Plastic money

Sr.

concept

1.

History

2.

Introduction

3.

Types of plastic money

4.

 Credit card  Introduction  Advantage & Disadvantages  Steps in credit card transaction  Different types of credit cards  Credit card data

5.

 Debit card  Introduction  Types of debit card systems  Benefits & Features of debit cards  Process debit card transactions  Plastic fraud

6.

Advantages & Disadvantage

7.

Technology & Infrastructure

8.

Merits & Demerits

9.

Case study

10. Conclusion 11. Bibliography

1

Page. no

CHAPTER1 CREDIT CARD INTRODUCTION:A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. Usage of the term "credit card" to imply a credit card account is a metonym. When a purchase is made the user would indicate consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid. Issuer agrees to pay the merchant and the credit card user agrees to pay the card issuer.

DEFINITION:The credit card can be defined as “A small plastic card that allows its holder to buy goods and services on credit and to pay at fixed intervals through the card issuing agency

2

MEANING:A credit card is a card or mechanism which enables card holder to purchase goods, travels and dine in a hotel without making immediate payments. The holders can use the cards to get credit from banks up to 45 days.

The credit card relieves the consumers from the botheration of carrying cash and ensures safety. It is a convenience of extended credit without formality. Thus credit card is a passport to, “safety, convenience, prestige and credit.

3

FIRST CREDIT CARD INTRODUCE

4

ADVANTAGES & DISADVANTAGES OF CREDIT CARD

ADVANTAGES OF CREDIT CARD

The benefits of credit card can be grouped as follows:

A) BENEFITS TO THE BANK

B) BENEFITS TO THE CUSTOMERS (CARD HOLDER)

C) BENEFITS TO THE RETAILER

5

(A) BENEFITS TO THE BANK

a) A credit card is an integral part of banks major services these days. The credit card provides the following advantages to the bank:

the system

provides an opportunity to the bank to attract new potential costumers.

b) To get new customers the bank has to employee special trained staff. This gives the bank an opportunity to find the latent talent from among existing staff that would have been otherwise wasted.

c) The more important function of a credit card, however, is simply to yield direct profit for the bank. There is a scope and a potential for a better profitability out of income / commission earned from the traders turn over.

d) This also provides additional customer services to the existing clients. It enhances the customer satisfaction.

e) More use by the car holder and consequently the growth of banking habits in general.

f) Better network of card holders and increased use of cards means higher popularity and image of the bank

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

6

(B) BENEFITS TO CARD HOLDER

The principal benefits to a card holder are:

a) He can purchase goods and services at a large number of outlets without cash or cheque.The card is useful in emergency, and can save embarrassment.

b) The risk factor of carrying and storing cash is avoided. It is convenient for him to carry credit card and he has trouble free travel and may purchase his without carrying cash or cheque.

c) Months purchases can be settled with a single remittance, thus, tending to reduce bank and handling charges.

d) The card holder has the period of free credit usually between 30-50 days of purchase

e) Cash can usually be obtained with the card, either on card account or by using it as identification when encasings a cheque at the bank.

f) Availing credit with minimum formality.

g) The credit card saves trouble and paper work to traveling business man.

7

(C) BENEFITS TO THE MERCHANT ESTABLISHMENT The principal benefits offer credit card to the retailer is

a) This will carry prestigious weight to the outlets.

b) Increases in sale because of increased purchasing power of the cardholder due to unbilled credit available to the card holder.

c) The retailers gain from the impulse buying and trading up the tendency to buy the bigger or better article

d) Credit card ensures timely and certainly of payments.

e) Suppliers/sellers no longer have to send reminders of outstanding debits.

f) Systematic accounting since sales receipts are routed through banking channels.

g) Advertising and promotional support on national scale.

h) Development of prestigious clientele base.

8

DISADVANTAGES OF CREDIT CARD:-

The following are the common disadvantages of the credit card:

a) Some credit card transactions take longer time than cash transactions because of various formalities.

b) The customer tends to overspend out of immerse happiness.

c) Discounts and rebates can rarely be obtained.

d) The cardholder is responsible for charges due to loss or theft of the card and the bank may not be party for loss due to fraud or collusion of staff, etc

e) Customers may be denied cash discount for payment through card.

f) It might lead to spending habits and cardholders may end up in big debts

i) Avoid the entire cost and security problem involved in handling cash.

j) Losses to bad debts and reduced an additional liquidity is

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

l) Credit card is considered as a status symbol. 9

MARKETING STRATEGIES

American companies spend billions of dollars each year on marketing. As a matter of fact, in 2001, U.S. advertising expenditures alone topped $230 billion, more than doubling the $105.97 billion spent in 1980. (Source: "Advertising: Exposure and Statistics“ November 2003 newsletter of the Media Education Foundation)

Now, these figures may seem staggering to the independent professional on a budget, but don‟t panic; there are lots of effective strategies you can utilize that will help you grow your business fast. Here are some

of

my

favorites:

Identify your niche.

One of the easiest ways to attract customers is to figure out which group of prospective customers you get your very best results for and go after them exclusively. Many professionals are afraid to do this claiming that they‟ll be leaving someone out, but many marketing experts agree that niche marketing as the easiest and fastest way to get business.

10

Position yourself as an expert.

Why? Experts make more money and get more media attention and that‟s free advertising! Let‟s face it; it‟s easier to trust a specialist than a generalist who‟s trying to be everything to everyone. Once you‟ve identified your niche, let the world know about how you can help. Provide free information products, write articles and white papers about the problems your clients face and how they can solve them.

Conduct workshops, seminars and tele-classes specifically geared towards helping your prospective customers and before long you‟ll be regarded as an expert in your field. And, while you‟re at it don‟t forget to, collect names, emails and addresses of prospects to keep filling your pipeline.

Develop

ongoing

relationships

with

complementary

professionals and build your referral team.

These are other professionals who sell non-competing services or products to the same niche customers you are targeting. For instance, my clients often need the services of bookkeepers, accountants and business attorneys. Likewise, they refer business to me. Here are a couple of other examples:

11

• Residential realtor, mortgage broker, real estate attorney, home improvement •

contractor,

Commercial

printer,

architect

and

copywriter,

interior

designer.

graphic

designer.

Institute a system to keep track of all of the people who are interested in your product or services, and find creative ways of keeping in touch with them on a regular basis.

To start, go through your notes. Put together a list of all of the people you‟ve spoken to in the last 6-9 months who‟ve showed interest in you but haven‟t become paying customers. Follow up with them in a variety of ways: call them to touch base, use email, ask them to subscribe to a newsletter, send them interesting articles, or invite them to join you at events. It takes numerous impressions to make the sale; that‟s why you see commercials on TV over and over again for the same products. By Keeping track of all of the people who‟ve showed interest and keeping your business on their radar screen you‟ll turn more of them into paying customers.

Let your satisfied customers help you sell your products or services. Here

are

a

couple

of

12

ways

to

do

this:

• Ask them for referrals - right away (if you were a car salesman you wouldn‟t

wait

for

the

new

car

to

get

dirty

and

dented!)

• Ask them to write testimonials for you, (also right away) and compile a list of testimonials to use in your all of your marketing collateral.

Create a marketing calendar and keep to it consistently.

Scheduling marketing activities that take place weekly, bi monthly, monthly and quarterly will help you to avoid the feast or famine syndrome that most independent professionals fall prey to. And, by doing so, marketing will become easier since it becomes a regular part of your business life.

Identify innovative ways to get more business from existing customers. It‟s much easier to get business from customers who are already happy with your services or products. So develop additional services or products to keep customers coming back for more.

13

THE

MECHANICS

OF

CREDIT CARD TRANSACTION Card transactions are processed through a chain of connected parties. The five primary parties involved in processing a Visa or MasterCard credit card transaction are:

1. THE CARD HOLDER 2. THE CARD ISSUER 3. THE MERCHANT 4. THE ACQUIRE 5. THE CARD ASSOCIATION

The card issuer is the bank that issues the credit card to the cardholder. The merchant acquirer, often a bank, processes transactions on behalf of the merchant. "Card Association" is another term used to describe Visa and MasterCard. The use of a card involves an exchange of value between a consumer and a business. The card represents an offer for payment in exchange for the merchant‟s goods or services. The sales draft itself is the cardholder‟s promise to pay. When an acquirer accepts a draft from merchants, the bank is buying the value represented by the draft and paying the merchant the face value of that sales draft. Collecting payment through the interchange systems is a two-part process

14

1. Clearing:

During the clearing process the acquirer provides the appropriate issuer with information on the sale. No money is exchange during clearing. Clearing involves the exchange of data only. The acquirer provides data required to identify the cardholder‟s account and provide the dollar amount of the sales. When the issuing bank gets this data, the bank posts the amount of the sale as a draw against the cardholder‟s available credit and prepares to send payment to the acquirer.

2. Settlement:

The second step is the actual exchange of funds. The issuer sends a record of money that is being transferred from its account to that of the acquirer. From this account the acquirer pays the merchant. Funds are settled between issuers and acquirers through accounts with large banks that are members of the Federal Reserve System and have been selected for that purpose. Payments to merchants are made usually through the Federal Reserve‟s Automated Clearing House (the “ACH”) which is an electronic funds transfer system.

15

3. Transaction Processing

Transaction processing involves front-end processing and back-end processing: Front-end processing involves authorization and data capture services and message connections via various communication networks to pint of sale devices. Back-end processing provides financial accounting for acquirers and issuers and prepares and submits clearing and settlement data into the Visa and MasterCard interchange networks.

16

1. Front End Processing

Authorization is the acknowledgement by the issuer that a particular account may be charged for the amount of the sale. The preferred method to obtain an authorization and the one that will receive the lower interchange rate is to swipe a card‟s magnetic strip through the point of sale terminal‟s card reader. If the card cannot be electronically read by the terminal for any reason, the information may be keyed into the terminal in order to get an electronic response. The request is then routed through the processor‟s VAP or MIP to the issuer‟s authorization center. The response is returned to the merchant‟s terminal. The terminal records the response code which becomes part of the transaction and is included in the clearing data sent through interchange to the issuer

Authorization may also be obtain through other methods such as voice authorization. The merchant can call an 800 number to verbally provide cardholder information and receive an operator‟s response. Other methods such as electronically generated audio responses (ARU) that permit the merchant to use the telephone like a key pad to enter sale information can also be used. If for any reason the issuer or its authorization center cannot be reached, the card Associations will act as stand-in processors to provide authorizations.

17

Electronic Draft Capture

Draft capture is the process of transferring sales draft data into electronic format so that it may be sent through the interchange networks for clearing and settlement. Data identifying the cardholder account and expiration date is put into the point of sales terminal, either by swiping the card thorough a card reader or manually keying the information into the terminal‟s keypad. The amount of the sales is then entered and an authorization requested. Once an authorization code has been received, the terminal is prompted to store data on the completed sale in its memory. .

18

2. Back-End Processing

Back-end processing involves the various accounting functions that enable transactions to be recorded to the proper merchant or cardholder account. During back-end processing reports are created for distribution to the acquirers that include:

1) Settlement data 2) Security/fraud data 3) Retrieval/chargeback data 4) Funds disbursements data

Transactions for internet and other card not present environments work similarly but can have additional processing steps. Both Visa and MasterCard have Internet authentication programs (not to be confused with authorization) named Verified by Visa (By) and MasterCard Secure Code (MCSC) that do alter the transaction process somewhat. If the cardholder is registered with one of these programs, they must provide a pre-registered password at the time of purchase. This password is then passed along as part of the information flow of the transaction (these programs and other techniques for controlling fraud are discussed in more detail later in this section). Visa and MasterCard offer both signature debit and credit cards to consumers. The primary difference between signature debit transactions and credit transactions are that debit cards are linked to a bank account.

19

Rather than offering the cardholder 30 days of float and the option to finance ongoing balances, debit cards simply debit the cardholder‟s bank account for authorized purchases. Signature debit transactions (which are sometimes also referred to as offline debit, a misleading reference and not to be confused with an offline EFT debit transaction) are different from PIN debit transactions in that the transaction does not involve use of a PIN number at the time of purchase. PIN transactions also are processed on entirely different networks referred to as EFT networks and are discussed in Section IV.

20

CREDIT CARD OPERATIONS OF BANK RBI Guidelines

Pursuant to the announcement made in the Annual Policy Statement 2004-05, the Reserve Bank of India had constituted a Working Group on Regulatory Mechanism for Cards. The Group has suggested various regulatory measures aimed at encouraging growth of credit cards in a safe, secure and efficient manner as well as to ensure that the rules, regulations, standards and practices of the card issuing banks are in alignment with the best customer practices. The following guidelines on credit card operations of banks have been framed based on the recommendations of the Group as also the feedback received from the members of the public, card issuing banks and others. All the credit card issuing banks / NBFCs should implement these guidelines immediately.

Each bank / NBFC must have a well documented policy and a Fair Practices Code for credit card operations. In March 2005, the IBA released a Fair Practices Code for credit card operations which could be adopted by banks / NBFCs. The bank / NBFC's Fair Practice Code should, at a minimum, incorporate the relevant guidelines contained in this circular.

21

Guidelines

for

1.

Implementation

Issue

of

cards

a) Banks / NBFCs should independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means. Add-on cards i.e. those that are subsidiary to the principal card, may be issued with the clear understanding that the liability will be that of

the

principal

cardholder.

b) As holding several credit cards enhances the total credit available to any consumer, banks / NBFCs should assess the credit limit for a credit card customer having regard to the limits enjoyed by the cardholder from other banks

on

the

basis

of

self

declaration/

credit

information.

c) The card issuing banks / NBFCs would be solely responsible for fulfillment of all KYC requirements, even where DSAs / DMAs or other agents

solicit

business

on

their

behalf.

d) While issuing cards, the terms and conditions for issue and usage of a credit card should be mentioned in clear and simple language (preferably in English, Hindi and the local language) comprehensible to a card user. The Most Important Terms and Conditions (MITCs) termed as standard set of conditions, as given in the Appendix, should be highlighted and advertised/ sent separately to the prospective customer/ customers at all the stages i.e.

22

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

2.

Interest

rates

and

other

charges

a) Card issuers should ensure that there is no delay in dispatching bills and the customer has sufficient number of days (at least one fortnight) for making

payment

before

the

interest

starts

getting

charged.

b) Card issuers should quote annualized percentage rates (APR) on card products (separately for retail purchase and for cash advance, if different). The method of calculation of APR should be given with a couple of examples for better comprehension. The APR charged and the annual fee should be shown with equal prominence. The late payment charges, including the method of calculation of such charges and the number of days, should be prominently indicated. The manner in which the outstanding unpaid amount will be included for calculation of interest should also be specifically shown with Prominence in all monthly statements. Even where the minimum amount indicated to keep the card valid has been paid, it should be indicated in bold letters that the interest will be charged on the amount due after the due date of payment. These aspects may be shown in the Welcome Kit in addition to being

shown

in

the

monthly

statement.

c) The bank / NBFC should not levy any charge that was not explicitly indicated to the credit card holder at the time of issue of the card and getting

23

his / her consent. However, this would not be applicable to charges like service taxes, etc. which may subsequently be levied by the Government or any

other

statutory

authority.

d) The terms and conditions for payment of credit card dues, including the minimum payment due, should be stipulated so as to ensure that there is no negative

amortization.

e) Changes in charges (other than interest) may be made only with prospective effect giving notice of at least one month. If a credit card holder desires to surrender his credit card on account of any change in credit card charges to his disadvantage, he may be permitted to do so without the bank levying any extra charge for such closure

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3.

Wrongful

billing

a) The card issuing bank / NBFC should ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank / NBFC should provide explanation and, if necessary, documentary evidence to the customer within a maximum period of sixty days with a spirit

to

amicably

redress

the

grievances.

b) To obviate frequent complaints of delayed billing, the credit card issuing bank / NBFC may consider providing bills and statements of accounts online,

4.

Use

with

of

suitable

DSAs

/

security

DMAs

built

and

other

therefore.

agents

a) when banks / NBFCs outsource the various credit card operations, they have to be extremely careful that the appointment of such service providers does not compromise with the quality of the customer service and the bank / NBFC‟s ability to manage credit, liquidity and operational risks. In the choice of the service provider, the bank / NBFCs have to be guided by the need to ensure confidentiality of the customer‟s records, respect customer privacy, and adhere to fair practices in debt collection.

25

b) The Code of Conduct for Direct Sales Agents (DSAs) formulated by the Indian Banks‟ Association (IBA) could be used by banks / NBFCs in formulating their own codes for the purpose. The bank / NBFC should ensure that the DSAs engaged by them for marketing their credit card products scrupulously adhere to the bank / NBFC‟s own Code of Conduct for credit card operations which should be displayed on the bank / NBFC‟s website

and

be

available

easily

to

any

credit

card

holder.

c) The bank / NBFC should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities, particularly in the aspects included in these guidelines like soliciting customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc.

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Protection

of

Customer

Rights

Customer‟s rights in relation to credit card operations primarily relate to personal privacy, clarity relating to rights and obligations, preservation of customer records, maintaining confidentiality of customer information and fair practices in debt collection. The card issuing bank / NBFC would be responsible as the principal for all acts of omission or commission of their agents (DSAs / DMAs and recovery agents).

I.

Right

to

privacy

a) unsolicited cards should not be issued. In case, an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank / NBFC shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting

to

twice

the

value

of

the

charges

reversed.

b) Unsolicited loans or other credit facilities should not be offered to the credit card customers. In case, an unsolicited credit facility is extended without the consent of the recipient and the latter objects to the same, the

27

credit sanctioning bank / NBFC shall not only withdraw the credit limit, but also be liable to pay such penalty as may be considered appropriate c) The card issuing bank / NBFC should not unilaterally upgrade credit cards and enhance credit limits. Prior consent of the borrower should invariably be taken whenever there is any change/s in terms and conditions.

d) The card issuing bank / NBFC should maintain a Do Not Call Registry (DNCR) containing the phone numbers (both cell phones and land phones) of customers as well as non-customers (non-constituents) who have informed the bank / NBFC that they do not wish to receive unsolicited calls / SMS for marketing of its credit card products. The DNCR should be set up within two (2) months from the date of this circular and wide publicity should be given to the arrangement e) The intimation for including an individual‟s telephone number in the Do Not Call Registry (DNCR) should be facilitated through a website maintained by the bank / NBFC or on the basis of a letter received from such a person addressed to the bank / NBFC.

f) The card issuing bank / NBFC should introduce a system whereby the DSAs/ DMAs as well as its Call Centers have to first submit to the bank / NBFC a list of numbers they intend to call for marketing purposes. The bank / NBFC should then refer to the Do Not Call Registry (DNCR) and only those numbers which do not figure in the Registry should be cleared for calling.

28

g) The numbers cleared by the card issuing bank / NBFC for calling should only be accessed. The bank / NBFC would be held responsible if a Do Not Call Number (DNCN) is called on by its DSAs / DMAs or Call Centre/s.

h) The card issuing bank / NBFC should ensure that the Do Not Call Registry (DNCR) numbers are not passed on to any unauthorized person/s or misused

in

any

manner.

I.)Banks / NBFCs/ their agents should not resort to invasion of privacy viz., persistently bothering the card holders at odd hours, violation of "do not call"

29

(ii)

Customer

confidentiality

a) The card issuing bank / NBFC should not reveal any information relating to customers obtained at the time of opening the account or issuing the credit card to any other person or organization without obtaining their specific consent, as regards the purpose/s for which the information will be used and the organizations with whom the information will be shared. Banks / NBFCs should satisfy themselves, based on specific legal advice that the information being sought from them is not of such nature as will violate the provisions of the laws relating to secrecy in the transactions. Banks / NBFCs would be solely responsible for the correctness or otherwise of the data provided for the purpose.

B) In case of providing information relating to credit history / repayment record of the card holder to a credit information company (specifically authorized by RBI), the bank / NBFC may explicitly bring to the notice of the customer that such information is being provided in terms of the Credit Information Companies (Regulation) Act, 2005.

c) Before reporting default status of a credit card holder to the Credit Information Bureau of India Ltd. (CIBIL) or any other credit information Company authorized by RBI, banks / NBFCs may ensure that they adhere to a procedure, duly approved by their Board, including issuing of sufficient notice to such card holder about the intention to report him/ her as defaulter to the Credit Information Company. The procedure should also cover the

30

notice period for such reporting as also the period within which such report will be withdrawn in the event the customer settles his dues after having been reported as defaulter. Banks / NBFCs should be particularly careful in the case of cards where there are pending disputes.

The Disclosure/ release of information, particularly about the default, should be made only after the dispute is settled as far as possible. In all cases, a well laid down procedure should be transparently followed. These procedures should also be transparently made known as part of MITCs

d) The disclosure to the DSAs / recovery agents should also be limited to the extent that will enable them to discharge their duties. Personal information provided by the card holder but not required for recovery purposes should not be released by the card issuing bank / NBFC. The card issuing bank / NBFC should ensure that the DSAs / DMAs do not transfer or misuse any customer information during marketing of credit card products.

31

(iii)

Fair

Practices

in

debt

collection

a) In the matter of recovery of dues, banks / NBFCs may ensure that they, as also their agents, adhere to the extant instructions on Fair Practice Code for lenders (circular DBOD. Leg. No. BC. 104 /09.07.007 / 2002–03 dated May 5, 2003) as also IBA‟s Code for Collection of dues and repossession of security. In case banks / NBFCs have their own code for collection of dues it should, at the minimum, incorporate all the terms of IBA's Code.

b) In particular, in regard to appointment of third party agencies for debt collection, it is essential that such agents refrain from action that could damage the integrity and reputation of the bank / NBFC and that they observe strict customer confidentiality. All letters issued by recovery agents must contain the name and address of a responsible senior officer of the card issuing bank whom the customer can contact at his location.

c) Banks / NBFCs / their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the credit card holders‟ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.

32

6.

Redresses

of

Grievances

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

preferring

their

complaints

/

grievances.

b) The card issuing bank / NBFC should constitute Grievance Redresses machinery within the bank / NBFC and give wide publicity about it through electronic and print media. The name and contact number of designated grievance redresses officer of the bank / NBFC should be mentioned on the credit card bills. The designated officer should ensure that genuine grievances of credit card subscribers are redressed promptly without involving

delay.

c) The grievance redresses procedure of the bank / NBFC and the time frame fixed for responding to the complaints should be placed on the bank / NBFC's website. The name, designation, address and contact number of important executives as well as the Grievance Redresses Officer of the bank / NBFC may be displayed on the website. There should be a system of acknowledging customers' complaints for follow up, such as complaint number / docket number, even if the complaints are received on phone.

d) If a complainant does not get satisfactory response from the bank / NBFC within a maximum period of thirty (30) days from the date of his

33

lodging the complaint, he will have the option to approach the Office of the concerned Banking Ombudsman for redresses of his grievance/s. The bank / NBFC shall be liable to compensate the complainant for the loss of his time, expenses, financial loss as well as for the harassment and mental anguish suffered by him for the fault of the Bank and where the grievance has not been redressed in time.

7. Internal control and monitoring systems With a view to ensuring that the quality of customer service is ensured on an on-going basis in banks / NBFCs, the Standing Committee on Customer Service in each bank / NBFC may review on a monthly basis the credit card operations including reports of defaulters to the CIBIL, credit card related complaints and take measures to improve the services and ensure the orderly growth in the credit card operations. Banks / NBFCs should put up detailed quarterly analysis of credit card related complaints to their Top Management. Card issuing banks should have in place a suitable monitoring mechanism to randomly check the genuineness of merchant transactions.

8.

Right

to

impose

34

penalty

The Reserve Bank of India reserves the right to impose any penalty on a bank / NBFC under the provisions of the Banking Regulation Act, 1949 for violation of any of these guidelines.

Different Types of Credit Cards

35

Different Types of Credit Cards Credit cars are of various types, every one has to select credit cards on the basis of the pros and cons of each type of credit card and at the same time the nature of use. This article gives an insight into the several types of credit cards available in the market Today, credit card customers enjoy more options and choices than ever before. To gain new customers, credit card companies compete by offering new services and cards to customers. No matter what your needs, chances are good that there is a card out there that would be ideal for you. If you are looking for the right card, you can begin by considering the many types of cards available to you:

Low Interest Credit Cards These types of credit cards offer very low interest. In some cases, these cards just charge a few percent interests. The reasons for this are numerous. In most cases, the low interest rate is for a limited time only. After a set number of months, you will begin paying higher interest rates. In some cases, low interest credit cards are not really credit cards at all - they are debit cards linked to a low-interest loan such as a line of credit. Check your agreement to find out what type of card you have. If you need to consolidate debts or if you like the idea of having low interest for a while, this type of credit card can be perfect for you.

36

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.

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 37

your debts or if you are unable to pay off your new card in the limited time before the low interest rate increases, you may find yourself even more in debt than before.

Rewards Credit Cards Rewards credit cards offer you points, rewards, or bonuses for every cash purchase made with your credit card over time. As you accumulate rewards or points, you can redeem your bonus for entertainment events, purchases, travel, and other fun prizes. Some cards even offer customers extra automatic-enter sweepstakes and draws. Each time you use your card, you are entered into a draw to win specific prizes.

These types of cards are really a marketing tool for card companies. Companies know that customers love rewards and prizes and so offer these enticements to lure customers. The major advantage of these cards is that they can help you get more cash value for your money. They can also be fun and rewarding for almost any credit card customer. However, not all reward credit cards are a deal. Some charge high fees to offset the costs of the bonuses. Some also have very low points systems, meaning that you need to spend a lot with your credit card to get any rewards at all. Read the fine print carefully before signing.

38

Cash

Back

Credit

Cards

Cash back credit cards give you money rewards. When you make a purchase with this type of credit card, you get some points based on the amount of money you have spent with your credit card. When you accumulate enough points, you get cash back. On most cards, you can get back about 1% of your total purchases.

These cards are great for those who are budget-conscious as they give you some money back from your purchases. However, there are several drawbacks to these types of cards. Some cards have low cash-back percentage rates. Some charge high fees or have limits on how much money you can get back each year. Most cards only offer you cash back advantages on purchases - not on your balance. If you decide this card is right for you, do compare several card offers to find the best cash back credit card option.

Airline Credit Cards This type of card allows you to accumulate frequent flyer points on all your credit card purchases. If you travel a lot or love to travel, this card can help you accumulate points for a free trip or for a discount ticket. In many cases, these cards are great because they allow you to gather points for every purchase. However, these cards can also charge high fees. In some cases, 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

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user-friendly. You may have to slowly accumulate an enormous amount of points to qualify for a trip. If you do not love to travel and if you do not use your Credit card a lot, then, your ability to get rewards you like may be very limited.

Prepaid Debit Cards These cards are sometimes called junior credit cards. They are not truly credit cards at all, since you are not getting credit or loans from the credit card company. Instead, these cards work by having you deposit some money into the card account. You can then use your card to charge any amount up to the amount in the account. When you add more money, you can

charge

more

to

your

card.

Secured Credit Cards Secured credit cards use collateral to ensure that the card company will be paid back. Often, these cards are used by people with no credit or bad credit. With secured credit cards, you can enjoy credit card convenience even if you do not qualify for traditional cards. However, you will also have to cope with the additional fees and low credit limits that these credit cards have.

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

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fees. This is because they are designed for people who are considered far less likely to repay their debts. If you have a bad credit rating, these types of credit cards can be a great way to rebuild your credit history. These cards can also allow you to have credit even if you would be rejected for most other cards due to your credit history.

Student Credit Cards Student credit cards are cards meant to attract college and university students. These cards often offer sign-up bonuses for students. They are also easier to apply for, since credit card companies recognize that students have much

shorter

credit

histories

than

the

average

customer.

If you are a student, student credit cards can be a great option. They are simple to use and can help you build a good credit rating before you graduate. However, there are some disadvantages to student credit cards. These cards may have no reward programs and may have fewer benefits, including fewer bonuses and services, than other cards.

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

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your personal and business expenses separate on the same card. These advantages mean that using this card for your business is more convenient.

Types of Credit Cards offered By Indian Banks

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Types of Credit Cards offered by Indian Banks

Silver Cards Silver credit cards rank lowest among the metal named cards, and, because of lower prestige when compared to gold and platinum cards, are commonly known as basic and standard credit cards. Silver credit cards come with advantages such as lower annual membership fees if there is any, and a lower threshold salary which banks use to evaluate your application in case you should apply.

Silver credit cards will provide you with almost the same credit limit as other cards provided you have a good credit history. You can also avail of 0% interest balance transfer schemes which are made available for a period of 6-9 months for silver card holders.

There are also some disadvantages to using silver credit cards. One would be the lower cash advance limits, less rewards and promotional packages, and less travel perks compared to gold and platinum cards. HDFC Bank, ICICI offer silver credit cards through their HDFC Bank Silver cards and ICICI Sterling Silver credit card

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Gold and Platinum Cards Gold and platinum credit cards are a status symbol for any credit card holder, bringing prestige since getting gold and platinum cards usually require that you have good credit rating and a higher income levels. Gold and platinum cards offer higher limit for cash advance withdrawals and sometimes can provide higher credit limits as compared to standard or silver cards.

If you have a gold or platinum card, you also get better perks and privileges such as travel insurance, extended warranties for appliance purchases and special deals on specific products, and purchase protection insurance. You can also engage in some loyalty schemes that are offered for gold and platinum credit card holders which can sometimes involve cash back promos and reward points systems. Some popular gold and platinum cards available are the American Express Gold card, and the ICICI Solid Gold Credit Card.

It is not possible to cover them the exact offerings of these cards but I will highly advice you to check all these websites of the banks to get all the info about the credit cards they are offering. Also try to talk to your friends who are having credit cards to get more info.

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CHAPTER 2 DEBIT CARD A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic cheque, as the funds are withdrawn directly from either the bank account or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card.

In many countries the use of debit cards has become so widespread that their volume of use has overtaken the cheque and, in some instances, cash transactions.

Like credit cards, debit cards are used widely for telephone and Internet purchases and, unlike credit cards, the funds are transferred immediately from the bearer's bank account instead of having the bearer pay back the money at a later date.

Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque guarantee card.

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Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase.

Types of debit card systems Online Debit System Online debit cards require electronic authorization of every transaction and the debits are reflected in the user‟s account immediately. The transaction may be additionally secured with the personal identification number (PIN) authentication system and some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine (ATM) cards. One difficulty in using online debit cards is the necessity of an electronic authorization device at the point of sale (POS) and sometimes also a separate PIN pad to enter the PIN, although this is becoming commonplace for all card transactions in many countries. Overall, the online debit card is generally viewed as superior to the offline debit card because of its more secure authentication system and live status, which alleviates problems with processing lag on transactions that may only issue online debit cards. Some on-line debit systems are using the normal authentication processes of Internet banking to provide real-time on-line debit transactions. The most notable of these are Ideal and POL

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Offline Debit System Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and other countries, but not the United States) and are used at the point of sale like a credit card (with payer's signature). This type of debit card may be subject to a daily limit, and/or a maximum limit equal to the current/checking account balance from which it draws funds. Transactions conducted with offline debit cards require 2–3 days to be reflected on users‟ account balances. In some countries and with some banks and merchant service organizations, a "credit" or offline debit transaction is without cost to the purchaser beyond the face value of the transaction, while a small fee may be charged for a "debit" or online debit transaction (although it is often absorbed by the retailer). Other differences are that online debit purchasers may opt to withdraw cash in addition to the amount of the debit purchase (if the merchant supports that functionality); also, from the merchant's standpoint, the merchant pays lower fees on online debit transaction as compared to "credit" (offline) debit transaction

Electronic Purse Card System Smart-card-based electronic purse systems (in which value is stored on the card chip, not in an externally recorded account, so that machines accepting the card need no network connectivity) are in use throughout

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Europe since the mid-1990s, most notably in Germany (Geldkarte), Austria (Quick), the Netherlands (Chipknip), Belgium and Switzerland (CASH). In Austria and Germany, all current bank cards now include electronic purses.

Prepaid Debit Card Prepaid debit cards, also called reload able debit cards or reload able prepaid cards, are often used for recurring payments. The payer loads funds to the cardholder's card account. Prepaid debit cards use either the offline debit system or the online debit system to access these funds. Particularly for companies with a large number of payment recipients abroad, prepaid debit cards allow the delivery of international payments without the delays and fees associated with international checks and bank transfers. Providers include Caxton FX prepaid cards, [ Escape prepaid cards and Travelex prepaid cards. [ Whereas, web-based services such as stock photography websites (stockpot), outsourced services (odes), and affiliate networks (Media Whiz) have all started offering prepaid debit cards for their contributors/freelancers/vendors.

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BENEFITS OF DEBIT CARDS The following are the benefits of the debit card services FREE WITH OUR BANK ACCOUNT

Obtaining a debit card is easy. If we qualify to open a bank account, we usually get a debit card, if our bank offers the service.

NO BACKGROUND CHECK

When we are applying for a debit card, the ban does not need to look into our credit history. All we need is the documentation to open a bank, account, and money in our bank when we use our debit card.

CASH WITHDRAWALS

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

CONVENIENCE

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A Debit card fees us from carrying a lot of cash or a cheque book. In case, we are an international traveler, we don‟t need to stock up on Traveler‟s Cheques or cash. We can use our debit card to withdraw Cash from over 500,000 ATMs around the world in over 100 countries. We can withdraw in the local currency of the country we are in, limited only by the money we have back home in our account, and Business Travel Quota (BTQ) limit arability.

FAIR EXCHANGE

If we return merchandise or cancel services paid for with a Debit card, the transaction is treated as if it were made with cash or a check. Customers usually get cash back for offline purchases; for on-line transactions, the amount is credited to our account.

STATEMENT OF ACCOUNT A statement of transactions can be obtained from the customer‟s branch. For example, a mini statement containing the last four transactions and balance can be obtained at a State Bank Group during the working hours of the customer‟s branch.

BANKING CUM SHPPING CARD

Your Debit card can be used as ATM card at any ATM across the world, as well as for making purchase at merchant locations. You can also withdraw cash from any of the 12000 ATMs in India. 50

WIDELY ACCEPTED, INTERNATIONALLY VALID

FEATURES OF DEBIT CARD

The following are features of Debit cards

A) It is a combination of a Cheque and ATM card. Therefore, there are no fees for using the ATM for cash withdrawal, or as a debit card for purchase.

B) The Debit Card services in meant for withdrawals against the balance already available in the designated account. C) It is the card holder‟s obligation to maintain sufficient balance in the designated account to meet withdrawals and service charges.

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

E) No credit check is required to get a Debit card.

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

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G) Spending is limited to our bank balance.

DRAWBACKS OF DEBIT CARDS

NO GRACE PERIOD A) Unlike a credit card, debit card transactions are on a “pay now” basis LIMITED PROTECTION

B) Using a debit card may mean we have less protection than we would have with a credit card for undelivered or defective goods.

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Process Debit Card Transactions A successful business will usually accept debit cards as a part of their overall profile of payment solutions. If you don‟t process debit cards, you may not be taking full advantage of all the potential that your merchant account can deliver. There are essentially two ways you can accept debit cards, online and offline.

Off line debit card transactions

An offline debit card transaction is still the way most merchants accept debit cards. This is essentially the same as processing credit cards. You swipe your customer‟s debit card through a credit card terminal and have them sign the receipt.

If you choose to accept debit cards offline, be sure that the debit card has a VISA or MasterCard logo. Otherwise, the debit card won‟t be approved and you won‟t be able to process the debit card offline

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Online debit card transactions The most advantageous way to process debit cards is to do it online. You will still be able to accept debit cards at the point of sale, but you will need to install a PIN pad on your credit card terminal.

An online debit card transaction works much like a credit card transaction, except that after your customer swipes his or her debit card, they will enter a PIN instead of signing the receipt.

At this point the encrypted debit card information is sent to the customer‟s bank for authorization, and you‟ll receive the funds just as you would for a credit card transaction. Your business has many advantages when you accept debit cards.

For example, you pay a flat fee for each debit card transaction that you process, instead the flat fee plus percentage rate that you are charged when you accept credit cards. Over time, this can potentially save you a lot of

money. Another advantage when you process debit cards is that you can‟t be

charged higher “downgrade” fees. In a credit card transaction, you are usually charged the “discount rate.” However, some transactions are considered to be a higher risk or expense to the bank, and you are charged a higher rate as a result.

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But when you accept debit cards, you always pay the same flat rate, with no danger of the rate increasing.

You can also cut down on checkout time when you accept debit cards. It takes an average of 30 seconds to hand over the pen, wait for the customer to sign the receipt, and then take the pen back. If you process 20 credit card transactions a day, you‟re losing 100 minutes a day just passing a pen back and forth! That‟s almost two hours

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Plastic Fraud State-of-the-art thieves are concentrating on plastic cards. In the past, this type of fraud was not very common. Today, it is a big business for criminals. Plastic cards bring new convenience to your shopping and banking, but they can turn into nightmares in the wrong hands. This pamphlet describes credit and debit cards and some common schemes involving card fraud with tips to help you avoid them

The following are the types of frauds

1. Stolen Cards at the Office 2. Extra Copies of Charge Slips 3. Discarded Charge Slips 4. Unsigned Credit Cards 5. Loss of Multiple Cards 6. Strange Requests for Your PIN Numbers 7. Legitimate Cards 8. Altered Cards 9. Counterfeit Cards

New Technology

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New technology is making it more difficult for criminals to use, alter, or counterfeit credit and debit cards. Some of the innovations are already in use.

These security features have been added to major credit cards: Holograph – A three-dimensional, laser produced optical device that changes its color and image as the card is tilted. Fine-line printing – A repeated pattern of the card company name positioned as background for the company logo. Ultra-violet ink – Special ink that is visible only under ultra-violet light, which will display the credit card company's logo.

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Credit

Card

Data:

Credit Card is either Visa or MasterCard which is the Most

popular

and

in

some

instance

American

Express.

The Top 10 Credit Card Issuers in India are as follows,

ICICI

Bank

-

5.07

Mn

HDFC

Bank

-

4.42

Mn

SBI

Cards

-

2.65

Mn

2.54

Mn

Citibank

-

HSBC

Cards

-

1.3

Mn

ABN

Amro

-

0.78

Mn

Axis

Bank

-

0.57

Mn

Deutsche

Bank

-

0.495

Mn

American

Express -

0.45

Mn

Data Courtesy - The Reserve Bank of India

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CHAPTER 5

QUESTIONNARIES

1. Meaning of credit card Credit is a privilege and a convenience. Credit lets you charge a meal on a credit card, pay for an appliance on an installment plan, take out a loan to buy a house, or pay for schooling. Credit allows you to make a purchase without ready cash. A credit card enables you to buy things now and pay for them later. You get credit by promising to pay in the future for something you receive in the present. Credit usually costs something, and what is borrowed must be paid back. 2. The reason for the neediness of credit Convenient, hassle-free shopping. When you use a credit card to make a purchase, you don't have to carry a lot of cash, pay by check, or present additional identification. A credit card also simplifies and speeds up catalog ordering and currently is virtually the only way to make Internet purchases. Emergency help. Credit cards are the ultimate financial security blanket. They can get you through nearly any emergency situation.

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Easier budgeting. With a credit card, you can make purchases and pay them off on a schedule that fits your budget. Credit cards also allow you to take advantage of sales and special offers. 3. Reason to establish a good credit history Establishing a good credit history is an important part of your personal and financial future. It can help open doors for you or keep them locked. A variety of people and businesses make decisions affecting your future that are based on your credit history. Banks and other lenders consider your credit report when reviewing applications for mortgages, revolving lines of credit, or other loans. Landlords sometimes use credit reports to decide among rental applicants. And a potential employer may even assess an applicant's credit report before extending a job offer.

4. Meaning of debit card

Debit Card is an electronic purse, which allows the holder to withdraw cash from ATMs and also enables him to purchase goods or services from the member establishments. Debit Cards are mostly issued in collaboration either with VISA or MasterCard.

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CONCLUSION 21ST Century banking has become wholly customer-driven & technology driven by challenges of competition, rising customer expectations & shrinking margins, banks have been using technology to reduce cost & enhance efficiency, productivity & customer convenienence. Technology intensive delivery channels like net banking, mobile banking, etc have created a win-win situation by extending great convenienence. & multiple options for customer.

From educating customers about credit cards there is a need to educate them about the differentiating factors of the cards. Because visa and master card are advertising regularly and thereby increases awareness. The strategy should be to emphasize on its differentiating characteristics.

They also need to identify potential customers and target those using mailers. As internet is growing at a fast rate the net users can be targeted by having interactive sites. The prospective company‟s card personality could also be used in the home page to solve customer queries in the „Best Possible Manner‟.

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BIBLIOGRAPHY BOOKS  INOVATION IN BANKING & INSURANCE  FINANCIAL MARKET & SERVICES  INDIAN BANKING INDUSTRIES  INDIAN BANKING  TIMES OF INDIA NEWS PAPER (1st OCT 2010)

WEBSITE  WWW.GOOGLESERCH.COM  WWW.YAHOO.COM  WWW.RBI.ORG  WWW.WIKIPEDIA .COM  WWW.INFOSEE.COM  WWW.INDIANMBA.COM  WWW.INDINBANKING.ORG

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