Project Report on Plastic Money in India

August 17, 2017 | Author: yogitajadhav79 | Category: Debit Card, Stored Value Card, Credit Card, Debits And Credits, Visa Inc.
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Winter Project Report SSCMR 2009-2011



Winter Project Report SSCMR 2009-2011






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Primary objectives •

To know the perception of people towards plastic money.

Secondary objectives •

To know the importance of plastic money in the daily life of consumers’ W.R.T credit and debit cards.

To study the benefits of debit card and credit cards.

To find out the market leader among the various banks/companies issuing credit and debit cards

To know the problems faced by respondents using plastic money.

To study the satisfaction level of consumers towards plastic money.


Winter Project Report SSCMR 2009-2011

NEED AND SCOPE OF THE STUDY Need of the study It is rightly said the plastic money is need of hour. People are using these cards on a vast scale. But after considering the review of literature it is seen the whole payment process of processing these cards is not safe and customer are facing many problems relating to plastic money. That’s why study is focused on consumer perception regarding the plastic money. Need of the study is to get to know about the comparative analysis of plastic money. There are many ethical issues and challenges in the market of plastic money which is required to be studied. This study is concerned with the Seven perks of plastic money Convenience, Budgeting technology, Reputation boosting, Corporate might, Cops and robbers, The float, Openness to negotiations. Scope of study: the following are the areas covered by plastic money:


Winter Project Report SSCMR 2009-2011

ATM cards are slowly being transformed into value-added debit cards. Bankers and analysts see tremendous scope for growth in debit cards. "There is tremendous potential for debit cards. It will soon be substituting cheques. Utility payments will soon be made through debit cards, either at the ATMs or at the counters. The debit card can be used to withdraw cash from ATMs of other banks depending on whether the debit card-maker has a Visa or a Maestro tie-up. Visa and MasterCard both confirmed yesterday that they had been notified of the breach and had in turn notified several banks and credit card companies of the potential data compromise. They declined to say how many companies have been notified. Credit cards As well as convenient, accessible credit; credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes.

INTRODUCTION 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 handling 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 Credit cards in India are gaining ground. A number of banks in India are encouraging people to use credit card. The concept of credit card was used in 1950 with 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 are financial instruments, which can be used more than once to borrow money or buy products and services on credit. Basically banks, retail stores and other businesses issue these. It was introduced around and has now become an essential form of ready money. One of the main reasons for introducing plastic money, especially credit cards is to reduce the risk 6

Winter Project Report SSCMR 2009-2011

of handling a huge amount of cash by individuals/merchants. The growth and popularity of plastic money in India has been phenomenal in the last few years. In the present day world, no one wants to be bothered by the presence of huge cash in his or her wallet and the Indians are no exceptions. The unprecedented growth in the number of credit card users has stimulated the Indian economy by a significant extent. The arrival of malls, multiplexes, online shopping stores and shopping complexes have contributed to the growth of the use of plastic cards. The Best credit cards in India are usually meant for specific user group such as women, students and small business owners. These cards are offered to the prospective customers with appealing deals. Over the years, Indians have been averse to credit cards. This is primarily because they believed that spending through credit is a sure shot way of getting into the debt trap. Of course, movies highlighting the sad state of a borrower did not exactly help matters. And even the local kirana shops have the famous lines Aaj Nagad, Kal Udhari (cash today, credit tomorrow).But the situation is not actually that scary. And it is all about right timing. Credit cards can be a useful tool at the hands of savvy consumers who can effectively use the benefits offered by cards.It is important to know that credit card is a financial tool that needs to be used responsibly. While it ensures cash flow, it is not advisable for customers to borrow for a longer period of time. Use it effectively and take good advantage of the time line and clear your debts, without any additional costs. Major Banks issuing Credit Card in India •

State Bank of India credit card (SBI credit card)

Bank of Baroda credit card or BOB credit card

ICICI credit card

HDFC credit card

IDBI credit card

ABN AMRO credit card

Standard Chartered credit card

HSBC credit card 7

Winter Project Report SSCMR 2009-2011 •

Citibank Credit Card

Global player in Credit card market are Master Card, VISA Card, American Express, Diners Club International. The first 6 digits of credit cards number are known as the issuer identification number (IIN),previously known as bank identification number (BIN).These identify the institution that issued the to the card holder The IIN ranges used by the major card schemes are VISA: Card number start with a 4. Master Card: Card start with No.51 and 55 Diners Club: Card number beginning 36 or 38 Amex Ex: Card number beginning 34 or37


Concept of credit card 8

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Progress in civilization in its turn has brought out radical changes in the manner of trading. The need for something intrinsically useful and easily applicable in everyday dealing is clearly felt. Cash in the form of currency notes and coins makes up just one form of the payment system. Development in banking while also giving inputs to the further development of cash brought about a second phase in payment namely paper instructions such as cheques and credit transfers. The requirement for greater flexibility and convenience has led to electronic payments, and this is where plastic cards have proved their worth. It allows the card issuers to limit the sum of money the card-holders wish to spend. The spending of cardholders who have defaulted on payments or who are over their credit limit can be restricted until the balances are cleared.

Definition of credit card A credit card is a credit-token within the meaning of section 14(1), Consumer Credit Act 1974 of the UK which defines a credit-token as a card, cheque, voucher, coupon, stamp, form booklet or other document or thing given to an individual by a person carrying on a consumer credit business, who undertakes:•

That on the production of it (whether or not some other action is also

required), he will supply, cash, goods and services (or any of them) on credit, or •

That were, on the production of it to third party (whether or not any other

action is also required), the third party supplies cash, goods and services (whether or not deducting any discount or commission), in return for payment to him by the individual. In very simple words credit card can be termed as an unsecured personal loan offered to customers by the banks where the card-holder could purchase goods and services from authorized merchant or merchant establishments (MEs) of the bank up to a fixed limit on credit. Such credit is normally made available for a period of 30 to 45 days. A credit card can also be used to secure airline tickets and car rentals. Having a credit card can make purchases and reservations easier; however, a credit card should be used 9

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Credit cards are usually issued by banks or other financial institutions. Some credit cards may be available online.

HISTORY OF CREDIT CARDS Our society was once upon a time functioning without money; it is again likely to become moneyless. While ancient society was confronted with the problems of adjusting mutually satisfactory rates and basis of exchange, future society, with the help of computers, electronics and telecommunications, credit cards, telephone and other modern means of communications, would settle financial transactions instantly. Money as a medium of exchange will serve its function. The difference will be that in future coins, currency notes, cheques, etc., will be dispensed with in favour of records. India has entered the stage of credit card system and credit cards are gaining increasing relevance to facilitate industrial, commercial and agricultural transactions. Credit was first used in Assyria, Babylon and Egypt 3,000 years ago. The bill of exchange – the forerunner of bank notes - was established in the 14th century. Debts settled by one-third cash and two-thirds bill of exchange paper money followed only in the 17th century. The first advertisement for credit was placed in 1730 by Christopher Thornton who offered furniture that could be paid off weekly. From the 18th century until the early part of the 20th, tallymen sold clothes in return for small weekly payments; they were called “tallymen” because they kept a record of tally of what people had brought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In the 1920s shopper’s plate – “buy now, pay later” system – was introduced in USA. It could only be used in shops which issued it. In 1950, Diners Club and American Express launched their charge cards in USA, the first ‘plastic money’. In 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants. With the magnetic strip in 1970, the credit card became a part of the information age. 10

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The origins of the bank credit card have been traced to John C. Biggins, a consumer credit specialist at the Flatbush National Bank of Brooklyn, New York. In 1946, Biggins launched a credit plan called Charge-It. The programme featured a form of scrip that was accepted by local merchants for small purchases. After the sale was completed, the merchant deposited the scrip in a bank account, and the bank billed the customer for the total scrip issued.

Plastic Money: the Currency of Modern India Indian consumers have never had it so good. The soiled notes are definitely out. Carrying cash is no more `a pain in the neck' as consumers are relying more on the `plastic card' which gives them money on credit. Plastic money basically means debit cards and credit cards which is having a magnetic stripe, logo, signature of the cardholder made of plastic. Credit Cards have finally arrived in India. The card industry which is growing at the rate of 20% per annum is flooded with cards ranging from gold, silver, global, smart to secure….the list is endless. From just two players in early 80s, the industry now houses over 10 major players vying for a major chunk of the card pie. Currently four major bishops are ruling the card empire---Citibank, Standard Chartered Bank, HSBC and State Bank of India (SBI). The industry, which is catering to over 3.8 million card users, is expected to double by the fiscal 2003. According to a study conducted by State Bank of India, Citibank is the dominant player, having issued 1.5 million cards so far. Stanchart follows way behind with 0.67 million, while Hongkong Bank has 0.3 million credit card customers. Among the nationalized banks, SBI tops the list with 0.28 million cards, followed by Bank of Baroda at 0.22 million.

Parties involved: •

Cardholder: The owner of the card used to make a purchase; the consumer.


Winter Project Report SSCMR 2009-2011

Card-issuing bank: The financial institution or other organization that issued the credit

card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only cardissuing banks for their respective brands, but as of 2007, this is no longer the case. •

Merchant: The individual or business accepting credit card payments for products or

services sold to the cardholder •

Acquiring bank: The financial institution accepting payment for the products or

services on behalf of the merchant. •

Independent sales organization: Resellers (to merchants) of the services of the

acquiring bank. •

Merchant account: This could refer to the acquiring bank or the independent sales

organization, but in general is the organization that the merchant deals with. •

Credit Card association: An association of card-issuing banks such as Visa,

MasterCard, Discover, American Express, etc. that set transaction terms for merchants, cardissuing banks, and acquiring banks. •

Transaction network: The system that implements the mechanics of the electronic

transactions. May be operated by an independent company, and one company may operate multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.


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. 12

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At the time of using the card he is not declared not as a defaulter even if misses due date. A 2.95 per cent late payment fees (this differs from one bank to another) is levied in the 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. •

Smart card

A smart card contains an electronic chip which is used to store cash. This is most useful when you have to pay for small purchases, for example bus fares and coffee. No identification, signature or payment authorisation is required for using this card. The exact amount of purchase is deducted from the smart card during payment and is collected by smart card reading machines. No change is given. Currently this product is available only in very developed countries like the United States and is being used only sporadically in India. •

Diners 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 can set your 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, it may not be acceptable at many outlets. It would be a good idea to check whether a member establishment does accept the card or not in advance. •

Photo card 13

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In this photograph is imprinted on a card, and then you have what is known as a photo card. Doing this helps identify the user of the credit card and is therefore considered safer. Besides, in many cases, your photo card can function as your identity card as well. •

Global card

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

Co-branded card

Co-branded cards are credit cards issued by card companies that have tied up with a popular brand for the purpose of offering certain exclusive benefits to the consumer. . • Affinity card The card issuer ties up with popular organizations/ institutions which are often non-profit organizations (Citi-WWF card or the stanch art-Cricket cards) to offer an affinity card. When the card is used, a certain percentage is contributed to the organization /institution by the card issue •

MasterCard and Visa

MasterCard and Visa are global non-profit organizations dedicated to promote the growth of the card business across the world. They have built a vast network of merchant establishments so that customer’s world-wide may use their respective credit cards to make various purchases.  Visa card: Visa, Inc., commonly called VISA, is an economic joint venture of 21,000 financial institutions that issue and market Visa products including credit and debit cards. The company was originally named Visa International Service Association. The name change occurred in the fall of 2007 as a part of Visa’s restructuring and IPO plan. The company is based in San Francisco, California, USA. 14

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FUNCTIONS OF CREDIT CARDS Today, credit cards have many functions and are very versatile. They can be summarized into the following functions: 15

Winter Project Report SSCMR 2009-2011

Credit The holder may obtain extended credit up to an agreed limit at a published interest rate. Charge The holder can repay the whole amount at the end of the month, without charge provided no cash advance has been taken. Cash On presentation at the appropriate banks, subject to check, cash can be obtained. In most cases can also be used in ATMs to obtain cash. Cheque guarantee A cheque drawn on a bank may be guaranteed up to a published limit provided it is accompanied by a Cheque Guarantee Card (or in some cases a Visa or MasterCard card) issued by the bank on which it is drawn. Cheque encashment Cheque guaranteed as above may be used to obtain cash from branches of most banks, although a charge may be levied in certain circumstances. International If the card is a member of Visa International or MasterCard International, you can use your card at many countries where there are a lot banks who are members of them. Perhaps the most significant fact to emerge from the summary of card functions is that strictly speaking, they are not debit cards. Although they can be used to obtain cash via ATM, the debit will be made from the credit card account and not from the holder's bank account. The credit cards discussed above are bank cards. Different bank cards have different card functions. The functions of bank cards really depend on the individual bank itself. Some bank card may have all of the above functions and some may not. There other credit cards that are issued by retail stores such as Petrol Card, Quasi Card and Private Label Card which may have some of the above functions mentioned above.


Winter Project Report SSCMR 2009-2011

FEATURES OF CREDIT CARDS All credit cards offer a variety of features. Knowing and understanding these features will help to decide which card is right for. Fees Most credit cards charge fees for various things, and it is important to know what these fees are and how to avoid them. The annual fee Some credit card companies charge you an annual fee just for using their card. Because of stiff competition, you can often negotiate this fee away if you call and speak to a customer service representative. Cash Advance Fee Most credit card companies will charge you a fee for cash advances. These fees can vary but are usually somewhat hefty. Not only will they charge you a one-time fee, but the interest rate for this money will be at a considerably higher rate. Plus, unlike a regular purchase, where interest begins accruing after some grace period passes, cash advances accrue interest charges from day one. Many card companies are competing for your business and are now offering an introductory 17

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cash advance and balance transfer rates for a specific amount of time. This lower rate can be applied to any balances you may wish to transfer from another card. Although it sounds good, some companies will charge you a fee for the transfer. Know what the fee is before you transfer any balances.

Miscellaneous Fees Things like late-payment fees, over-the-credit-limit fees, set-up fees, and return-item fees are all quite common these days and can represent a serious amount of money out of your pocket if you get whacked for any of these fees. Incentives Since there are so many credit card companies, competition is stiff. Adding incentives to their offers is one of the more popular ways to tip the scales in their favor. Incentives like rebates on purchases, frequent flyer miles on certain airlines, and extended warranties on purchases are just a few of the bonuses that card companies will now offer. For those of you who collect and use your frequent flyer miles, they also have added incentives like travel insurance and car rental insurance for your convenience. Of course, they are hoping that with all this traveling, you are using their card to foot at least some of the bill. Rewards Many card companies are looking to keep your business and are therefore making it worth your while to use their card. Just simply by using their card you can accumulate points that will in turn earn you rewards. What kind of reward depends solely on the amount of points you accumulate. Since you can't accumulate these points without charging things on your 18

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card, this is a classic case of 'you have to spend money to save money.' Bottom line is this: Know what you need and what you don't. No sense in paying for any features that you won't use. APR The annual percentage rate (APR) is the interest rate applied a balance carried beyond the grace period. Credit cards can have different APRs for different types of balances, e.g. balance transfers or purchases. Balance transfers and cash advances usually have higher APRs than for purchases. Your APR may increase when you're late on your payment to a particular creditor, and other creditors if your card agreement includes a universal default clause. APRs can be fixed or variable. A fixed APR can change, but the creditor must inform you in writing before changing the rate. A variable APR changes from time to time. Grace Period The grace period is the amount of time you have to pay your balance in full before a finance charge is applied to your purchase. If you carried a balance from the previous month, you may not have a grace period for your new purchases. In addition, balance transfers and cash advances typically do not have a grace period. When balances don't have an applicable grace period, interest is applied right away. To find out the length of the grace period refer to the credit card application or your credit card agreement. Your monthly statements should also include the number of days in the grace period.


Winter Project Report SSCMR 2009-2011


Purchase Power and Ease of Purchase

Credit cards can make it easier to buy things. If you don't like to carry large amounts of cash with you or if a company doesn't accept cash purchases (for example most airlines, hotels, and car rental agencies), putting purchases on a credit card can make buying things easier. •

Protection of Purchases

Credit cards may also offer you additional protection if something you have bought is lost, damaged, or stolen. Both your credit card statement (and the credit card company) can vouch for the fact that you have made a purchase if the original receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases. •

Building a Credit Line

Having a good credit history is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or even some jobs. Having a credit card and using it wisely (making payments on time and in full each month) will help you build a good credit history. •


Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget (or money you don't have!), sometimes emergencies (such as your car breaking down or flood or fire) may lead to a large purchase (like the need for a rental car or a motel room for several nights.) 20

Winter Project Report SSCMR 2009-2011 •

Credit Card Benefits

In addition to the benefits listed above, some credit cards offer additional benefits, such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance.) While most of these benefits are meant to encourage you to charge more money on your credit card (remember, credit card companies start making their money when you can't afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.

DISADVANTAGES OF CREDIT CARDS Blowing Your Budget The biggest disadvantage of credit cards is that they encourage people to spend money that they don't have. Most credit cards do not require you to pay off your balance each month, so even if you only have $100, you may be able to spend up to $500 or $1,000 on your credit card. While this may seem like 'free money' at the time, you will have to pay it off -- and the longer you wait, the more money you will owe since credit card companies charge you interest each month on the money you have borrowed. High Interest Rates and Increased Debt Credit card companies charge you an enormous amount of interest on each balance that you don't pay off at the end of each month. This is how they make their money and this is how most people in the United States get into debt (and even bankruptcy.) Consider this: If you have a $100 in savings, most banks will give you at the most 2.0 to 2.5% interests on your money over the course of the year. This means you earn $2.00 - $2.50 a year on your $100 savings. Most credit cards charge you up to 10 times that amount of interest on balances. This means that if you have $100 balance that you don't pay off, you will be charged 20-25% interest on that $100. This means that you owe almost $30 interest (plus the original $100) at the end of the year. A good way to look at this is in comparison to what you would earn in interest from a bank or owe in interest to a bank loan: Savings accounts may pay you around 21

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2% interest; if you have a loan from a bank you may pay them around 10% interest (5 times as much as you earn off your savings); if you owe money to a credit card company, you may pay them around 20% interest (10 times as much as you earn off your savings.) Credit Card Fraud Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number (from a receipt, over the phone, or from a Web site) and use your card to rack up debts. The good news is that, unlike cash, if you realize your credit card or number has been stolen and you report it to your credit card company immediately, you will not be charged for any purchases that someone else has made. Even if you don't realize your credit card number has been stolen (sometimes you might not know until you receive your monthly statement), most credit card companies don't charge you or only charge a small fee, like $25 or $50, even if the thief has charged thousands of dollars to your card. There are several things you can do to prevent credit card fraud: •

If you lose your card or wallet, report it to your credit card company

immediately. •

Don't loan your credit card to anyone and only give out your credit card

information to trusted companies or Web sites. •

Check your statement closely at the end of each month to make sure all

charges are yours. •

You can find out more about protecting your personal information by visiting

our Personal Safety course. Credit cards can make life easier and be a great tool, but if they aren't used wisely they can become a huge financial burden. If you do decide to use credit cards, remember these simple rules: •

Keep track of all your purchases.

Don't spend outside your budget.

Pay off your balance on all of your credit cards at the end of each month. 22

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Don't loan your credit or give out your credit card information to anyone but reliable companies

NEED OF CREDIT CARDS There may be many people who suggest that you get a credit card, but before you do you should carefully decide whether or not you really need a credit card. The answer is that you can get by without a credit card. Although a credit card can be a useful tool, when used properly (paid in full every month), it can be a bigger liability than an asset. Here are five common misconceptions about needing a credit card. 1. Credit Card to Build Credit You build credit by paying your bills on time. You can build enough credit to qualify for a home loan by paying your rent on time for several years. You destroy your credit when you do not pay your bills on time. The utility companies and other businesses can send you to a collection agency if you do not pay on time. You do not need a credit card to build your credit history. You may find it a little easier to do with a credit card, but you should be very careful as you try to do so. 2. Credit Card to Shop Online or Rent a Car Since debit cards have been introduced you no longer need a credit card to do these things. In fact you can do everything with a debit card that you can with a credit card, except spend money that you do not have. You should not be doing that anyway. Debit cards can be used


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anywhere a credit card can. This completely debunks the statement that you need one to rent a car. 3. Credit Card for Emergencies If you plan well you should set up an emergency fund for emergencies. Your emergency fund should have at least $1000.00 in it, but you should try to have three to six months of expenses saved up. This much money should be able to handle any emergency that comes your way. If you are stranded on the road and need to be towed you can use your debit card to pay for the tow, and your emergency fund to cover those expenses. 4. Credit Card to Save Money on Purchases Many stores will offer discounts for having a store credit card. Stores do not offer cards to give you discounts; they offer cards because they realize that while most people intend to pay the card off every month, few actually do. They make more back on interest than they the discount they offer to you. 5. Credit Card to Earn Rewards This is a dangerous game to play. If you are responsible and pay off your balance in full each month, you may consider having a rewards credit card. You should make sure that you have a credit card with no annual fee. Additionally it is important to remember that the credit card offers its rewards, because the company realizes that most people are not going to pay off their credit cards in full each month. This means that they make more money off the customers, then rewards they give out.

Fraud Question What kinds of credit card frauds are more prevalent? Counterfeit and CNP (card not present) continue to be the two main types. Physical 24

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theft of cards is not such an issue. Since online transactions typically don't require the card to be presented, the information sitting on the card and other customer authentication details are sometimes compromised and used for transactions. This is becoming a big problem. However, India has been pro-active in this regard and has introduced the two-factor identification system, wherein a customer transacting online must also have a T-Pin for transactions where the card is not present. What is being done to prevent such fraud? Visa is doing a number of things in partnership with issuers to introduce measures which can easily prevent such frauds. Since the prevention of theft is of utmost important, banks are offering customers the option of opting for alerts whenever there is a transaction. This measure is immediate in nature and can help the customer know about his or her transactions in real time.Also, we are increasingly encouraging issuers to opt for chip cards, which can go a long way in controlling fraud. We would like all banks to issue chip cards to increase security. Why is a chip card safer? It is very difficult to copy, as a unique cryptogram or code is generated for each transaction. So, even if a card is counterfeited, it will be declined. In India, banks are selectively issuing chip cards to consumers, depending on their usage pattern. What are some of the most effective fraud detection tools that Visa has? Some very sophisticated ones are in place. Some are rule-based tools, wherein a customer can define a set of rules for transactions like a spending limit, places of transactions, etc.If there is a deviation from these, and the transaction won't be complete. In the USA, neural networks (artificial intelligence) are being deployed to 25

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ensure the authentication sits on the back-end. These networks basically study the pattern of usage by a customer and any deviation comes up for further verification. So, a customer gets a call if there is a deviation from his or her set pattern. What can a customer do to avert card-related frauds? They should first opt for customer alerts each time there is a transaction. Second would be dynamic authentication by using chip cards. Also, they should be careful of hidden cameras in ATMs and should watch for fake ATM fronts, where your card can be skimmed

INTRODUCTION OF DEBIT CARDS The debit card has emerged from the shadow of its older sibling, the credit card. Over the past decade, debit card has grown from accounting for 274 million transactions in 1990 to 8.15 billion transactions in 2002, to challenge the credit card as the preferred payment card. As it stands, the debit card industry is a multi-billion dollar engine that helps drive bank profits and point-of purchase consumer sales - but is also beginning to redefine traditional payment options in the business and government sectors, such as food stamps, benefits, and payroll.

MEANING AND FUNCTIONS OF DEBIT CARDS Two decades ago, the number of debit cards in circulation was approximately 19 million. This figure is projected to cross 34.4 million by 2016. 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 check, 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. 26

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In many countries the use of debit cards has become so widespread that their volume of use has overtaken or entirely replaced the check 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 check guarantee card. Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase. Debit cards can also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque guarantee card. Merchants can also offer "cash back"/"cash out" facilities to customers, where a customer can withdraw cash along with their purchase.

Types of Debit Card systems

Online Debit Card

Offline Debit Card

Electronic Purse Card System

Prepaid debit cards

Debit card


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An example of the front of a typical debit card:

1. Issuing bank logo 2. EMV chip 3. Hologram 4. Card number

5. Card brand logo 6. Expiration date 7. Cardholder's name

An example of the reverse side of a typical debit card: 1. Magnetic stripe 2. Signature strip 3. Card Security Code 28

Winter Project Report SSCMR 2009-2011

There are currently three ways that debit card transactions are processed: online debit (also known as PIN debit), offline debit (also known as signature debit) and the Electronic Purse Card System. It should be noted that one physical card can include the functions of an online debit card, an offline debit card and an electronic purse card. Although many debit cards are of the Visa or MasterCard brand, there are many other types of debit card, each accepted only within a particular country or region.

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

Offline Debit System Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or major debit cards 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.

Electronic Purse Card System


Winter Project Report SSCMR 2009-2011

Smart-card-based electronic purse systems in which value is stored on the card chip, not in an externally recorded account, so that machines accepting the card need no network connectivity are in use throughout Europe since the mid-1990s.

Prepaid debit cards Prepaid debit cards, also called reloadable debit cards or reloadable 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

Working of Debit Card The user has to present the card to merchant who will swipe it through the electronic terminal and enter the amount of purchase. The customers need to sign the transaction slip. Account will be automatically debited for the amount of the purchase and the transaction can be verified by entering the PIN. Debit Card can be used to access the Account from over 5,000 Shops, Department Stores, Petrol Pumps and Restaurants and over 235 ATMs in India .It can also be used at over 4 million Visa Electron merchant locations and equally strong MasterCard outlets. If Debit Card ever gets lost or stolen, card companies protect from fraudulent usage at the loss. It is necessary to have a savings or current account with the debit card issuer; by filling an application form. The card company then couriers the card across around a week’s time. The Debit card does have a daily limit which could be somewhere around Rs. 15,000 at ATMs, and Rs. 10,000 at merchant locations. This again is subject to the balance available in the account.


Winter Project Report SSCMR 2009-2011

Advantages and Disadvantages of Debit Cards The widespread use of debit and check cards have revealed numerous advantages and disadvantages to the consumer and retailer alike. Advantages of debit cards •

A consumer who is not credit worthy and may find it difficult or impossible to

obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions. For example, legislation often prevents minors from taking out debt, which includes the use of a credit card, but not online debit card transactions. •

For most transactions, a check card can be used to avoid check writing

altogether. Check cards debit funds from the user's account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder's personal information. •

Like credit cards, debit cards are accepted by merchants with less

identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored. •

Unlike a credit card, which charges higher fees and interest rates when a cash

advance is obtained, a debit card may be used to obtain cash from an ATM or a PINbased transaction at no extra charge, other than a foreign ATM fee. Disadvantages of debit cards •

Use of a debit card is not usually limited to the existing funds in the account to

which it is linked, most banks allow a certain threshold over the available bank balance which can cause overdraft fees if the users transaction does not reflect available balance. 31

Winter Project Report SSCMR 2009-2011

Many banks are now charging over-limit fees or non-sufficient funds fees

based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may be unknown until later discovery by account holder). •

Many merchants mistakenly believe that amounts owed can be "taken" from a

customer's account after a debit card (or number) has been presented, without agreement as to date, payee name, amount and currency, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks. •

In some countries debit cards offer lower levels of security protection than

credit cards. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. However, theft of users' PIN codes using skimming devices can be equally easily accomplished with a debit transaction PIN input, as with a credit transaction PIN input, and theft using a signature-based credit transaction is equally easy as theft using a signaturebased debit transaction. •

In many places, laws protect the consumer from fraud much less than with a

credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. The consumer also has a shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card, whereas with a credit card, this time may be up to 60 days. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer's bank account, and the consumer will have no recourse

Debit Cards Benefits Debit Cards offer the following benefits: 32

Winter Project Report SSCMR 2009-2011 •

They help people to be disciplined financially, since one cannot splurge with

the limited amount of funds deposited for the card. •

A person with poor credit can obtain a debit card too much trouble.

Debit cards can be used to make online purchases and payments.

They provide freedom from carrying cash checks while traveling, herby

offering more safety.

Debit Cards: Issuers The banks issuing debit cards include: Bank of America Citibank American Express Standard Chartered HSBC

Debit Cards vs. Credit Cards: Similarities and Differences Similarities The same financial institutions offer both debit cards and credit cards. Both cards offer special rewards, such as points and cash back on purchases made through the card. Debit cards and credit cards can be used to make online payments with the help of the pin number assigned to them. 33

Winter Project Report SSCMR 2009-2011

They can be used to withdraw money from ATM’s depending on the cash limit available on these cards.

Differences In the case of a credit card, the issuer offers credit and overdraft facilities. This facility is not available with a debit card, which will only debit payments from existing and available funds within the cardholders account. A credit cardholder therefore has a monthly bill to pay in every month that the card is used. If they don’t pay that bill, high interest charges are applied. A debit card holder is free from the hassle of paying those bills and from the risk of building up large debts to credit card companies.

Debit Card Problems can be worse than Credit Card Problems When an improper charge appears on the credit card it cannot automatically out the money and simply need to work with the credit card issuer to have the charge removed from the bill. When an improper charge occurs with a debit card, however, the funds are automatically taken from the account and customer is burdened with attempting to get the money back. Meanwhile, he may experience cash flow problems and the legitimate checks could bounce.

Traveling with your Debit Cards The reverse side of the debit card will display the names or symbols of the various ATM systems that will accept the card. Debit card can be used at any ATM in the world as long as the ATM displays one of the same system names or symbols that is on debit card. When obtaining funds at an ATM in a foreign country the funds dispersed will be in the currency of the country going to visit.


Winter Project Report SSCMR 2009-2011

DEBIT CARDS Combining the wide acceptability of a credit card and the thoughtful prudence of an ATM card, the ICICI Bank Debit Card is the most convenient accessory. No more fear of overspending. No more searching for the nearest ATM. Only more comfort and convenience in the debit cards provided by ICICI.

Various Products •

The ICICI Bank Private Banking Debit Card

The ICICI Bank Gold Debit Card

The ICICI Bank HPCL Debit Card

The ICICI Bank Ncash Silver Card

The ICICI Bank Ncash Debit Card

DEBIT CARD HDFC BANK Debit Cards give you complete and instant access to the money in accounts without the risk or hassle of carrying cash. TYPES OF DEBIT CARDS  Easy Shop International Debit Card  Easy Shop International Gold Debit Card 35

Winter Project Report SSCMR 2009-2011

 Easy Shop International Business Debit Card  Easy Shop Woman's Advantage Debit Card  Kisan card


About - HDFC Bank Limited, India The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in-principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. 36

Winter Project Report SSCMR 2009-2011

Capital Structure The Indian Private Equity Fund, Mauritius (IPEF) and Indocean Financial Holdings Ltd., Mauritius (IFHL) (both funds advised by J P Morgan Partners, formerly Chase Capital Partners) together hold about 5.5% of the bank's equity. Roughly 27.5% of the equity is held by FIIs, NRIs/OCBs while the balance is widely held by about 214,000 shareholders. The shares are listed on The Stock Exchange, Mumbai and the National Stock Exchange. The bank's American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol "HDB"

BOARD OF DIRECTORS Managing Director Executive Director Executive Director Chairman Assets and Credit Cards

Aditya Puri Paresh Sukhthankar Harish Engineer C.M. Vasudev Pralay Mondal

About – ICICI Bank Limited, In 1955, The Industrial Credit and Investment Corporation of India Limited (ICICI) was incorporated at the initiative of World Bank, the Government of India and representatives of Indian industry, with the objective of creating a development financial institution for providing medium-term and long-term 37

Winter Project Report SSCMR 2009-2011

project financing to Indian businesses. In 1994, ICICI established Banking Corporation as a banking subsidiary. Formerly known as Industrial Credit and Investment Corporation of India, ICICI Banking Corporation was later renamed as 'ICICI Bank Limited' Capital structure ICICI Bank is India's second-largest bank with total assets billion (US$ 108.7 billion) at March 31, 2010. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

BOARD OF DIRECTORS Managing Director and

Chanda Kochhar

Chief executive Officer DeputyManaging Director Executive Director

Sandeep Bakhshi N.S.Kannan

CREDIT CARDS OF HDFC BANK CREDIT CARD: HDFC bank credit cards provide a facility of easy availability of cash and convenience to the cardholder. TYPES OF CREDIT CARDS OF HDFC BANK •

CLASSIC CARDS Silver Credit Card Value plus Credit Card 38

Winter Project Report SSCMR 2009-2011

Health plus Credit Card Gold Credit Card Titanium Credit Card

CREDIT CARDS OF ICICI BANK CREDIT CARDS ICICI Bank Credit Cards give you the facility of cash, convenience and a range of benefits, anywhere in the world. These benefits range from life time free cards, Insurance benefits, global emergency assistance service, discounts, utility payments, travel discounts and much more.


Premium Cards

Classic Cards

Value for Money Cards

Co Branded Cards

Affinity Cards

EMI Card

Who's the banking king? ICICI or HDFC? Their offices reflect their attitudes. ICICI Bank's headquarters in suburban Mumbai is a huge, imposing edifice in glass and granite. HDFC Bank's office in central Mumbai is comparatively smaller and more sedately furnished.The two banks have carried forward their style statement in their approach to business. ICICI Bank thinks big, is all for growth and hungry for market share.HDFC Bank is more conservative and cautious, grows at a measured pace, without taking any undue risks.ICICI Bank began its retail banking venture in mid-1999. By January 2000, it had moved on to 39

Winter Project Report SSCMR 2009-2011

introducing home loans, car loans, personal loans and credit cards.Realising the need for a bigger retail deposit base, the bank started building a branch and an ATM network. The acquisition of Bank of Madura in March 2001 added 263 branches, many of them in cities where ICICI Bank did not have a presence.The merger of the erstwhile financial institution ICICI Limited with the bank in April 2002, gave it a ready-made corporate clientele. The flip side was that ICICI Bank had Rs 10,000 crore (Rs 100 billion) of restructured assets for which it had to make provisions. On the other hand, HDFC Bank kick started its operations in 1995 with a focus on corporate banking, targeting the top-end of the market. Reminisces Paresh Sukthankar, head, credit and market risk, HDFC Bank, "Although the asset yields may have been lower, we were able to cross-sell products so that the overall returns were better. We may have grown slower than our peers, but the risks were lower." HDFC Bank ventured into retail lending in 1998, a year before ICICI Bank. But in products like credit cards, it was slow to get off the mark. For instance, its credit cards were launched only two years ago. By then ICICI Bank had been present in the credit card business for nearly three years. According to some industry experts, growth for ICICI Bank may have come at the cost of quality.

BETTER PICK UP The number tell story

Share of the wallet













Total assets (USD)




Winter Project Report SSCMR 2009-2011

Revenue(Rs crore)



Credit cards (Mn)



customers (Mn)



Profit (crore)



ICICI Bank has issued 5.14 million credit cards -- that is more than twice the number of HDFC Bank's credit card users. However, industry observers point out that ICICI Bank's effective users for credit cards may not be high. However, consultants believe that HDFC Bank could have leveraged its parent's customers far more effectively to cross-sell products and grow faster. Says a banking consultant, "While HDFC Bank has about two years to get ready for the future, ICICI Bank probably has three years." Should HDFC Bank and its parent be merged, it could catapult them to a new league. But round one of the banking sweepstakes has clearly gone to ICICI Bank.

Calling the customer Both players targeted the same customer -- the upper-middle class. The marketing channels used by both, including direct sales agents (DSAs), were the same. Yet, there was a difference. While ICICI settled for nothing less than film star Amitabh Bachchan as an ambassador, HDFC Bank chose to rely on the trusted lineage of its housing finance parent, Housing Development Finance Corporation (HDFC). "While HDFC was no doubt a great brand, it was a single-product brand. Hence, it was a challenge to make it work with other products."


Winter Project Report SSCMR 2009-2011

In the past two years, the bank has spent less than Rs 100 crore (Rs 1 billion) on advertising and publicity (In comparison, ICICI has spent Rs 185 crore). HDFC Bank says that its spends have always focused on other channels such as direct sales and phone banking rather than mainstream advertising. It made sense to get the direct communication right rather than focus on the masses. Meeting the customer face-to-face is important." Is the brand visible enough? The ICICI brand does have greater visibility, though that HDFC Bank is well-known even in smaller towns.



ICICI Bank and HDFC bank has to improve its brand image, i.e. it

has to position itself in the minds of prospects in a better way in comparisons to others.

 It should provide better career opportunities for the retention of its potential advisors.

 People who deal with customers should have complete knowledge about the different products and their features.


Winter Project Report SSCMR 2009-2011

 It should more emphasize in advertising, as it is the most powerful tool to position ant brand in the mindsets of customers.

 It should provide online training and for those who are in jobs and want to become advisors ICICI should provide evening training classes, so that they can join the training after doing there jobs.

CONCLUSION In the last two years, spending pattern through plastic money has changed drastically. Travelling, dining and jewellery are the top three purchases that Indians make 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 in 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 per cent so 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. 43

Winter Project Report SSCMR 2009-2011

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 ecommerce. After doing a research and studying the materials available on internet, newspapers, and journals. I want to conclude that people prefers ICICI Bank more than HDFC


Marketing Management (10 Edition), Philip Kotler

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