is used to store cash. This is mostuseful when you have to pay for small purchases, for example bus fares and coffee.No identification, signature or payment authorization is required for using thiscard.

The exact amount of purchase is deducted from the smart card during payment andis collected by smart card reading machines. No change is given. Currently this
http://in.rediff.com/getahead/2007/apr/18credit.htmhttp://in.rediff.com/getahead/2007/apr/18credit.htm


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product is available only in very developed countries like the United States and isbeing used only sporadically in India.

Diners Club card

Diners Club is a branded charge card. There are a wide variety of special privilegesoffered to the Diners Club cardholder. For instance, as a cardholder you can setyour own spending limit. Besides, the card has its own merchant establishment tie-ups and does not depend on the network of MasterCard or Visa.

However, since this card is typically meant for high-income group categories, itmay not be acceptable at many outlets. It would be a good idea to check whether amember establishment does accept the card or not in advance.

Global card

Global cards allow you the flexibility and convenience of using a credit card ratherthan cash or travellers checks while travelling abroad for either business orpersonal reasons.

Co-branded card

Co-branded cards are credit cards issued by card companies that have tied up witha popular brand for the purpose of offering certain exclusive benefits to theconsumer.

For example, the Citi-Times card gives you all the benefits of a Citibank creditcard along with a special discount on Times Music cassettes, free entry to TimesMusic events, etc.

Creating a New Credit Culture

The maturity of any economy is gauged by the stage of development reached by itspayment systems. Traditionally cash has been the predominant paymentmechanism since the beginning of human civilization. As a country develops, itgraduates to cheques ,and ultimately to cards. Development of electronic paymentmethods through plastic cards requires a minimum level of sophistication on partof financial institutions, accepting establishments and customers. To a largedegree, therefore, the world wide growth electronic payment systems has followed


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the path of economic development. Credit cards first saw the light of day in Indiawhen ANZ launched its visa card in 1989. Till then, all the cards in the marketwere charge cards. Until recently, Indian banks issued only proprietary cards.These were valid as charge cards in a merchant base which was exclusive to the'Proprietor', providing the user comparatively limited access to the market. Thecountry now provides all the ingredients of a healthy credit card industry: a rapidlyexpanding, increasingly acquisitive middle class and a growing yen for travel andentertainment. Greater transparency in financial systems in another plus.Equally important, merchant establishments are far more sophisticated and lessinsular than they have ever been. There is no denying the fact that credit cards arestill an urban phenomenon, but the flip side is that the 52 million-strong urbanpopulace is where the spending power is industry experts put the current creditcard-holding potential around 7.25 million within this segment.

Credit Cards in India

The first credit card in India was Diners club card in the year 1964. Andhra Bank

and Central Bank were the first to launch credit cards among the Commercial

Banks. The Andhra Bank introduced the card in the year 1981 under the brand

name of "VISA classic" followed by Central Bank of India in collaboration with

Master Card Corporation in 1981. The other banks Canara Bank, Bank of India and

Bank of Baroda introduced credit cards in India. The foreign banks such as Citi

Bank, Standard Chartered Bank, ANZ Grindlays Bank, Bank of America andAmerican Express Bank have also introduced cards in India through their branches

in India. There are number of banks being credit cards are offering such as

Corporation Bank, Karur Vayshya Bank, State Bank of India, Bank of

Maharashtra, Vijaya Bank and South Indian Bank. In India almost all the credit

cards issued by the banks are the franchisees of original Master Card Visa

Corporation.ofUSA. SBI is the third largest issuer of credit cards after Citi Bank

and Standard Chartered Bank. Standard Chartered Bank has recently launched a

woman's international card Diva. The card can be used by a woman to purchase

tickets for movies, plays, shows and also planning for special parties. The card can

also be used for pest control, home appliance repair, gifting like cakes and flowers,

emergency services such as doctors and towing services. The card offers free and

comprehensive insurance packages for the card holders and the family. These

include accident insurance cover for self and spouse, children, education allowance

and medical and purchase protection insurance.


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India has 5.3 million credit cards and 6.5 lakh debit cards. The average spendon a credit card, at Rs. 22,000 a year. The following data will reveal thedevelopment of credit cards in India.

The Credit Card LedgerYear No. of Cards Amount (Spending)(in millions) (Rs. in crores)

1995 1.9 17001996 2.5 25001997 3.1 36501998 3.5 47001999 4.2 65002000 4.9 85002001 5.3 10500

Market share credit cards (upto 31.3.2001)

Name of the card Percentage of market share

1.Citi bank2.Standard Chartered bank3.State Bank of India4.HSBC5.Amex6. ICICI7.Others

292512

106513

The Credit Card Scenario

In a country where cash is king and paper work is a by " ward for business, two bythree inch pieces of plastic are slowly but surely making inroads. It has been saidthat India will be the largest card market outside the US by 2000 A.D. Currentlythe number of credit cards in India now exceeds the one million figures with a"volume of over Rs. 200 crores. Industry growth is estimated at 30 40 per cent a


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year now.As the credit card market gets ready for a big spending in volumes from the currentvolume of 7,50,000 card to more than 5 million card in three years, as banks -Indian as well as internations are racing for larger market share. With banksconcentrating more on profitable business, credit cards will become an importantfactor to boost sagging bottom lines. At the same time, banners predict that a fewyears down the line the inefficient and loss making card issuers would be forced towithdraw from the arena. The only way banks are going to survive in credit cardbusiness is by improving their overall functioning and infrastructural systems. Thisis especially true of some nationalized banks that delay billings due to a lack ofadequate informational systems and trained personals.

Of the major segments covered by credit cards, travel and entertainmentaccount for 70 per cent of total usage, dining (restaurants) and retail (shopping) 30per cent. The hotel chains rake in the lions share of the T & E segment and almost

60 per cent of hotels' foreign exchange earnings come, from credit cards. Of thetotal hotel business, 70 per cent is transacted through credit cards.

The liberalization of the economy boost to experts and Ihe fallout on increasedbusiness travelling and spending 111 India augurs well for the credit card industry.The potential only needs to be matched by increased awareness "bout credit cardsamong retailers and full proof for preventing misuse.

Parties to the Credit Card

There are three parties the card-issuer, the card-holder and the seller of servicesand products. For the card issuer, credit cards are an innovative means ofincreasing their business income through admission fee, annual fee, services feeand interest charged on card holders. Commission on card sales received frombusiness firms who have booked credit card sales is another income.

For the card holders, credit cards are an innovative way to pay for thepurchases. They need not carry cash in their purse. They can go for instantpurchases without checking their "liquidity". Instantly they can add their 'liquidity',by drawing cash without sufficient balances in their accounts. 24 hours Automatic

Machines forcash drawls are also available on select cards at select places. With acredit card the card-holder feels rich even though his bank accounts are drawnclosely. Really sense of 'feeling assured' is there. With credit cards in pocket,emergencies are not felt so by card-holders. They exceed a sense of confidence.

For the business establishments, accepting credit cards is an innovative formof doing business with the upper and upper middle class. Surely these business


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establishments get the patronage of the burgeoning upper middle class. Thecommission they pay on card sales is only a fraction of profits made, whichotherwise they would not have made. Actually accepting credit cards adds to theprestige of the firms. An indirect publicity is what they get.

Legal Steps in Defaulted Accounts

Since the advance allowed under credit card is of a clean type, sometime recoveryof dues becomes a difficult task. In cases where legal measures have to be resortedto the question arises to where the cuit has to be billed. If the credit card account iskept in central office (i.e. credit card department) the suits are filed at that placeeven though card-holder may be residing elsewhere. But, if the card-holder'saccount is with a branch in an area where the card-holder resides, then legal actionis initiated at that place.

Banks take all precautions in selecting the card holders. They generally do notissue cards to a person unless they are satisfied about the credit worthiness of theapplicant. In case of one bank, the credit card application has columns forapplicant's movable/ immovable assets, gross annual income, total liabilities,income-tax, wealth tax assessment details, etc. All these columns have to be filledin by the applicant and verified by the Branch Manager.

Training to prevent credit card fraud

The visa credit card company has set up a University in Singapore to providetraining for preventing credit card fraud to police and vigilance officials frommember-banks. Billed as Asia-Pacific's First and only formalized fraud-preventionprogramme, it is designed to attract more people into choosing fraud control as acareer option, the company said in a press release issued recently.

Police officials and bankers from Asia-pacific countries, including India, willbe attending the course at visa University. Chandra Agnihotri, Country Manager-South Asia. Visa International, said in a communication, according to him, thecurriculum will include in depth training into the many known methods of creditcard/ card payment system fraud and ways to detect them. Participants will also betrained in methods of gathering evidence so that such illegal activities can beneutralized, noted Agnihotri.

The course consists of both theoretical and practical teaching, and participants


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will be given scores for their performance. Law enforcement officers whoparticipate in the course will be given an additional week's training in a practicalsituation in their area of operation.

The course is a more formalised process of imparting information andtechniques of preventing credit card fraud. The security support centre of VisaInternational has over the years held seminars and conferences in various marketsfor this purpose.

Since the Visa University was established. 45 participants from 40 memberbanks in 12 countries have attended six courses till date. In addition a pilot coursewith law enforcement officers was also conducted.

Benefits of Credit Card

The benefits of credit cards may be classified into two categories:(A) Benefits to the card holders.(B) Benefits to the issuers.

(A) Benefits to the Card Holders

There are so many benefits to the card holders for using the cards:1. The card holder need not carry cash at all times.2. The card holder will be covered by free insurance.

3. The card can be used as identification card in some situations.4. The issues of card offers rewards and gifts to the card holder.5. The card holders can avail special counters for Air and Travel reservations.6. The card holders can get complimentary Magazines. Forexample, diners club provide "signature" magazine to cardholders.7. Family members of the card holder can avail this facility.8. The card holder can enjoy free credit upto 30 to 45 days.9. If the credit card is lost/stolen the liability is limited to amaximum of one thousand rupees.

10. Some credit holders will get free services such as confirmedTicket booking and hotel reservations.11. Some card holders will get benefit from the world-widenetwork, for example, Master Card, Amex, Visa.

(B) Benefits to the issuers:There are also advantages to credit issuers. Such advantages are presented below:


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I. This business offers higher profits.2. The issuers can also improve their name and image by serving

large number of credit card holder base.3. This business is an additional activity in the banking sector toenhance their profitability.

Privileges/Additional Facilities

The credit cards besides providing credit facility, the issuer extend some additionalfacilities/privileges to attract more customers. These facilities and services arepresented below:(a) Incidental expenses.(b) Instalment cash withdrawal.

(c) 24 x 7 x 365 customer service.(d) Free insurance.

(e). Buy anything on credit card.(f) Joint credit card and A TM facility.(g) Hotel discount facility.

(h) Fuel facility at petrol pumps.(i) Purchase protection

Target markets of credit cards

The marketers of credit card must first decide the target and then launch amarketing offensive aiming for the bull's eye. Targeting and locating of credit cardusers involves environmental analysis by which the marketer can learn in advancethe potential opportunities and threats. The busy life of people involves a great dealof personnel as well business tours therefore, hotels, airlines, shopping stores etc.were the use of credit card becomes easy and convenient to make payment andsettle bills. Nowadays people find it difficult and risky to carry cash. With themtherefore in such situation credit card provides an opportunity for riskless travels where cheating and theft can be avoided. Hence tension free travel is

possible with the use of credit cards. Similarly air tickets can be bought and hotelbills can be settled with the flash of a credit card without much hassels. Thereforetaking into account the different strengths weakness of respective cards the cardmarketers should select their target market and at the same time by perceiving thethreats and opportunities the card marketers would do better by not concentratingon economically irrelevant and infeasible target group. The cards today spell a


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different life style for their target audience - the upper middle class the profile ofthe target groups also varies. Premium cards like Diners, citibank are mostly usedby the upper class while those issued by nationlised banks - Cancard, Bobcard,State Bank etc. are picked up by the middle income segments and are mass based.

The benefits desired vary, while some deferred payment, safety, flexibility ofpayment modes and emergency cash, others are won by the' emotional' benefitslike pride, status, variety and one upmanship. The bank gets hotels, travel agencies,air lines and large stores to enroll as member establishments so that its card haswider acceptability. The credit card purchase is not always a rational buy, somepart of it is also impulse.

Marketing Segmentation of Credit Cards

A vivid definition of market segment is a prerequisite to any marketing exercise.Precision has to be achieved in this, in order to, avoid any possibilities of collisionwith the rivals. This is very much true in case of credit cards. Credit cards serve thedifferent needs of different groups. Credit card marketing can be directed atcorporate executives in their pleasure/business tours, shoppers, businessmen,tourist (national/international), credit availers and contingency users etc. Till nowin our country, clarity in defining a customer segment in service business,especially in credit cards is an exception rather than the rule. But developments arenow taking root in the environment in which service businesses operate are

creating conditions for quick failures of credit cards that do not operate in a welldefined segment.So of late credit card marketers are now practicing segmentation basing upon thedifferent need of the users.

Advertisements of Credit Cards

Personalized services like laundry, hair grooming, beauty saloon, automotiverepairs, when advertised, place greater emphasis on the institution/ organizationoffering it and the advantages in patronizing them. They may talk about congenial

environment, quickness and promptness of service, convenience, economy,exclusiveness, time saving, status significance etc.

Credit cards being a personalized financial service, it would be wise on thepart of credit card issuers to emphasize status, convenience, round the clockservice. Computerized billings, payment schedule, rate of interest time of


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settlement etc in advertising their card service. It would also be better if they focuson safety needs, risk free travel, danger of running out of cash, sudden need formoney, shopping needs, check into hotels, booking of air and train ticket etc. Intheir advertisement, so that customer who fits into these segments would bemotivated to take credit card services. At present the world is witnessing theexplosion of electronic media which is a boom for the marketers. But still themedia cost is very prohibitative, therefore in view of ever increasing mediacharges, the credit card offerors should go in for massive joint advertisements. The

joint-ads should be with those, products and services which are related to creditcard services e.g. with tourism departments, Airlines, hotels. These would bemutually beneficial to them. This type of joint-ads not only costs less and bringcredibility but also it helps creating confidence in the minds of card users moreawareness and exposure, which in turn would attract more card users.

Building numbers i.e. to increase the number of card holders is one part of the

story. Getting the card-holders to spend on their cards is the trickier part. That'swhat gets,margins for the card issuer. Therefore, the card issuer should come out 'with thetype of advertisement which would induce the card-holders to use their card moreand more. This is possible when card-holders are shown the different occasions ofcard use, which in turn would make the credit cards much more of a need ratherthan a luxury.

"The advertisements of credit card should aim at giving a sense of confidenceto the card-holders, which would enable them to overcome temporary financialproblems and to meet financial exigencies. Perhaps taking the cu of the abovefeeling, CANCARD tells, "you won't need anything else". To ensure that one feelsassured the AMERICAN EXPRESS CARD TELLS, "don't leave home without it"."The best way to pay" is the slogan used by citibank card services. No doubt creditcards are a new means of consumer finance. Some people say it is a technique forsale of money. On the other hand people sell everything for money, whereas thecredit card sell money and here the price of money sales is the rate of interest.

When a marketer or a firm develops a product or service to satisfy marketdemand after thoroughly analysing the market, there is a need for establishingcontact with the target market to eventually sell the product or service. The

marketer is interested in reaching out to a large number of people so that hisproduct or service may receive optimum attention and exposure. Naturally, the bestway available to reach the target markets is through mass communication.Advertising is one of the means of mass communication along with other meanssuch as publicity, sales promotion and public relations.


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GRACE PERIODInterest Free Period

The number of days you have on a card before a card issuer starts charging youinterest is called grace period. Usually this period is the number of days betweenthe statement date and the due date of payment. Grace periods on credit cards areusually 2-3 weeks. However, there is likely to be no grace for balances carriedforward from previous month and fresh purchases thereafter if any.

The following are some of the varieties of credit cards in India :

ANZ - GoldANZ - SilverBank Of India - IndiacardBol - Taj PremiumBol - GoldBoB - ExclusiveBoB - PremiumCanara Bank - CancardCitibank - Gold

Citibank - SilverCitibank WWF CardCitibank Visa Card for WomenCitibank Cry CardCitibank Silver International Credit CardCitibank Women's International Credit CardCitibank Gold International Credit CardCitibank Electronic Credit CardCitibank Maruti International Credit CardCitibank Times Card

Citibank Indian Oil International Credit CardCitibank Citi Diners Club CardHSBC - GoldHSBC - ClassicICICI Sterling Silver Credit CardICICI Solid Gold Credit CardICICI True Blue Credit Card


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SBI CardStanchart - GoldStanchart - ExecutiveStanchart - ClassicThomas Cook Standard Chartered Global Credit Card

Global player in credit card market

MasterCard

MasterCard is a product of MasterCard International and along with VISA are

distributed by financial institutions around the world. Cardholders borrow moneyagainst a line of credit and pay it back with interest if the balance is carried overfrom month to month. Its products are issued by 23,000 financial institutions in220 countries and territories. In 1998, it had almost 700 million cards incirculation, whose users spent $650 billion in more than 16.2 million locations.

VISA Card

VISA cards is a product of VISA USA and along with MasterCard is distributed by

financial institutions around the world. A VISA cardholder borrows money againsta credit line and repays the money with interest if the balance is carried over frommonth to month in a revolving line of credit. Nearly 600 million cards carry one ofthe VISA brands and more than 14 million locations accept VISA cards.

American Express

The world's favorite card is American Express Credit Card. More than 57 millioncards are in circulation and growing and it is still growing further. Around US $123 billion was spent last year through American Express Cards and it is poised to

be the world's No. 1 card in the near future. In a regressive US economy last year,the total amount spent on American Express cards rose by 4 percent. AmericanExpress cards are very popular in the U.S., Canada, Europe and Asia and are usedwidely in the retail and everyday expenses segment.

Diners Club International


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Diners Club is the world's No. 1 Charge Card. Diners Club cardholders reside allover the world and the Diners Card is a alltime favourite for corporates. There aremore than 8 million Diners Club cardholders. They are affluent and are frequenttravelers in premier businesses and institutions, including Fortune 500 companiesand leading global corporations.

Future

Surely credit cards are all set to make a definite impact on life style ofpeople. A boom in the credit card business is quite expected. Merchantestablishments should be enrolled in large number to offer variety to cardusers in the choice of shops to shop. About 40,000 establishments in India

accept credit cards of one firm or the other. True some merchantestablishments do not align with the credit card business. They hopefullyfeel enough is enough. Even some feel that credit card sales are a nuisance.Credit card benefit only customers and not us, say some merchants. Thisattitude does not seem to be prudent. Incremental sales definitely result andthat merchant establishments stand to gain. Accepting credit cards is acompetitive tool. Visa cards are accepted the world over by 10 millionshops, hotels etc. Merchant firms should be forward looking and someforward to accept credit cards. Regarding the credit card holding populationin India their size should be about 10 million persons at present.

Factors of Success in Credit Card

Given the multiplying volumes and the contest for efficiency, marketers lie witheach other to reach out to the existing and potential card-holders, a shake out isinevitable in this field of marketing. The following factors are likely to influence indeciding who would be the front runner in this personal finance service.

1. Those with the best number crunching capabilities would dominate thescene. The technology edge is critical. The best communication and computer

network would decide the scale of success because delays in the chain mean largercarrying costs. Visa and MasterCard have an incredibly short settlement time of 48hours.

2. Apart from this, the simple fact of the massive branch network cannot bedismissed lightly, because that would cover a larger a geographical area givingenormous scope to the users. This ultimately decides the reach of the card issuer.

3. The affinity of merchant establishments would also hold the key to success


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in the credit card scenario card that holds the affinity of hotels, airlines, shoppingplaza etc. enhances the usefulness and the status of the card. Affiliations of numberof banks also would decide the degree of acceptability of a card.

Difficulties of Credit Card Operation

But at the same time, the card issuers faces many difficulties and the credit cardservice market also suffers from certain bottlenecks which can be outlined below.

1. In order to succeed in credit card business the service provider has to findlocate and rope-in safe and quality spenders who are not always easy to get.

2. The India laws are not more effective in dealing with payment defaultersand prevailing communication net-work is not efficient and effective which isessential for the success of financial service like credit card.

3. Fraud like pilfered cards is only just being tackled at a concerted level andservice is also not top-notch either. Errors and commission, Irregularities inmaintaining systematic records, wrongly charged purchases, Miscalculatedinterest, Delays in billings etc. are only some of the problems one has to face inthis service.

4. Some card issuers are facing problems with mounting outstanding fromcard-holders who are not credit-worthy.

Tax Evasion and Credit Cards

Now the ministry of Finance is looking at credit cards this year as a database forlocating tax-evaders. Now the income tax department is following a liberal policyin assessment of income and give much emphasis on the survey front. Now thefinance ministry wants to bring more and more people under the tax nets.Therefore, it has been made compulsory to make payment in the form of cheque ordemand draft if the amount of payment involved is more than Rupees twentythousand. As the cheque and demand draft mode of payment is recorded andreflected in the bank records And can be verified by the taxing authority" the

people have shifted the mode of payment through credit cards. This they do inorder to avoid tax implications. Therefore, the income-tax department is trying toget lists of credit card-holders from banks to bring more people into the tax net andcheck if all those assessed as coming under the tax net are actually paying correcttaxes according to sources.

Significantly, the department is also considering Im1 king it mandatory forcredit card applicants to specify their permanent account number (PAN) in the


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application once the ongoing issues of new PAN numbers for tax-payers iscomplete-without which the financial institution will not be allowed to issue thecard.

However, these new rules will only be finally decided upon the issue of PANnumbers to all tax-payers is complete, which is expected to take a couple of years

The intelligence wing of the revenue department is looking at credit cards thisyear as a way to widen the tax-payer base and also detect evasion on the part of

existing tax- payers. And year or so earlier, the department had used maruti carbookings as a kind of cross check list to detect tax-evaders

Since the most credit card holders use the cards mainly for large to locatepeople higher income brackets. What is more, India is forecast to become one ofthe largest market for these cards by the turn of the century. More than11 banks arealready in this business.

In 1993, the income tax department had made a similar request mutual

fund for list of unit holders while the mutual fund had given in later due topressure from the finance ministry. Therefore we can say that credit card issuer

may also fall in line with this kind of directives from the finance ministry. It is

believed that toeing to such directives would affect the transaction of credit cards,

because the card-holders would become extra cautioned enough while using their

cards. They would become more rational in using their cards or they would use

them only when it become inevitable, which in turn will affect and put a limit to

the credit card business.

Banking and credit-cards

In large volumes credit cards are highly profitable business for banks. A few in theindustry point out that the business is not always give its due by top managementin banks. Because of a long gestation periods, perhaps there has been a certainreluctance to invest heavily in this retail banking product. But there are heftybenefits. Apart from joining fees and annual fees, issuing banks get inter-chargefees. These come from commissions on sales. Because the issuing bank cannot be

at every place where a card holder may want to use his card it enters into anagreement with other banks known as acquires. Acquiring banks reimbursemerchant establishments for a commission which is split with the issuer. On theother hand, all public sector / nationalized banks should have a common creditcard, accepted by every banker to avoid unhealthy competition among them and tocounter the stiff competition of international credit card at least inside the countryand if possible outside the country also.


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Indian card-holder will really come into their own when credit cards becomeno more than a convenience and competitors lie with each other to supply themfree, as in some western countries. This we say, because, already competitionbetween acquiring banks for business from merchants has brought commissionsdown from 5 to 3 per cent, and with large establishments as low as 1.5 per cent.

If the issuing bank happens to be also the acquiring bank it gets the entiremerchant discount. A significant amount of revenue comes from interest charges.Rollover credit fetches the issuer a nice 2.5 per cent per month. This works out toaround 30 per cent per annum, a tidy sum given that the cost of funds for banks is

just around 12 per cent. "Seventy per cent of card holders choose revolving rates,says Farhad Irani who heads standard chartered credit card division. As the creditcard market gets ready for a big spending and with banks concentrating more on

profitable business credit cards will become an important factor to boost saggingbottom lines.


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Chapter 3Three Ways to Play Safe With Your Plastic Money

The use of plastic money in India is at its high altitude due to increased disposable

income and the growth of IT and retail sector. The Young Indians with theincreased level of income has taken plastic money as a tech savvy and smart wayof spending. Some of them has multiple cards. Apart from regular shopping,theypay the electricity bill and all other sundry expenses using the cards. However, theplastic money charges the highest rate of interest in the organised loan market. Andthe repayment of plastic money debt is not as easier as it seems. This articlefocuses on how to play safe with plastic money and avail free credit.

When you have multiple credit cards, you can transfer the balance due on one card

to the other. In simple terms, the amount due on one card can be transferred ontoother card without affecting your financial condition. For this balance transfer, youwill have to pay a minimum amount due (in general 5% plus processing fee) to theconcerned bank offering you the facility. This price is not that much hefty whenyou are in need of urgent cash for high end expenses like purchase of jeweleries,costly electronic goods or financing the cost of wedding. By the method of balancetransfer, you can easily avail interest free period for next three months.

The total time you can avail as the interest free credit in case of balance transfer isfive months( including the general grace period). This saves a lot of money and

and offers you the peace of mind. The second way to get rid of credit card debtpiling is to repay the amount within the grace period. At the time of purchase, youshould cut your coat according to your cloth. Thoroughly analyse your monthlyincomings before performing any plastic money purchase. If you can repay thewhole amount without disturbing your budget, try to pay it with in the graceperiod. This makes your payment interest free.

Credit card companies always look for a default on the user's side. This default isthe unwritten source of profit for the financial organisations dealing with plasticmoney. If there is default, the rate of interest and the payable amount compounds.Another thing associated with the credit card bill payment is the minimum monthlyinstallment. If you can not repay the whole amount with in the grace period, neverforget to pay the minimum monthly amount. By following these above three steps,you can easily and smartly handle your plastic money expenditure.


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Life is easier with plastic money

The need for carrying hard cash in pockets has been eliminated by the credit cards,

or rather plastic money as they are nicknamed. Today is the age of instant swipesrather than having a huge sum of cash in the pockets and anxiety in the minds.

As the cities of India are getting a cosmopolitan touch day by day, the mallsspanning huge scope and the world class brands making India their most favouredhub, new reasons for shelling out money have also taken birth. The huge plazasand shopping complexes displaying varied, alluring collection of goods make usforget everything. The rise in the living standards has also given a way to lavishexpenditures.

The past decade has seen an escalation in the standards of the Indian citiesespecially the metros. The multinational companies establishing their foothold inIndia have helped the majority of Indian population to not only make their bothends meet but also to make a luxurious living in return of their service. Moreearning means more spending. This is how credit cards evolved themselves.

The etymology of credit cards is no doubt impressive and but a credit cardcan ransack your funds totally if not used sensibly. Let us throw some lighton the usage and procurement of instant approval credit cards.

As the name suggests, theinstant approval credit cardsare obtained in a smalltime frame with less hassles and formalities. These cards are basically put to usefor paying off the electricity bills, phone bills and for other expenses like refillingyour car etc. The only reason which makes the procedure for procuring an instantapproval card is that the operations are done completely online. The applicationform is filled and submitted online and the notifications are given through mails.This makes the procedure quick.

Another factor that can get you instant approval is the availability of a co-signer. Aco-signer can be a person who can take the guarantee of your credibility. If the co-signer is from an impressive background or occupation, for e.g., a governmentemployee then the card will be in your hands more or less within a week. This waythe bank or the card lending company also feels assured that the money is in safehands and the chances of the amount going astray are bleak.The idea of carrying instant cash in the form of a plastic card for all your needs isof course quite tempting but one must bear in mind that he should analyse his
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financial conditions as to whether or not the repayment of the amount is within hisreach. Using the credit card blindly is the last thing for a wise man to do.

One of the basic deciding factors of getting a credit card approved is your credithistory. A bad credit history can make the chances of getting approval for the cardbleak or even far from possible. Customers who have a credit grade ranging fromgood to excellent can get approval in almost no time.

While browsing the Internet, you will come across scores of advertisements forcredit cards. Hundreds of thousands of companies declare their efficiency inproviding the credit cards without making the customer wait. But it is the duty ofthe customer tocompare credit card interest ratesand other factors that holdsignificance.

The rate of interest of the cards should not be high to such an extent that you endup getting stuck in the process of repaying the amount. The terms and conditions ofthe company should be flexible. However no matter how much hard a person triesto save himself from the financial crunch, there comes a month in everybody's lifewhen he or she becomes late in paying off the bills. That may be due to lack offunds, or the payment date might have slipped off your mind, or may be because ofyour tight schedule you fail to find time to repay the debts. It is advisable to notecarefully the penalty imposed on late payment. It should not be too harsh for yourown good. Reach a higher level of satisfaction with an instant approval credit card.

Plastic money growth in India fastest in Asia

The plastic money culture seems to be spreading fast if the total transactionvolumes through cards (both debit and credit) in the country for 2002 areanything to go by. Transaction volumes include both cash withdrawals andpurchases made through such cards.

Total transaction volumes have rocketed 103 per cent to $4.201 billion (over Rs19,400 crore), making India the fastest growing market in Asia Pacific. Thecomparative figures for 2001 when the Indian market rose by 69 per cent was at$2.277 billion.
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The debit card scene in India is also shifting more towards Visa International.Visa's debit card has cornered 68.5 per cent of the total transaction volumes indebit cards in 2002.

According to the latest Nilson Report, India has gone up in the rankings by onenotch and is now the eleventh largest market in Asia Pacific.

However, the total purchases through cards rose by only 31 per cent to $1.802billion. India has a long way to go compared with other Asian countries both interms of total transactions and purchases.

South Korea, the market leader in Asia Pacific, has shown a 39 per cent rise intransaction volumes to $296.139 billion and a 48 per cent rise in purchases in totalpurchases to $104.589 billion.

It is followed closely by China, which has, however, seen a fall in total volumes of8 per cent to $208.283 billion.

However, the figures do not include the volumes of Cirrus and Maestro - the debitcard issued by MasterCard.

The total number of debit cards issued in the country for the period was at 82.99lakh. Of this Visa Electron issuances were 49.13 lakh, while Maestro issuanceswere 33.86 lakh.

The total volumes through the debit cards for the country stood at $3.550 billion ofwhich Maestro volumes were at $1.115 billion with the remaining volumes withVisa. However, the purchases through debit cards in the country were much lowerat $103.6 million.

This could be because; debit cards in the country are still primarily used as ATMcard for withdrawal purposes rather than for purchases.

This is more so among the customers of the public sector banks than for the

customers of the foreign banks or the private sector banks. Also banks are nowissuing debit cards in lieu of ATM cards thus propping up the figures.

The total volumes of Visa and Visa Electron in the country for fiscal 2002 haveshown a growth of 138 per cent to $3.724 billion, while the purchase volumes haveincreased by 36 per cent to $1.137 billion.


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The total volumes for MasterCard have shown a rise of 20 per cent to $787.7million while purchases had increased by 22 per cent to $ 665.6 million.

The major issuers of Visa Electron cards are ICICI Bank and HDFC Bank whilefor Maestro the major issuers are State Bank of India and Citibank.

Taking plastic money to rural India

The government is chalking out a strategy to push the usage of plastic money inrural India. This is with a view to bring down the cost of supporting cash incirculation.

The finance minister recently held meetings with global payment company Visa asto how the usage of plastic money can be promoted in rural India. The governmentis also looking to adopt international best practices for the payments industry.

As a means to push the usage of plastic in small towns, the government isexploring the installation of low-cost wireless point-of-sale (POS) terminals at postoffices for dispensation of cash, said a senior Visa official.

The government proposes to permit cash dispensation at POS terminals, which willreduce the cost of supporting cash in circulation, he added.

This will be at first initiated in rural India before extending this facility to otherparts of the country.

Currently, only banks can dispense cash through their respective automated tellermachines, cheques and demand drafts. Disbursement of cash through POSterminals will, however, need amendment to the Banking Regulation Act.

In the overseas market, dispensation of cash at POS terminals is popularly know as'cash back'. This service is available through debit cards, which is defined as 'cash

given to cardholders at the point of sale when a purchase is made.'

Many countries around the world such as the United States, the United Kingdom,Australia, Singapore and Indonesia provide cash-back services at the point of sale.

For example in the US, 86 per cent of all cash-back transactions take place atsupermarkets, with 27 per cent of the merchants providing the service.


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"Cash-back provides the payment system with a number of benefits, such asgreater usage of notes in circulation," said a senior private sector banker.

This will reduce the number of customers visiting bank branches. The introductionof cash-back will lead to reduced need for retailers to continually deposit cash atbank branches at the end of the day as they could dispense with the cash collectedfrom customers, he added.

Rolling In Plastic MoneyEarlier, kings had their scepters. Today the world has its credit cards. Walk in witha square piece of plastic and speed away with a new pair of wheels. That is thepower of plastic. Credit cards are more powerful than money today. They arecompact, easy to carry, difficult to steal, and extremely convenient. And it is fun to

go get a credit card as well; if you like looking around for the best deals that is.

The net is full of credit card companies that are eager to sell you their wares. Areyou a potential customer?

My parents generation was not too comfortable with the idea of credit cards. Afterall, you have to pay back the money sometime, and with interest too. Of course, th-ey are unable to appreciate that as you try to keep saving money, the product youare looking at might stop being available, or you might not get the current off-sea-son discount. Wouldnt it be so much less complicated to buy the product at the d-

iscounted price with one of your favorite credit cards? Of course, on the flip side, itis easy to overspend if you go shopping with your credit card. The money is notlikely to run out, and so you will have been able to purchase all those great thingsthat seem to beckon you to buy them. But despite that temptation, most of us wo-uld prefer to possess a credit card. It is convenient to have around on a rainy day.

So what are the things that you should be looking for as you buy a great credit cardto take charge of your big and small expenses? Well, you cant make any long orshort list without having assessed the various credit cards that are on offer. It is im-portant to compare credit cards rather than merely choose the first one that comesyour way. Newer and cooler deals keep being born every hour. I am sure youwould want to make the most of your money by picking a terrific credit card.

Also, if you already have a credit card, but you would like to a better deal with adifferent credit card company, you should consider all the best balance transfers a-vailable. Transfer your ascending credit debt to a credit card that charges a lowerrate. Be economical for a change.
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The markets are filled with gazillions of credit cards. Look around. The best deal isout there.


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Chapter 4:RBI norms for credit cards

RBI defined Smart card in its guidelines on Nov 15, 1999 stating that A Smart

Card has been defined to be any card or a function of a card which contains realvalue in the form of electronic money which someone has paid for in advance,some of which can be reloaded with further funds or one which can connect to thecardholders bank account (on-line) for payment through such account and whichcan be used for a range of purposes. The definition include pre-paid cellular phonecards with stored value.

Other highlights are as under:

a) Barred banks from providing ATM facilities for debit or smart cards without its

prior permission.

b) It also barred banks from issuing smart card or debt cards in tie-up with othernon-bank entities.

c) Banks should issue such cards to customers with good financial standing, whohave maintained current/saving/fixed deposit accounts with built-in liquidityfeatures, satisfactorily for at least six months.

d) Banks can issue online debit cards to select customers with good financialstanding even if they have maintained accounts with the banks for less than sixmonths.

e) Banks cant extend the card facility to cash credit or loan account holders.However, online debt cards can be issued against personal loan account whereoperations through cheque are permitted.

f) Banks can introduce smart or debit cards with the approval of their Boards. Theoutstanding balances on smart cards would be subject to reserve requirements.

While no interest can be paid on the balances transferred to smart cards, thepayment of interest on debit cards or on-line smart cards should be in accordancewith interest rate directives issued to banks under Banking Regulation Act.

g) Contractual terms between the bank and the card holder should specify the basisof any charges but not necessarily the amount of charges at any point of time.


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h) The card holder would bear the loss sustained up to the time of notification tothe bank of any loss or theft of the card but only up to a certain limit except incases where the cardholder acted fraudulently, knowingly or with extremenegligence. Banks would also be required to provide a means by which customerscould notify the bank of card theft or loss at any time of the day or night.

i) Cardholders cannot countermand an order which was given through the cards.The terms of the contract should specify that the bank should be responsible fordirect losses incurred by a cardholder due to system malfunctions within the bankscontrol.

j) Smart/debt card operations have to be reviewed at half-yearly intervals withfortnightly reports on operations sent to RBI monetary policy department.

k) The scope of smart/debt card has been extended to include electronic paymentinvolving the use of card, in particular at point of sale and such other places wherea terminal/device for the use/access of the card is placed. Benefits of cards Thecredit card holder has the flexibility and convenience to use, at home at abroad. Itis less time consuming and carries better value than travellers cheque. It providesautomatic and instant credit. For the member establishments, it is a guaranteedpayment. It results in increased sales, immediate cash payment and greatersecurity. For the banks, credit cards generate income from the card fees andinterest charges from card holders and services fee from retail outlets. It bringsgreater efficiency. It is a marketing tool as credit card users also use other bankingproducts.

Fundamental Flaws

Charvak philosophy, which was practised during the Vedic period, though not verypopular, now seems the fashion of the day. Charvak philosophy advocatedborrowing, to make life luxurious. In a way this philosophy approved materialism.

Plastic money was designed to help society overcome the hassles of carrying toomuch cash. But it seems the multinational banks came here with a mission oftargeting the emerging and enormous middle-class segment (around 200 millionpeople).


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Almost every bank has introduced credit cards and every card issuer is claimingsuperior features. But there are certain things unchanged like annual rent, crackinginterest rates on cash borrowings and credit purchases.

Economics says human wants are unlimited, and it seems credit card sellers arecashing in on this concept only. But here is some sincere advice, avoid revolvingcredit - it may lead you to a debt trap. If you have a credit card, fine! But use it inexigencies only.

Extravagant use of cards have caused several suicides in western countries.Presently credit card companies are aggressively undertaking campus selling tostudents of reputed institutions. This is certainly an unhealthy practice, anyunnecessary exposure to debt at this level can be dangerous. And if it is revolvingcredit, it may definitely lead them to a debt trap.


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Chapter 5

Conclusion

In spite of the shortcomings, there are certain undeniable advantages associatedwith plastic money. Plastic money comes to use in an emergency, one is free fromthe hassle of carrying cash, etc. The responsibility to ensure that the shortcomingsdo not overshadow the advantages lies with the card issuers only. As indicatedabove, customer care, services at ATMs, interest rates and domestic outletpenetration are the areas which need immediate attention. Otherwise, the use ofplastic money will be limited to luxury goods and services, and the market size willcontinue to remain small.

Suggestions:1. Picture this: A thirty-five year old homemaker, Sarita apte is rushing to drop herchildren off at school. On her way it strikes her that she has to pay the kids annualschool fees. Unfortunately she has only a credit card on her, having left her debitcard at home. Now the school doesnt accept the credit card and her choice is toreturn home, pick up her debit card and withdraw cash from a neighborhood ATM.Imagine if she has a single card, which incorporated the features of both a debitand credit card on the magnetic strip. Sarita could have withdrawn the money sheneeded immediately, sparing herself some trouble.

Now lets examine both sides: A single card would not only benefit thecardholder but also the issuer. For the issuer a single card will help the bankenforce better control and check usage. It is safer and has added advantage of lessexpenditure on plastic.

Banks can also prevent their credit quality from deteriorating and maintainthe quality of their asset portfolio. For instance, if there are 50m credit card holdersand each bank has a credit limit of 50000 banks can look at lending the sameamount to around 50m debit card holders which will access a safer portfolio. Also,when a single customer has five different credit cards, none are used to the fullest.This would promote better usage of cards and reduce the number of inactive cardsin the market.

2. On the review of articlesone article stated that Bank of Baroda plans to launchcredit card for students.

The article did not state the credit limit and the features. I believe this type ofcredit card would give us more defaulters since in a country like IndiaThe


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pattern of students working is not that in the picture yet so they wont be able topay off their bills but yes they would certainly apply for it for their ever-growingneeds. Now this would not only increase the percentage of defaulters but also spoilstudents to a lot of extent since they would get the freedom to buy and ultimatelyparents will have to face the circumstances. Here if they plan to keep a definedlimit for only working teenagers then the card shall have a good future.


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Bibliography

Internet:www.bestsyndication.comwww.anythinganywhere.comwww.articleboard.comwww.articlealley.comwww.google.com

Books:

Financial services in IndiaAuthor- G.Ramesh

Marketing of plastic moneyAuthor- Dibakar paniarahy
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