Merits and Demerits of Plastic Money Based on Experiences of Peoples
MERITS AND DEMERITS OF PLASTIC MONEY BASED ON EXPERIENCES OF PEOPLES INTRODUCTION Introduction to Plastic Money Plastic money or polymer money, made out of plastic, is a new and easier way of paying for goods and services. Plastic money was introduced in the 1950s and is now an essential form of ready money which reduces the risk of handlings a huge amount of cash. It includes Debit cards, ATMs, smart cards, etc. Credit cards, variants of plastic money, are used as substitutes for currency. MEANING Plastic money refers to credit cards, we use them whenever we want and pay later (with interest, of course). It makes it too easy for us to buy things we normally could not afford, which makes it easier to get into debt. DEFINITION A slang phrase for credit cards, especially when such cards used to make purchases. The "plastic" portion of this term refers to the plastic construction of credit cards, as opposed to paper and metal of currency. The “money" portion is an erroneous reference to credit cards as a form of money, which they are not. Although credit cards do facilitate transactions, because they are a liability rather than an asset, they are not money and not part of the economy's money supply. History of Credit Cards and Debit Cards In Plastic Money Credit cards have evolved into a safe and secure manner to purchase goods and services. The internet has given credit card users additional purchasing power. Banks have options like cash-back rewards, saving plans and other incentives to entice people to use their cards. Debit cards allow people the convenience of cards without the worry of racking up debt. The convenience, security and rewards offered by credit and debit cards keep shoppers using their cards as opposed to cheques or cash.
Credit Card Origins The first credit cards were issued by individual stores and merchants. These cards were issued in limited locations and only accepted by the business that issued them. While the cards were convenient for the customers, they also provided a customer loyalty and customer service benefit, which was good for both customer and merchant. It was not until 1950 that the Dinner’s Club card was created by a restaurant patron who forgot his wallet and realized there needed to be an alternative to cash only. This started the first credit card specifically for widespread use, even though it was primarily used for entertainment and travel expenses. Plastic Becomes the Standard The first Diner's Club cards were made out of cardboard or celluloid. In 1959 American Express changed all that with the first card made of plastic. American Express created a system of making an impression of the card presented at the register for payment. Then that impression was billed to the customer and due in full each month. Several American Express cards till operate like this as of 2010. It was not until the late 1980s that American Express began allowing people to pay their balance over time with additional card options. Bank Card Associations In 1966, Bank of America created a card that was a general purpose card or "open loop" card. These "closed loop" agreements limited cards like Diners Club and American Express to certain merchants, unlike the new “open loop”cards. The new general purpose system required interbank cooperation and additional regulations. To his created additional safety features and began building the credit card system of today. Two systems emerged as the leaders--Visa and Master Card. However, today there is little difference between the two and most merchants accept both card associations. Debit Cards Emerge The Visa association of cards took credit cards to a new level in 1989when they introduced debit cards. These cards linked consumers to their checking accounts. Money was now drawn from a checking account at the point of sale with these new cards and replaced check writing. This helped the merchants check that money was available and made it easier to track the customer if the funds could not be obtained. Consumers liked the convenience of not having to write checks at the point of sale, which made debit cards a safe alternative to cash and checks. The Future There were almost 29 million debit card users as of 2006, with a projected 34.4 million users by 2016. However, online services like PayPal are emerging as a way for people to pay their debts in new, secure and convenient ways. Technology also exists to have devices implanted into phones, keys and other everyday devices so that the ability to pay at the point of sale is even more convenient.
TYPES OF PLASTIC MONEY Different types of Plastic money are:Credit card A credit card is plastic money that is used to pay for products and services at over 20 Million locations around the world. All we need to do is produce the card and sign a charge slip to pay for our purchases. The institution which issues the card makes the payment to the outlet on our behalf; we will pay this ‘Loan’ back to the institution at a later date. Debit card Debit cards are substitutes for cash or cheque payments, much the same way that credit cards are. However, banks only issue them to us if we hold an account with them. When a debit card is used to make a payment, the total amount charged is instantly reduced from our bank balance. Don't borrow on your credit card! Here's why A debit card is only accepted at outlets with electronic swipe-machines that can check and deduct amounts from your bank balance online. Charge card • A charge card carries all the features of credit cards. However, after using a charge card you will have to pay off the entire amount billed, by the due date. If you fail to do so, you are likely to be considered a defaulter and will usually have to pay up a steep late payment charge. • When you use a credit card you are not declared a defaulter even if you miss your due date. A 2.95 per cent late payment fees (this differs from one bank to another) is levied in your next billing statement. Amex card Amex stands for American Express and is one of the well-known charge cards. This card has its own merchant establishment tie-ups and does not depend on the network of MasterCard or Visa. Credit cards: Remember these dos and don'ts. This card is typically meant for high-income group categories and companies and may not be acceptable at many outlets. There are a wide variety of special privileges offered to Amex cardholders. Dinner club card Diners Club is a branded charge card. There are a wide variety of special privileges offered to the Diners Club cardholder. For instance, as a cardholder you
DETAIL REPORT A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. Usage of the term "credit card" to imply a credit card account is a metonym. When a purchase is made the user would indicate consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid. Issuer agrees to pay the merchant and the credit card user agrees to pay the card issuer. DEFINITION:The credit card can be defined as “A small plastic card that allows its holder to buy goods and services on credit and to pay at fixed intervals through the card issuing agency. MEANING:A credit card is a card or mechanism which enables card holder to purchase goods, travels and dine in a hotel without making immediate payments. The holders can use the cards to get credit from banks up to 45days. The credit card relieves the consumers from the botheration of carrying cash and ensures safety. It is a convenience of extended credit without formality. Thus credit card is a passport to, “safety, convenience, prestige and credit.
ADVANTAGES OF CREDIT CARD The benefits of credit card can be grouped as follows: (A) BENEFITS TO BANK A credit card is an integral part of banks major services these days. The credit card provides the following advantages to the bank. The system provides an opportunity to the bank to attract new potential customers. To get new customers the bank has to employee special trained staff. This gives the bank an opportunity to find the latent talent from among existing staff that would have been otherwise wasted. The most important function of a credit card, however, is simply to yield direct profit for the bank. There is a scope and a potential for a better profitability out of income/ commission earned from the traders turn over. This also provides additional customer services to the existing clients. It enhances the customer satisfaction. More use by the car holder and consequently the growth of banking habits in general. Better network of card holders and increased use of cards means higher popularity and image of the bank
Savings of expense on cash holdings, i.e. stationery, printing man power to handle clearing transactions while considerably is reduced.
(B) BENEFITS TO CARD HOLDER The principal benefits to a card holder are:
He can purchase goods and services at a large number of outlets withoutcash or cheque. The card is useful in emergency, and can saveembarrassment. The risk factor of carrying and storing cash is avoided. It is convenientfor him to carry credit card and he has trouble free travel and may purchasehis without carrying cash or cheque. Months purchases can be settled with a single remittance, thus, tending to reduce bank and handling charges. The card holder has the period of free credit usually between 30-50 days of purchase. Cash can usually be obtained with the card, either on card account or by using it as identification when encasings a cheque at the bank. Availing credit with minimum formality. The credit card saves trouble and paper work to travelling businessman.
(C) Benefits to the Merchant Establishment The principal benefits offer credit card to the retailer is:
This will carry prestigious weight to the outlets. Increases in sale because of increased purchasing power of the card holder due to unbilled credit available to the card holder. The retailers gain from the impulse buying and trading up the tendency to buy the bigger or better article. Credit card ensures timely and certainly of payments. Suppliers/ sellers no longer have to send reminders of outstanding debits. Systematic accounting since sales receipts are routed through banking channels. Advertising and promotional support on national scale. Development of prestigious clientele base.
Disadvantages of credit card The following are the common disadvantages of the credit card:
Some credit card transactions take longer time than cash transactions because of various formalities. The customer tends to overspend out of immerse happiness. Discounts and rebates can rarely be obtained. The cardholder is responsible for charges due to loss or theft of the cardand the bank may not be party for loss due to fraud or collusion of staff, etc Customers may be denied cash discount for payment through card. It might lead to spending habits and cardholders may end up in big debts
Avoid the entire cost and security problem involved in handling cash. Losses to bad debts and reduced an additional liquidity is It also allows him to delegate spending power to add on members Credit card is considered as a status symbol.
Issuer: The financial institution or other organization that issued the credit card to the cardholder. The flow of information and money between these parties — always through the card associations — is known as the interchange, and it consists of a few steps: 1. Authorization:The cardholder pays for the purchase and the merchant submits the transaction to the acquirer. The acquirer verifies with the issuer — almost instantly — that the card number and transaction amount are both valid, and then processes the transaction for the cardholder. 2. Batching:After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment (usually at the end of the day). 3. Clearing and settlement:The acquirer sends the transactions in the batch through the card association, which debits the issuers for payment and credits the acquirer. In effect, the issuers pay the acquirer for the transactions. 4. Funding:Once the acquirer has been paid, the merchant receives payment. The amount the merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction. The entire process, from authorization to funding, usually takes about 3 days. However, Merchant Card Processing from some banks and financial institutions can offer next-day deposits to their customers with a business checking account. In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it. Different Types of Credit Cards - Know Which One to Go For Credit cars are of various types, everyone has to select credit cards on the basis of the pros and cons of each type of credit card and at the same time the nature of use. This article gives an insight into the several types of credit cards available in the market Today, credit card customers enjoy more options and choices than ever before. To gain new customers, credit card companies compete by offering new services and cards to customers.
No matter what your needs, chances are good that there is a card out there that would be ideal for you. If you are looking for the right card, you can begin by considering the many types of cards available to you: 1. Low Interest Credit Cards These types of credit cards offer very low interest. In some cases, these cards just charge a few percent interest. The reasons for this are numerous. In most cases, the low interest rate is for a limited time only. After a set number of months, you will begin paying higher interest rates. In some cases, low interest credit cards are not really credit cards at all - they are debit cards linked to a low-interest loan such as a line of credit. Check your agreement to find out what type of card you have. If you need to consolidate debts or if you like the idea of having low interest for a while, this type of credit card can be perfect for you. 2. Instant Approval Credit Cards These cards are really a product of our fast-paced society. The idea behind this type of credit card is that once you fill out your application, you will be told whether you are approved or not right away. The approval process only takes a few minutes. Instant approval credit cards are very popular online and applicants can apply via the internet or over the phone. If you are very impatient or need credit right away, these types of cards can be for you. However, you should be aware that these cards do not guarantee that you will be approved right away - sometimes, more time is needed to process your application. Another drawback to these cards is that they rely heavily on your credit score. If you have poor credit or any extenuating financial circumstances, these types of cards may not be for you. 3. Balance Transfer Cards Balance transfer cards are a type of temporary low-interest card that is meant to help you consolidate your debt. They work this way: if you have several credit cards with a balance, you can get a balance transfer card. You then transfer all your credit card debt onto the new card and work to pay it off. Since the new card has a low interest rate, you can quickly repay your bills. If you are in debt, a balance transfer card can be a great way to get out of debt. It offers the convenience of one bill and low rates. However, some cards have high fees. Also, if you run up your other cards after consolidating your debts or if you are unable to pay off your new card in the limited time before the low interest rate increases, you may find yourself even more in debt than before. 4. Rewards Credit Cards Rewards credit cards offer you points, rewards, or bonuses for every cash purchase made with your credit card over time. As you accumulate rewards or points, you can redeem your bonus for entertainment events, purchases, travel, and other fun prizes. Some cards even offer customers extra automatic-enter sweepstakes and draws. Each time you use your card, you
are entered into a draw to win specific prizes. These types of cards are really a marketing tool for card companies. Companies know that customers love rewards and prizes and so offer these enticements to lure customers. The major advantage of these cards is that they can help you get more cash value for your money. They can also be fun and rewarding for almost any credit card customer. However, not all reward credit cards are a deal. Some charge high fees to offset the costs of the bonuses. Some also have very low points systems, meaning that you need to spend a lot with your credit card to get any rewards at all. Read the fine print carefully before signing. 5. Cash Back Credit Cards Cash back credit cards give you money rewards. When you make a purchase with this type of credit card, you get some points based on the amount of money you have spent with your credit card. When you accumulate enough points, you get cash back. On most cards, you can get back about 1% of your total purchases. These cards are great for those who are budget-conscious as they give you some money back from your purchases. However, there are several drawbacks to these types of cards. Some cards have low cash-back percentage rates. Some charge high fees or have limits on how much money you can get back each year. Most cards only offer you cash back advantages on purchases - not on your balance. If you decide this card is right for you, do compare several card offers to find the best cash back credit card option. 6. Airline Credit Cards This type of card allows you to accumulate frequent flyer points on all your credit card purchases. If you travel a lot or love to travel, this card can help you accumulate points for a free trip or for a discount ticket. In many cases, these cards are great because they allow you to gather points for every purchase. However, these cards can also charge high fees. In some cases, your points will expire if you do not use them within a specified time. Worse, some airline credit cards make use of a point system that is not very user-friendly. You may have to slowly accumulate an enormous amount of points to qualify for a trip. If you do not love to travel and if you do not use your credit card a lot, then, your ability to get rewards you like may be very limited. 7. Secured Credit Cards Secured credit cards use collateral to ensure that the card company will be paid back. Often, these cards are used by people with no credit or bad credit. With secured credit cards, you can enjoy credit card convenience even if you do not qualify for traditional cards. However, you will also have to cope with the additional fees and low credit limits that these credit cards have. 8. Credit Cards for Bad Credit
Bad credit credit cards are designed for people with poor credit histories. These cards generally have very low credit limits and charge extra fees. This is because they are designed for people who are considered far less likely to repay their debts. If you have a bad credit rating, these types of credit cards can be a great way to rebuild your credit history. These cards can also allow you to have credit even if you would be rejected for most other cards due to your credit history. 9. Student Credit Cards Student credit cards are cards meant to attract college and university students. These cards often offer sign-up bonuses for students. They are also easier to apply for, since credit card companies recognize that students have much shorter credit histories than the average customer. If you are a student, student credit cards can be a great option. They are simple to use and can help you build a good credit rating before you graduate. However, there are some disadvantages to student credit cards. These cards may have no reward programs and may have fewer benefits, including fewer bonuses and services, than other cards. 10. Business Credit Cards Business credit cards are created especially for business use. They offer many of the same advantages as traditional credit cards, but also offer services that can really help a business. With some business credit cards, for example, you can enjoy higher interest rates, extra cards for business employees, monthly reports on your expenses, and services that let you keep your personal and business expenses separate on the same card. These advantages mean that using this card for your business is more convenient. If you own a business, you may wish to consider this type of card. The only real disadvantage of business cards is that there are so many of them. Some cards offer fewer features and some charge businesses additional fees for bonuses and services. You can avoid these problems by seeking out the best possible business credit cards for your needs. Now that you understand the different types of credit cards, you can make the right credit card decision for yourself. Knowing which cards are right for you can help empower you to make the right financial choices. Types of Credit card offered by Indian banks I.
Silver credit cards rank lowest among the metal named cards, and, because of lower prestige when compared to gold and platinum cards, are commonly known as basic and standard credit cards. Silver credit cards come with advantages such as lower annual membership fees if there is any, and a lower threshold salary which banks use to evaluate your application in
NEEDS AND IMPORTANT Following are the findings that are drawn from the study: 1. Respondents taken for this study are those who are using the plastic money in their 2. 3. 4. 5.
daily life. 62% of the respondents believe that plastic money is the currency of modern India. 69% of respondents own one debit card and 25% owns two debit cards. People have less craze for credit card. Only 28% of the respondents have credit card. Respondents mostly prefer the plastic money of SBI Bank, HDFC Bank and ICICI
Bank. 6. 34% using the cards for the last 3 years and the trend of plastic money have emerged from the last few years. 7. Mostly people use the cards for shopping and withdrawal of money- plastic money is mostly preferred at the time of shopping. 8. Debit card is more beneficial according to 36% respondents. 9. Debit card provide security to the cardholders. 10. 20% respondents are dissatisfied that debit card is free from fraud. 11. Mostly people agreed that debit card provide the facility of anytime access. Anytime you can withdraw your money. 12. Credit card is convenient way to pay agreed by most of the respondents. 13. Credit card provide prestige to holders having the tie up with the famous card companies it provide the sense of pride. 14. 30% cardholder agreed that the plastic money holders have to tackle with the problem of insecurity. 15. Cardholders have to fulfil the unnecessary formalities while obtaining the card. 16. Plastic money has a rapid growth in the coming years. 17. The growth credit card in India is still very slow. Companies are going really hard to increase the sale of credit cards.
CONCLUSION In the last two years, spending pattern through plastic money has changed drastically. Travelling, dining and jewellery are the top three purchases that Indian makes through credit cards. Two years ago, it was jewellery and apparel purchases that formed the largest chunk of
purchases through plastic money. Fuel accounts for a very small portion of credit card purchases as these are largely paid through debit cards. Consumers were not only more open to the possibility of owning a financial card, but were also more than willing to use their cards to settle dues. The status symbol aspect of owning and using cards too played its part on bringing about such robust growth over the space of a single year. Debit cards in particular proved immensely popular. According to projections for the 2003-2008 period the number of financial cards in circulation will register a compounded annual growth rate of nearly 51 percent sp the satisfaction of consumers has also increased. There are many ethical issues and challenges for plastic money issuing banks/ companies. Security relating to card should be first priority for each bank/company. Consumers are preferring these cards mostly for shopping online E- commerce has given a better way to use the plastic money. At last it is concluded that plastic money has a very bright future in the coming years because of the increasing trend of E- commerce.
SUGGESTIONS 1. Various offers and discounts should be provided on the plastic money so that all the users feel satisfied with their card choice. 2. The interest charges on credit cards should be reduced so that people are encouraged to 3. 4. 5. 6. 7.
use it in regular routine. More facility should be provided to the card holder in order to satisfy them completely. There should be more sales executives to reinforce new customers. More outlets should be provided where the cards can be easily accepted. The unnecessary formalities should be reduced in order to obtain the plastic money. Advertisements should be given through TV’s, magazines and hoardings to have
maximum reach because the respondents perceive these as important promotional tools. 8. The whole procedure of obtaining the plastic money needs to be authentic. Companies should provide security to the card holders. 9. Companies should reduce the amount of the annual fee charged on the cards.
REFERENCES Kothari C.R, “Research Methodology : Research and Techniques”; Vishwa Prakshan, New Delhi, 4th edition. E.gordan and Natrajan, Financial Services, Himalaya Publishing House, Mumbai. 5th edition. College Student using the Credit Card Smart card based Electronics Commerce characteristics and Roles Credit card and Debit cards : What new ? Where to ? Competition and Credit and Debit card Interchange Fees Theory of Credit card Networks: A survey of Literature An introduction to the economics of payment card networks Credit card crisis in South Korea Ethical Issues and Challenges www.rba.gov.au www.federalreserve.gov www.direct.gov.uk www.paypal.com www.google.com