Final Project Customer Attitude

7/30/2019 Final Project Customer Attitude

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CHANGING ATTITUDE OF CUSTOMERS TOWARDS PLASTIC MONEY

SAMBHRAM ACADEMY OF MANAGEMENT STUDIES 1

INTRODUCTION OF MONEY

HISTORY OF MONEY

Barter

The first people didn't buy goods from other people with money. They used barter.

Barter is the exchange of personal possessions of value for other goods that you want.

This kind of exchange started at the beginning of humankind and is still used today.

From 9,000-6,000 B.C., livestock was often used as a unit of exchange. Later, as

agriculture developed, people used crops for barter. For example, I could ask another

farmer to trade a pound of apples for a pound of bananas.

Shells

At about 1200 B.C. in China, cowry shells became the first medium of exchange, or

money. The cowry has served as money throughout history even to the middle of this

century.


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First Metal Money

China, in 1,000 B.C., produced mock cowry shells at the end of the Stone Age. They can

be thought of as the original development of metal currency. In addition, tools made of

metal, like knives and spades, were also used in China as money. From these models, we

developed today's round coins that we use daily. The Chinese coins were usually made

out of base metals, which had holes in them so that you could put the coins together to

make a chain.

Silver

At about 500 B.C., pieces of silver were the earliest coins. Eventually in time they took

the appearance of today and were imprinted with numerous gods and emperors to mark

their value. These coins were first shown in Lydia, or Turkey, during this time, but the

methods were used over and over again, and further improved upon by the Greek,

Persian, Macedonian, and Roman empires. Not like Chinese coins, which relied on base

metals, these new coins were composed from scarce metals such as bronze, gold, and

silver, which had a lot of intrinsic value.

Leather Currency

In 118 B.C., banknotes in the form of leather money were used in China. One-foot

square pieces of white deerskin edged in vivid colors were exchanged for goods. This is

believed to be the beginning of a kind of paper money.

NosesDuring the ninth century A.D., the Danes in Ireland had an expression "To pay through

the nose." It comes from the practice of cutting the noses of those who were careless in

paying the Danish poll tax.


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Paper Currency

From the ninth century to the fifteenth century A.D., in China, the first actual paper

currency was used as money. Through this period the amount of currency skyrocketed

causing severe inflation. Unfortunately, in 1455 the use of the currency vanished from

China. European civilization still would not have paper currency for many years.

Potlatch

In 1500, North American Indians engaged inpotlach, a term that describes the exchange

of gifts at banquets, dances, and various rituals. Since the trading of gifts was so

important in figuring the leaders community status, potlach went out of control as the

gifts became more extravagant in an effort to surpass others' gifts.

Wampum

In 1535, though likely well before this earliest recorded date, strings of beads made from

clam shells, called wampum, are used by North American Indians as money. Wampum

means white, the color of the clam shells and the beads.

Gold Standard

In 1816, England made gold a benchmark of value. This meant that the value of

currency was pegged to a certain number of ounces of gold. This would help to prevent

inflation of currency. The U.S. went on the gold standard in 1900.

Depression

Because of the depression of the 1930's, the U.S. began a world wide movement to endtying currency to gold. Today, few nations tie the value of their currency to the price of

gold. Other government and financial institutions now try to control inflation.


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Today

At present, nations continue to change their currencies. For example, the U.S. has

already changed its $100 and $20 banknotes. More changes are in the works.

Tomorrow

Tomorrow is already here. Electronic money (or digital cash) is already being exchanged

over the Internet.

The Rise of Paper Money

The next phase in the evolution of currency was the invention of paper money. The first

Banknotes were issued in China during the reign of Emperor Hien Tsung (AD806- 821),

but not as a result of any great financial insight. The sole reason for their introduction

was an acute copper shortage that precluded the striking of new coins. Eventually, China

got carried away with the ease of producing this new form of cash. Too much of it was

printed and this led to inflation. In 1455, the Chinese abandoned the use of paper money

and did not return to it for several centuries. The Chinese experience was repeated when

Sweden became the first European nation to experiment with paper money. In 1661, a

banker named Johan Palmstruch began to issue credit notes that could be exchanged at

his Stockholm bank for stated numbers of silver coins. Unfortunately for Palmstruch,

who had consulted the Swedish government before launching the scheme, he got carried

away with his licence to print money. He issued more notes than his bank had silver

deposits to redeem, and in 1668 was prosecuted for fraud. He was initially sentenced to

death, but the penalty was later commuted to imprisonment. Despite the less than

glorious outcomes to these early trials of paper money, the tide of history was firmly on

the side of the new form of currency. As economic activity increased in Europe, it

became apparent that the money supply needed to be expanded beyond the limits

imposed by holdings of precious metals.


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This recognition led to the establishment of the first national central banks. People were

much more likely to trust notes backed by government reserves than those issued by

private institutions. They even proved willing to accept temporary governmental bans on

the redemption of banknotes for silver, as happened in Britain during the "RestrictionPeriod" of 1797 to 1821.

The Gold Standard

Entrusting the issue of banknotes to one central authority effectively removed the danger

of bankruptcy, but it did raise the spectre of inflation. This would happen if a central

bank printed too much money. (To understand this, imagine you were an egg seller and

everyone suddenly had twice as much cash; you would feel foolish, not to say cheated, if

you continued to sell your eggs at the old price.) It was the risk of inflation, among other

factors, that propelled governments into joining the Gold Standard, a measure that

harked back to the days when all money really was made of precious metal. The Gold

Standard was a mechanism that fixed the values of the coins and banknotes of

participating nations in terms of specified quantities of gold.

The Standard operated both domestically and internationally. On the domestic front, it

forestalled inflation by ensuring that the money supply remained relatively constant. In

the international sphere, it had the effect of fixing exchange rates between the nations

involved. If the US set the price of gold at $20.67 per ounce, for example (as it did from

1834 until 1933), and the UK set it at three pounds 17 shillings and 10.5 pence, as it did

from 1844 until 1931 (apart from a period after the First World War), an exchange rate

of $4.867 dollars to the pound necessarily followed. The benefits of fixed exchange rates

included stability and a balancing of prices between subscribing nations. If the UK made

a technological breakthrough that increased economic output, its prices would fall.

Assuming US prices stayed the same, this would make UK products more attractive

from an American perspective, and American products less attractive to the UK. The


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upshot would be that goldthat is, the stuff in which payments were madewould flow

out of the US and into Britain. As the money supply/amount of gold in Britain had now

increased, its prices would rise. At the same time, US prices would fall in line with the

nation's own money supply. Hey presto, everyone ended up more or less where they hadbeen in the first place and price stability was restored. The Gold Standard worked very

well so long as everyone played nicely. In the US, for example, inflation between 1880

and 1914 averaged a mere 0.1 per cent per year. The trouble was that many nations were

inclined to cheat, particularly when the going got tough. When the First World War

broke out in 1914, the countries involved threw their rule books out of the window. They

started printing money to finance their war efforts and the Gold Standard broke down. It

was reinstated in modified form in 1925, but collapsed again due to instability caused by

the Great Depression. In 1931, Britain left the Gold Standard as a result of massive

outflows of gold from the nation's coffers. The successor to the Gold Standard was the

Bretton Woods system, named after the New Hampshire resort where the Second World

War Allies thrashed out the details in 1944. Once again, exchange rates were fixed

(within a margin of 1 per cent), but the key feature was that all participating nations

apart from the US were allowed to settle their debts in US dollars. The US promised to

redeem the dollar holdings of other countries for gold at a fixed rate of $35 per ounce.

Unfortunately, this offer was taken up to the extent that the US started running out of

gold, which placed the entire system in jeopardy. In 1971, President Nixon announced

that the US would no longer be paying out gold for dollars. For the Gold Standard, this

was the final nail in the coffin.

Fiat money

Since 1971, the world economy has largely run on a system of floating exchange rates,

with gold-backed currency replaced by what is called fiat money". This is money that

has no intrinsic value and obtains its worth entirely on the basis of governmental decree.

("This piece of paper can be used to pay debts because we say it can") The use of fiat


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money obviously places a greater responsibility on governments than they had in the

days when currency had to be backed by precious metals. Print too much of it and you

end up in a right mess.

Credit cards, debit cards and cheques

Not so long ago, it was relatively difficult to open an account with one of the clearing

banks, and the Mainwaring and Wilsons who ran the institutions long catered principally

to the professional classes, discussing their affairs over a glass of Amontillado in the

manager's office. Though bounders could be relied upon to write bouncing cheques, for

most of the 20th century the possession of current account denoted respectability. The

manual working classes relied on a little brown envelope of notes and coins at the end of

the week, and remained "unbanked" until well into the 1970s. If they wanted to send

money away they relied on the postal order, now almost extinct. Then we all became

more prosperous, the banks discovered marketing (black horses running across the

landscape) and students were being offered rail cards and book tokens (another quaint

form of money, happily still with us) just so that the bank could enjoy the mixed

pleasure of them running up enormous overdrafts. In the 1980s, National Westminster

Bank even raised eyebrows by allowing the customers the option of "pictorial" cheque-

books, featuring images of badgers and bunny rabbits. Cheque use peaked in 1990, with

2.7 billion passing through the system; it's about one-third of that level now, and falling.

The reason is the debit card, a sort of cheque guarantee card without the cheque. The

first Switch card transaction took place in 1988; by 1995, they had overtaken credit

cards in popularity, and cheques fell behind them in 1998. The advent of "chip and PIN"

greatly reduced the scope for fraud. Last year, each debit-card holder used their cards

166 times on average, acquiring 3,848 in "cash back" and making purchases worth

4,799. However, British consumers were not to be constrained by such trivial

considerations as how much money they had in the bank. The launch of the Barclaycard

in 1966 (and its now defunct but long-running rival Access in 1972) was the start of


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"plastic"the discovery that a small rectangle of polyvinylchloride (always measuring

85.60 by 53.98mm) could transform your life. Until, that is, the astronomical APR

(annual percentage rate of interest) and over lenient credit limits led to the inevitable

personal mini credit crunch. The modern British addiction to debt can be traced backprecisely to the advent of the credit card. By the 1990s, 0 per cent cards were being

offered to lure customers, and those who took advantage of the initial free offers and

then transferred the balance to the next free offer when the interest became due were

known as "rate tarts". Our "flexible friend" (as the Access card marketing line went) had

a nasty habit of landing us in economic trouble; now that he's been allowed to make the

acquaintance of the "sub prime" community in the United States and Britain, the extent

of the credit card's true perniciousness is becoming apparent. At any rate, we save less

than at any time since the 1950s; the teenager of today is far more likely to have plastic

than a building society.

E-money: The future of cash

We may not be that far away from a world where cash follows the cheque book into

oblivion and few transactions are conducted face to face. There are in excess of 20

billion payments of less than 10 made every year; they could all go cashless.

E-money comes in three forms, two of them specifically creations of the internet. First,

there is the "card not present" phenomenon, where you have sufficient faith in the online

retailernowadays, anyone from Tesco to Amazon and lastminute.com that you feel

happy to tap your payment card details on to a web page. You and the "shopkeeper"

never actually meet, and you never leave your home or office. Money thus moves from

being a physical commoditya gold coin, a paper banknote or a plastic cardto being a

purely virtual commodity (though of course banks themselves have long held your

current account in virtual form, as a series of binary codes in a computer file). Second,


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we have seen the growth of outfits specifically set up to facilitate payments on the web.

Perhaps the most high profile of these is Pay Pal, as featured, and trusted, on eBay.

Barclays Bank can chart its origins back to 1685, the Royal Bank of Scotland to 1727

and Lloyds to 1765; Pay Pal dates back only to 2000, yet it now operates in 103 markets,manages more than 133 million accounts and allows customers to send, receive and hold

funds in currencies from the US dollar to the Polish zloty. The real revolution, though,

may be the abolition of cash, cheques, credit cards and debit cards and their replacement

by one single means of payment, which you just wave, possibly nonchalantly, at the

shop assistant. This is what the "contact less" card promises, so called because you don't

even have to put it into a reader to buy something. The Barclaycard One Pulse card, for

example, was launched only a month ago, with 4,000 guinea-pig customers in London. It

will combine the functions of an Oyster card (Transport for London's existing "cashless"

method of prepaying for bus and Tube journeys), a Barclaycard, and a "One Touch"

contact less technology card.

This is the novel bit. It allows cardholders to make purchases of 10 or under more

quickly and conveniently with a single touch of their card against a reader instead of

entering a PIN or signature, thus reducing the need to use and carry cash. In a Bourne-

style nightmare, your every move and tiniest purchase will then be tracked by your bank

and, if legislation allows, officialdom. Thus can "they" know about your purchase of The

Independent, a flapjack and day trip to Tate Modern. Alternatively, the SIM card in your

mobile phone could be used to pay for the little things in life (they're trying this out in

South Korea). Either way, you will be being monitored. Money is what money does,

according to the old adage. And in the future, your money may even spy on you.


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Frauds in Paper Money

Counterfeit money (Indian rupee notes). Fake currency detection

Counterfeit notes are a problem of almost every country but India has been hit really

hard and has become a very acute problem. Fake Indian currency of 100,500 and 1,000

rupees seems to have flooded the whole system and there is no proper way to deal with

them for a common person. The legal way to handle is to lodge a police complain and

mention the source of the currency and then further investigations are done. The fake

currency is then sent to RBI or destroyed. RBI itself has installed currency verification

and processing systems in its various offices, each having a processing capacity of

50,000 to 60,000 pieces per hour.

PROBLEMS PEOPLE MAY FACE REPORTING / NOT REPORTING

If you are found to posses fake currency notes, and you cannot explain where you got

them from, you can even go to jail. Most people do not want to deal with this problem in

a legal way because our law enforcement (police) and legal system (courts) are not so

easy to deal with. Unlike most developed countries where a common person feels free to

report even a smallest problem to the police, in India it is quite different as most people

avoid contacting police because those investigations can be painfully inconvenient and

especially because many people in law enforcement are not exactly honest. The legal

system is even more troublesome, even a small court case in India can easily drag for

months and years. Infect most people in India do not even know how to the things to

check that differentiates a fake note from a real one. Trying to pass on a currency note,

knowing that is a fake, is a punishable offence under sections 120-B, 420 and 489-A, B,

C & D of the Indian Penal Code. Possession of counterfeit notes too is Punishable with

punishment as harsh as life imprisonment.


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FOR TOURISTS

For people travelling to India, always take money from authorized dealers and insist on a

currency exchange receipt. This proves the source of your funds in India. Never fall in

prey to a person who offers to give you a better exchange rate than exchange ratewithout receipt. Similarly convert your currency back from an authorized place only.

Fake foreign currency is common in tourist areas.

HOW MUCH MONEY IN INDIA IS FAKE:

In year 2011: The Reserve Bank of India has estimated the amount of fake currency in

Circulation at almost 1.7 trillion rupees, the report said. I am sure it is much-much

higher now. "The RBI annual report has confirmed all the fears of the security agencies

on fake currency notes in the country. The report shows that the number of counterfeit

notes seized during the year rose 87 per cent to 195,811 in FY08 compared to 104,743 in

theprevious year.

Know your Bank Note Currency - Identify fake Indian Rupees

Optical Variable Ink:

The color of the numeral 1000 appears green when the banknote is held flat but would

change to blue when the banknote is held at an angle. The font size is also reduced.

Latent Image:

When the note is head horizontally, the vertical band on the right shows an image of the

number 1000.

Security Thread:

The note also has a three millimeter wide security thread with the inscriptions: one

thousand, the word 'Bharat' in Hindi and RBI.


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Micro lettering:

The 'RBI' and the numeral, "1000" - which can be viewed with the help of a magnifying

glass - are between the Mahatma Gandhi portrait and the vertical band.

Watermark:

When the note is held against the light, the picture of Gandhi and an electrolyte mark

showing the number 1000 appear in the white space. The best way to identify a note is

the silver bromide thread that runs vertically through a currency note. Fake currency

notes tend to have silver-colored band painted in place of the silver thread. A real note

has a prominent thread with raised 'RBI' markings made on it in English and Hindi.

Also, in a real note, the color of the thread shifts from green to blue when viewed from

different angles.


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CH.2RESEARCH DESIGN

INTRODUCION

Research work follow the vast reading of literature, which is already available about the

topic, which help to form a clear idea before the research starts, before starting the

progress Customer Satisfaction For Changing Attitude of Customers towards

Plastic Money were done to collect the information about the topic which helped

immensely while doing the study. The details of what are discussed under the following

heads namely.

REVIEW OF LITERATURE

1.Chakravorti, Sujit (June 2003) in his article Theory of Credit Card Networks:

A Survey of the Literature stated that Credit cards provide benefits to consumers and

merchants not provided by other payment instruments as evidenced by their explosive

growth in the number and value of transactions over the last 20 years. Recently, credit

card networks have come under scrutiny from regulators and antitrust authorities around

the world. Focusing on interrelated bilateral transactions, several theoretical models

have been constructed to study the implications of several business practices of credit

card networks.

2. Hayashi, Fumiko and Weiner Stuart E. (sept 2005) in their article:

Competition and Credit and Debit Card Interchange Fees stated that there is a bridge

between the theoretical and empirical literatures on interchange fees. Credit and debit

card industries are examples of two-sided markets. The distinguishing Feature of two-

sided markets is they contain two sets of end users, each of whom needs the other in

order for the market to operate. In the case of credit and debit cards, the two end-user


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groups are cardholders and merchants. Payment card systems take one of two principal

forms. They may be three-party systems: Cardholders, merchants, and a single financial

institution that offers proprietary network services, for example, American Express.

Alternatively, they may be four-party systems: cardholders, merchants, card-issuingbanks, and merchant acquiring banks, using the services of a multi-party network such

as MasterCard, Visa, or a domestic debit card network. In four-party systems, the

interchange fee is an instrument that networks can use to achieve a desired Balance of

cardholder.

3.Chartered financial analyst (Nov 2007) in the article Ethical Issues Challenges

stated that the credit card company has to take into consideration the card and card is

being misused by other person. The credit card is stolen or lost and being misused credit

card companies have to focus on the security and ethical issues related to credit cards.

1.STATEMENT OF THE PROBLEM

The Fund dealings are the main purpose of opening account with the bank by the

individuals. The payment has become a fun by the introduction of Plastic Money. The

study of the attitude of customers towards the plastic money like credit card poses lot of

challenges since it depends on the individual perception of the credit card holders. Hence

the study has been expedited.

2. OBJECTIVES OF THE STUDY

To study the socio economic background of the sample credit card holders.

To study the pattern of usage of credit cards by the sample customers.

To study the customers choices and preferences in the usage of debit /credit cards.

To study how the public uses electronic purses in current scenario.


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3. RESEARCH METHODOLOGY

Survey method will be followed for the study. Both primary and secondary sources of

data are used. Well structured questionnaire is designed to elicit necessary data and

details from the Credit Card holders. The necessary secondary data will be collected

from the books, journals, margins and news papers.

METHODOLOGY:

Primary data: The data used in the research process are to be collected from various

credit card holders who hail from different spheres of activities from students to retired

employees.

Secondary data: The secondary data are collected from books, journals and official

website of different financial institutions and government institutions.

Measurement Techniques:

Observation:

The data is also collected from various banks issuing credit cards to their customers to

do financial transactions.

Sampling design:

A sample design is a definite plan for obtaining a sample from a given population. The

universe is the all items in the field of enquiry. The set of objects in the universe to be

studied are the different type electronic cards by different financial institution, The

different factors thats usages of debit and credit cards holders.

Sampling Unit:

The number of credit holders may run in an enormous number. Hence it is planned to

go for a sample to chosen from the population on an amicable method, it is planned to

chose on convenience sample method.


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Sample size: It is proposed to have a sample size of 100 credit card holders.

Plan of Analysis:

The organizations operating electronic purse systems gain from the use of the money

stored on the cards. For banks, there are advantages in reducing the handling of cash and

cheques which have to be transported securely and are labor intensive to handle.

Electronic purses are also seen as a means to protect the bank and card holder

relationship which is perceived to be important in today's competitive environment.


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CHAPTER SCHEMES

Chapter 1: Introduction

This chapter gives the clear picture about the broad area, specific area about the topic

being studied i.e. meaning etc.

Chapter 2: Review of literature and research design

This chapter gives the picture of statement of problem, objectives of conducting

research, scope of study being conducted, its application and limitations

Chapter 3: Company profile

This chapter gives the picture of the company, history, present status, activities being

carried, structure of the organization and future prospectus.

Chapter 4: Analysis and interpretation

This chapter contains the graphs and other statistical tools used in measuring the data

collected through secondary source

Chapter 5: summary of findings, conclusion, recommendations and policy

implications and scope for further study

This chapter gives the picture of various findings drawn out of analysis and

interpretation, conclusions made and suitable solutions for the problem under study as

well scope for further study


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Banking Industry Profile

In the banking industry, office and administrative support workers constitute 2 out of 3

jobs; tellers account for about 3 out of 10 jobs. Many job opportunities are expected for

tellers and other office and administrative support workers, because these occupations

are large and have high turnover. Many management positions are filled by promoting

experienced, technically skilled professional personnel.

Banks safeguard money and valuables and provide loans, credit, and payment services,

such as checking accounts, money orders, and cashiers checks.

Banks also may offer investment and insurance products, which they were onceprohibited from selling.

Banks also may offer investment and insurance products, which they were once

prohibited from selling. As a variety of models for cooperation and integration among

finance industries have emerged, some of the traditional distinctions between banks,

insurance companies, and securities firms have diminished. In spite of these changes,

banks continue to maintain and perform their primary roleaccepting deposits and

lending funds from these deposits.

Banking is comprised of two parts: Monetary AuthoritiesCentral Bank, and Credit

Intermediation and Related Activities. The former includes the bank establishments of

the U.S. Federal Reserve System that manage the Nations money supply and

international reserves, hold reserve deposits of other domestic banks and the central

banks of other countries, and issue the currency we use. The establishments in the credit

intermediation and related services industry provide banking services to the general

public. They securely save the money of depositors, provide checking services, and lend

the funds raised from depositors to consumers and businesses for mortgages, investment

loans, and lines of credit.


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There are several types of banks, which differ in the number of services they provide and

the clientele they serve. Although some of the differences between these types of banks

have lessened as they have begun to expand the range of products and services they

offer, there are still key distinguishing traits. Commercial banks, which dominate thisindustry, offer a full range of services for individuals, businesses, and governments.

These banks come in a wide range of sizes, from large global banks to regional and

community banks. As a result, employees need to know about all types of products and

services offered by banks. Community banks are based locally and offer more personal

attention, which many individuals and small businesses prefer. In recent years, online

bankswhich provide all services entirely over the Internethave entered the market,

with some success. However, many traditional banks have also expanded to offer online

banking, and some formerly Internet-only banks are opting to open branches.

Savings banks and savings and loan associations, sometimes called thrift institutions,

are the second largest group of depository institutions. They were first established as

community-based institutions to finance mortgages for people to buy homes and still

cater mostly to the savings and lending needs of individuals.

Credit unions are another kind of depository institution. Most credit unions are formed

by people with a common bond, such as those who work for the same company or

belong to the same labor union or church. Members pool their savings and, when they

need money, they may borrow from the credit union, often at a lower interest rate than

that demanded by other financial institutions.

[Excerpted from Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to

Industries, 2008-09 Edition - Banking]


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I. EVOLUTION OF BANKING IN INDIA

Modern banking in India could be traced back to the establishment of Bank of Bengal

(Jan 2, 1809), the first joint-stock bank sponsored by Government of Bengal and

governed by the royal charter of the British India Government. It was followed by

establishment of Bank of Bombay (Apr 15, 1840) and Bank of Madras (Jul 1, 1843).

These three banks, known as the presidency banks, marked the beginning of the limited

liability and joint stock banking in India and were also vested with the right of note

issue.

In 1921, the three presidency banks were merged to form the Imperial Bank of India,

which had multiple roles and responsibilities and that functioned as a commercial bank,

a banker to the government and a bankers bank. Following the establishment of the

Reserve Bank of India (RBI) in 1935, the central banking responsibilities that the

Imperial Bank of India was carrying out came to an end, leading it to become more of a

commercial bank. At the time of independence of India, the capital and reserves of the

Imperial Bank stood at Rs 118 mn, deposits at Rs 2751 mn and advances at Rs 723 mn

and a network of 172 branches and 200 sub offices spread all over the country.

In 1951, in the backdrop of central planning and the need to extend bank credit to the

rural areas, the Government constituted All India Rural Credit Survey Committee,

which recommended the creation of a state sponsored institution that will extend

banking services to the rural areas. Following this, by an act of parliament passed in

May 1955, State Bank of India was established in Jul, 1955. In 1959, State Bank of

India took over the eight former state-associated banks as its subsidiaries. To further

accelerate the credit to flow to the rural areas and the vital sections of the economy such

as agriculture, small scale industry etc., that are of national importance, Social Control

over banks was announced in 1967 and a National Credit Council was set up in 1968 to

assess the demand for credit by these sectors and determine resource allocations. The


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decade of 1960s also witnessed significant consolidation in the Indian banking industry

with more than 500 banks functioning in the 1950s reduced to 89 by 1969.

For the Indian banking industry, Jul 19, 1969, was a landmark day, on which

nationalization of 14 major banks was announced that each had a minimum of Rs 500

mn and above of aggregate deposits. In 1980, eight more banks were nationalized. In

1976, the Regional Rural Banks Act came into being, that allowed the opening of

specialized regional rural banks to exclusively cater to the credit requirements in the

rural areas. These banks were set up jointly by the central government, commercial

banks and the respective local governments of the states in which these are located.

The period following nationalization was characterized by rapid rise in banks business

and helped in increasing national savings. Savings rate in the country leapfrogged from

10-12% in the two decades of 1950-70 to about 25 % post nationalization period.

Aggregate deposits which registered annual growth in the range of 10% to 12% in the

1960s rose to over 20% in the 1980s. Growth of bank credit increased from an average

annual growth of 13% in the 1960s to about 19% in the 1970s and 1980s. Branch

network expanded significantly leading to increase in the banking coverage.

Indian banking, which experienced rapid growth following the nationalization, began to

face pressures on asset quality by the 1980s. Simultaneously, the banking world

everywhere was gearing up towards new prudential norms and operational standards

pertaining to capital adequacy, accounting and risk management, transparency and

disclosure etc. In the early 1990s, India embarked on an ambitious economic reform

programme in which the banking sector reforms formed a major part. The Committee

on Financial System (1991) more popularly known as the Narasimham Committee

prepared the blue print of the reforms. A few of the major aspects of reform included

(a) moving towards international norms in income recognition and provisioning and

other related aspects of accounting (b) liberalization of entry and exit norms leading to

the establishment of several New Private Sector Banks and entry of a number of new


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Foreign Banks (c) freeing of deposit and lending rates (except the saving deposit rate),

(d) allowing Public Sector Banks access to public equity markets for raising capital and

diluting the government stake,(e) greater transparency and disclosure standards in

financial reporting (f) suitable adoption of Basel Accord on capital adequacy (g)introduction of technology in banking operations etc. The reforms led to major changes

in the approach of the banks towards aspects such as competition, profitability and

productivity and the need and scope for harmonization of global operational standards

and adoption of best practices. Greater focus was given to deriving efficiencies by

improvement in performance and rationalization of resources and greater reliance on

technology including promoting in a big way computerization of banking operations

and introduction of electronic banking.

The reforms led to significant changes in the strength and sustainability of Indian

banking. In addition to significant growth in business, Indian banks experienced sharp

growth in profitability, greater emphasis on prudential norms with higher provisioning

levels, reduction in the non performing assets and surge in capital adequacy. All bank

groups witnessed sharp growth in performance and profitability. Indian banking

industry is preparing for smooth transition towards more intense competition arisingfrom further liberalization of banking sector that was envisaged in the year 2009 as a

part of the adherence to liberalization of the financial services industry.

II. STRUCTURE OF THE BANKING INDUSTRY

According to the RBI definition, commercial banks which conduct the business of

banking in India and which (a) have paid up capital and reserves of an aggregate real

and exchangeable value of not less than Rs 0.5 mn and (b) satisfy the RBI that their

affairs are not being conducted in a manner detrimental to the interest of their

depositors, are eligible for inclusion in the Second Schedule to the Reserve Bank of

India Act, 1934, and when included are known as Scheduled Commercial Banks.

Scheduled Commercial Banks in India are categorized in five different groups


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according to their ownership and/or nature of operation. These bank groups are (i) State

Bank of India and its associates, (ii) Nationalised Banks, (iii) Regional Rural Banks,

(iv) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in the private

sector). All Scheduled Banks comprise Schedule Commercial and Scheduled Co-operative Banks. Scheduled Cooperative banks consist of Scheduled State Co-operative

Banks and Scheduled Urban Cooperative Banks.

Banking Industry at a Glance

In the reference period of this publication (FY06), the number of scheduled commercial

banks functioning in India was 222, of which 133 were regional rural banks. There are

71,177 bank XIV offices spread across the country, of which 43 % are located in rural

areas, 22% in semi-urban areas, 18% in urban areas and the rest (17 %) in the

metropolitan areas. The major bank groups (as defined by RBI) functioning during the

reference period of the report are State Bank of India and its seven associate banks, 19

nationalized banks and the IDBI Ltd, 19 Old Private Sector Banks, 8 New Private

Sector Banks and 29 Foreign Banks.

Table 1: Indian Banking at a Glance

Source: Reserve Bank of India


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Table 2: Number of Banks, Group Wise

Source: Indian Banks Association/ Reserve Bank of India.

* Includes Industrial Development Bank of India Ltd.

Table 3: Group Wise: Comparative Average

Source: Reserve Bank of India.


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Table 4: Bank Groups: Key Indicators

Source: Reserve Bank of India.


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Mergers & Acquisitions

During FY06, two domestic banks were amalgamated - Ganesh Bank of Kurundwad

with Federal Bank Ltd and Bank of Punjab Ltd with Centurion Bank Ltd to become

Centurion Bank of Punjab Ltd, while one Foreign bank UFJ Bank Ltd merged with

Bank of Tokyo-Mitsubishi Ltd. ING Bank NV closed its business in India. In Sept,

2006, The United Western Bank Ltd was placed under moratorium leading to its

amalgamation with Industrial Development Bank of India Ltd. in Oct, 2006. On Apr 1,

2007, Bharat Overseas Bank an old private sector bank was taken over by Indian

Overseas Bank and on Apr 19, 2007, Sangli Bank, another old private sector bank was

merged with ICICI Bank, a new private sector bank.

Shareholding Pattern

As of Mar 2006, only four Nationalized Bank had 100% ownership of the Government.

These are Central Bank of India, Indian Bank, Punjab and Sind Bank and United Bank

of India. As of Mar 2006, the government shareholding in the State Bank of India stood

at 59.7% and in between 51-77% in other nationalized banks. In Feb 2007, Indian Bank

came out with a public issue thus leaving only three nationalized banks having 100%

government ownership. Foreign institutional holding up to 20% of the paid up is

allowed in respect of Public Sector Banks including State Bank of India and many of

the banks have reached the threshold level for FII investment. In respect of Private

Sector Banks where higher FII holding is allowed, threshold limit has been reached in

the leading banks.


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III. INDIAN BANKING AND INTERNATIONAL TRENDS

When compared to other emerging markets, the growth of Indian banking has been

impressive and compares favorably on several counts. A recent study by Bank for

International Settlements on the progress and the prospects of banking systems in

emerging countries highlights the following features of the performance of Indian

banks:

Average growth rate of real aggregate credit in India rose from 6.1% during the

period 1995- 99 to 14.6 % in 2000-04.

The average growth rate of real aggregate credit in India during 2000-04 in India

is higher as compared to major countries and regions in the emerging markets,

such as China (13.3%), Other Asia (4.7%), Latin America (4.5%), and Central

Europe (9.6%).

Commercial banks in India account for a major share of the bank credit (97%) as

compared to Latin America (68%), Other Asia (74%) and Central Europe (83%).

Real bank credit to the private sector has shown sustained growth in India, and

has moved from 3.9% a year in 1990-94 to 6.9% a year in 1995-99 to 13.5 % a

year in 2000-04. In 2005, real bank credit to the private sector in India showed a

growth of 30% year-on-year as against 9.4% in China and 15.8% in emerging

markets.

In India, during the period 1999 and 2004, non-performing loans as a percentage

of total commercial bank assets came down from 6.1% to 3.3%, capital asset

ratios moved up from 11.3% to 12.9% and operating costs as a percentage of

total assets reduced from 2.4% to 2.3%. NPAs in China in 2004 stood at 6%.

In India, return on assets of banks during the period 1999-2004 moved up from

0.4% to 1.1%, and return on equity from 8.5% to 20.9% where as in China the

former rose from 0.1% to 0.3%.


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Plastic Money in India

Plastic Money never saw it Better in India than Now!

India has come out of self-binding shackles to look "young" again and the enthusiasm

shared by the young work force of the country is driving the economy like never-before.

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. It will not be wrong to say that such

a scenario in context of the Indian market is not driven by style statement and is driven

more by needs. The benefits of plastic money have offered unmatched ways to create

equilibrium and offer an amicable solution when it comes to purchases and the inability

to possess or carry cash. The modern day Indian customers find it easier to make

physical payment (credit card payments) rather than carrying too much cash. The

introduction of credit card facilities to pay for mobile, electricity, movie tickets and

other related transactions have also contributed to the growth of plastic money in the

country.

Best credit cards (India)

In context of the Indian market, the leading credit card service providers are ICICI,

HDFC, HSBC and Standard Chartered to name a few. These financial institutions have

tried their hands on ensuring value-addition while offering customer-friendly credit card

deals. 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. Statistics have clearly revealed that the numbers of

credit card holders in India are close to 22 million as of January, 2007. It has been also

revealed that the increasing consumerism in the country has led to a two fold increase in


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the number of credit card transactions from FY 2003-04 to 2005-06. The trends were as

favorable as ever in the financial years, FY 2006-07 and 2007-08 and the same.

The credit card system started in India

While the first card was issued in India by visa in1981 and country first gold card was

also issued from the same. The first international credit card was issued to a restricted

number of customers by Andhra bank1987 through the visa programmer, after getting

through special permission from RBI later the AZN credit cards came in 1989. However

the credit card industry in India grown exponentially in its 15 years of business in the

country it had issued 2.69 corers card till December 2003. However in just one year

2004, the figure has spurted to 4.33 corers.

RBI Guidelines on credit card operations

The reserve bank of India has placed draft guidelines on credit card operation from the

members of the public. The guidelines, when finally issued would be applicable to all

commercial banks/non-commercial finance companies (NBFCs) and would come to

effect as soon as implemented. It may be recalled that the Reserve bank had constituted a

working Group to evolve a regulatory mechanism for cards to ensure orderly growth of

this segment of consumer credit and protect the interest of banks / NBFC and their

customers. The report of the group was placed in public domain on April 23, 2005. The

draft guidelines issued now have been framed taking into account the feedback received

from media, member of the public and other on the report of the working Group. The

draft guidelines are as each Bank /NBFC has a well documented policy and a fair

practices code for credit card and should widely disseminate contents.


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FEATURES OF PLASTIC MONEY

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. Credit cardsare accepted worldwide, and are available with a large variety of credit limits, repayment

arrangement, and other perks (such as rewards schemes in which points earned by

purchasing goods with the card can be redeemed for further goods and services or credit

card cash back). Some countries, such as the United States, the United Kingdom, and

France, limit the amount for which a consumer can be held liable due to fraudulent

transactions as a result of a consumer's credit card being lost or stolen.

Revenues: Offsetting costs are the following revenues:

Interchange fee

Bank card associations such as Visa and MasterCard require merchants to pay billions of

dollars in Interchange fees to banks that issue their credit and debit cards. Card issuing

banks obtain these interchange fees in addition to the enormous revenue they receive

from card holder interest and fees. Interchange fees are the single largest component of

the various fees that banks deduct from merchants' credit card sales. Merchants pay their

banks fees of 1 to 6 percent of each sale (for large merchants these fees may be

negotiated, but will vary not only from merchant to merchant, but also from card to card,

with business cards and rewards cards generally costing the merchants more to process),

which is why many merchants prefer cash, PIN-based debit cards, or even cheques, or

will add a percentage to the sale price to cover the interchange fee. For a typical credit

card issuer, interchange fee revenues may represent about a quarter of total revenues, but

this will vary greatly among credit card issuers. Interchange fees may consume over 50

percent of profits from card sales for some merchants (such as supermarkets) that

operate on slim margins.


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Merchants contend

That interchange fees force them to raise prices for everyone; banks contend that

interchange fees enable them to offer better cardholder rewards for their best customers.

Hidden costs

In the United Kingdom, merchants won the right through The Credit Cards (Price

Discrimination) Order 1990 to charge customers different prices according to the

payment method. The United Kingdom is the world's most credit-card-intensive country,

with 67 million credit cards for a population of 59 million people. In the United States,

until 1984 federal law prohibited surcharges on card transactions. Although the federal

Truth in Lending Act provisions that prohibited surcharges expired that year, a number

of states have since enacted laws that continue to outlaw the practice; California,

Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, New York, Oklahoma,

and Texas have laws against surcharges.

Redlining

Credit Card redlining is a spatially discriminatory practice among credit card issuers of

providing different amounts of credit to different areas, based on their ethnic-minority

composition, rather than on economic criteria, such as the potential profitability of

operating in those areas.

Operating costs

This is the cost of running the credit card portfolio, including everything from paying the

executives who run the company to printing the plastics, to mailing the statements, to

running the computers that keep track of every cardholder's balance, to taking the many

phone calls which cardholders place to their issuer, to protecting the customers from

fraud rings.


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Charge offs

When a consumer becomes severely delinquent on a debt (often at the point of six

months without payment), the creditor may declare the debt to be a charge-off. It will

then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists"R9" in the "status" column to denote a charge-off.) The item will include relevant dates,

and the amount of the bad debt. A charge-off is considered to be "written off as

uncollectable." To banks, bad debts and even fraud are simply part of the cost of doing

business. However, the debt is still legally valid, and the creditor can attempt to collect

the full amount for the time periods permitted under state law, which is usually 3 to 7

years. This includes contacts from internal collections staff, or more likely, an outside

collection agency.

Profits and losses

In recent times, credit card portfolios have been very profitable for banks, largely due to

the booming economy of the late nineties. However, in the case of credit cards, such

high returns go hand in hand with risk, since the business is essentially one of making

unsecured (uncollateralized) loans, and thus dependent on borrowers not to default in

large numbers.

Costs

Credit card issuers (banks) have several types of costs:

Interest expenses

Banks generally borrow the money they then lend to their customers. As they receive

very low interest loans from other firms, they may borrow as much as their customers

require, while lending their capital to other borrowers at higher rates. If the card issuer

charges 15% on money lent to users, and it costs 5% to borrow the money to lend, and

the balance sits with the cardholder for a year, the issuer earns 10% on the loan. This 5%

difference is the "interest expense" and the 10% is the "net interest spread".


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Frauds in plastic money

The cost of fraud is high; in the UK in 2004 it was over 500 million. When a card is

stolen, or an unauthorized duplicate made, most card issuers will refund some or all of

the charges that the customer has received for things they did not buy. These refundswill, in some cases, be at the expense of the merchant, especially in mail order cases

where the merchant cannot claim sight of the card. In several countries, merchants will

lose the money if no ID card was asked for, therefore merchants usually require ID card

in these countries. Credit card companies generally guarantee the merchant will be paid

on legitimate transactions regardless of whether the consumer pays their credit card bill.

Problems

A smart card, combining credit card and debit card properties. The 3 by 5 mm security

chip embedded in the card is shown enlarged in the inset. The contact pads on the card

enable electronic access to the chip. The low security of the credit card system presents

countless opportunities for fraud. This opportunity has created a huge black market in

stolen credit card numbers, which are generally used quickly before the cards are

reported stolen. The goal of the credit card companies is not to eliminate fraud, but to

"reduce it to manageable levels". This implies that high-cost low-return fraud prevention

measures will not be used if their cost exceeds the potential gains from fraud reduction.

Most internet fraud is done through the use of stolen credit card information which is

obtained in many ways, the simplest being copying information from retailers, either

online oroffline. Despite efforts to improve security for remote purchases using credit

cards, systems with security holes are usually the result of poor implementations of card

acquisition by merchants. For example, a website that uses SSL to encrypt card numbers

from a client may simply email the number from the web server to someone who

manually processes the card details at a card terminal. Naturally, anywhere card details

become human-readable before being processed at the acquiring bank, a security risk is

created. However, many banks offer systems where encrypted card details captured on a


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merchant's web server can be sent directly to the payment processor. Three

improvements to card security have been introduced to the more common credit card

networks but none has proven to help reduce credit card fraud so far. First, the on-line

verification system used by merchants is being enhanced to require a 4 digit PersonalIdentification Number (PIN) known only to the card holder. Second, the cards

themselves are being replaced with similar-looking tamper-resistant smart cards which

are intended to make forgery more difficult. The majority of smartcard (IC card)based

credit cards comply with the EMV (Euro pay MasterCard Visa) standard. Third, an

additional 3 or 4 digit code is now present on the back of most cards, for use in "card not

present" transactions. The way credit card owners pay off their balances has a

tremendous effect on their credit history. All the information is collected by credit

bureaus. The credit information stays on the credit report, depending on the jurisdiction

and the situation, for 1, 2, 5, 7 or even 10 years after the debt is repaid.

TYPES OF PASTIC CARDS

Credit card

A credit card is plastic money that is used to pay for products and services at over 20

million locations around the world. All you need to do is produce the card and sign a

charge slip to pay for your purchases. The institution which issues the card makes the

payment to the outlet on your behalf; you will pay this 'loan' back to the institution at a

later date.

Debit card

Debit cards are substitutes for cash or check payments, much the same way that credit

cards are. However, banks only issue them to you if you hold an account with them.

When a debit card is used to make a payment, the total amount charged is instantly


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reduced from your bank balance. A debit card is only accepted at outlets with electronic

swipe-machines that can check and deduct amounts from your bank balance online.

Charge cardA charge card carries all the features of credit cards. However, after using a charge card

you will have to pay off the entire amount billed, by the due date. If you fail to do so,

you are likely to be considered a defaulter and will usually have to pay up a steep late

payment charge. When you use a credit card you are not declared a defaulter even if you

miss your due date. A 2.95 percent late payment fees (this differs from one bank to

another) is levied in your next billing statement.

Amex card

Amex stands for American Express and is one of the well-known charge cards. This card

has its own merchant establishment tie-ups and does not depend on the network of

MasterCard or Visa. This card is typically meant for high-income group categories and

companies and may not be acceptable at many outlets. There are a wide variety of

special privileges offered to Amex cardholders.

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 customers world-wide may use their respective credit

cards to make various purchases.

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 authorization is required for using this card. The


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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

If your photograph is imprinted on a card, 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 travelers 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. For


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example, the City-Times card gives you all the benefits of a Citibank credit card along

with a special discount on Times Music cassettes, free entry to Times Music events, etc.

Affinity cardThe card issuer ties up with popular organizations/ institutions which are often non-

profit

Organizations (City-WWF card or the Stan chart-Cricket cards) to offer an affinity card.

When the card is used, a certain percentage is contributed to the organization /institution

by the card issuer.

Add-on card

An add-on card allows you to apply for an additional credit card within the overall credit

limit. You can apply for this card in the name of family members like your father/

mother/ spouse/ brother/ sister/ all children above 18 years of age. Your billing

statement would reflect the details of purchases made using the add-on card. You are

liable to make good all the payments for the purchases made using the add-on card(s).

Secured credit cards

A secured credit card is a type of credit card secured by a deposit account owned by the

cardholder. Typically, the cardholder must deposit between 100% and 200% of the total

amount of credit desired. Thus if the cardholder puts down $1000, they will be given

credit in the range of $500$1000. In some cases, credit card issuers will offer

incentives even on their secured card portfolios. In these cases, the deposit required may

be significantly less than the required credit limit, and can be as low as 10% of the

desired credit limit. This deposit is held in a special savings account. Fees and service

charges for secured credit cards often exceed those charged for ordinary non-secured

credit cards, however, for people in certain situations, (for example, after charging off on

other credit cards, or people with a long history of delinquency on various forms of


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debt), secured cards can often be less expensive in total cost than unsecured credit cards,

even including the security deposit. Sometimes a credit card will be secured by home.

This is called a Home Equity Line Of Credit (HELOC).

Prepaid "credit" cards

A Prepaid Credit Card is not a credit card, since no credit is offered by the card issuer:

the cardholder spends money which has been "stored" via a prior deposit by the card-

holder or someone else, such as a parent or employer. However, it carries a credit-card

brand (Visa, MasterCard, American Express or Discover) and can be used in similar

ways just as though it were a regular credit card. After purchasing the card, the

cardholder loads it with any amount of money, up to the predetermined card limit [and

then uses the card to make purchases the same way as a typical credit card. Prepaid cards

can be issued to minors (above 13) since there is no credit line involved.

The main advantage over secured credit cards (see above section) is that you are not

required to come up with $500 or more to open an account. With prepaid credit cards

you are not charged any interest but you are often charged a purchasing fee plus monthly

fees after an arbitrary time period. Many other fees also.

Collectible credit cards

A growing field of numismatics (study of money), or more specifically economic (study

of money-like objects), credit card collectors seek to collect various embodiments of

credit from the now familiar plastic cards to older paper merchant cards, and even metal

tokens that were accepted as merchant credit cards. Early credit cards were made of

celluloid, then metal and fiber, then paper and are now mostly plastic.

The Rise of Plastic Money

Indian consumers have never had it so good. The soiled notes are definitely out. Plastic

money in! Carrying cash is no more `a pain in the neck' as consumers are relying more


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on the `plastic card, which gives them money on credit. 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 vyingfor 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. Stan chart 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. The credit card market in India, which started out in 1981, is on

the verge of an unprecedented boom. Between 1987 and 2000, the market has virtually

grown to over 3.8 million cards with almost 25-30 % growth in new cardholders. SBI,

one of the late entrants in the card market, has managed to grab over 8 per cent of the

market share from the bigwigs like Citibank and Standard Chartered Bank. The bank's

credit card business has grown by 8 per cent over the last two years. According to bank

officials, SBI's card issue so far is to the tune of 0.28 million which is expected to cross

the 1 million mark by the fiscal 2002. The bank is also planning to launch debit card,

global card, gold card and corporate card shortly. In a bid to tap the lower middle class

segment, SBI is currently sharpening its marketing skills for the launch of `secure card',

aimed at its fixed deposit clients. The bank will be launching this new product at five of

its branches at Delhi, the country's capital within a fortnight. With the launch of `secure

card', SBI will become the first bank to tap the lower middle class segment. By the end

of the fiscal 2000, the bank is expected to take the secure card to over 36 centers

throughout the country. The bank is putting its best foot forward to compete with global

card majors like Citibank and Standard Chartered Bank. The global bigwigs have

already established themselves as the bankable brands' in the metros. However, in a bid


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to move to greener pastures, they are trying to tap the co-branded card market which has

vast potential for growth. Citibank, which is leading the card empire, recently launched a

co-branded credit card in partnership with Indian Oil Corporation. The card will offer its

members reward points on every international spend which can be redeemed for freefuel in India. Thus in a scenario where almost the entire card market is dominated by the

phirang banks, why the SBI-GE Capital subsidiary gung-ho about slicing off a major

chunk of the card market?

Expanding the Card Pie

There may be 3.8 million cards today. But the catch is that there are not 3.8 million

cardholders - one person has multiple cards. This makes the job of selling cards all the

more difficult since everybody is targeting the same market segment. What's more,

multiple card ownership ends up splitting card spends. If SBI ends up targeting the same

multiple card customer-bases, then it is unlikely to make much headway. Reason:

Citibank and other foreign issuers like Hongkong Bank and Standard Chartered Bank

have already embarked on a massive marketing campaign to boost card usage. Thus to

move ahead of these phirang banks, nationalized banks like SBI and BoB are targeting

virgin territories. These banks are taking their products to smaller townships in Uttar

Pradesh, Andhra Pradesh and Orissa including others to widen their client base. Even in

a city like Mumbai, with an adult population of 7 million, card ownership is barely 2.5

million. Now, SBI is perhaps best poised to geographically expand the existing credit

card base and drive up penetration. Its 8,800 branch network with an almost 100 per cent

geographic coverage covers almost 25% of the bankable population of the country. SBI

is banking heavy on direct mailing exercise aimed at its existing database, and bypassing

the direct sales model, adopted by the foreign banks.

Citibank, Standard Chartered Bank, HSBC, SBI, ANZ ,Grind lays Bank of Baroda

Others Card Issue (31st March 2000) 1.5 m 0.67 m 0.30 m 0.28 m 0.26 m 0.22 m 0.57m.


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Targeting the Customers

Currently, there is lack of awareness among potential cardholders, which is likely to

stifle card growth. Most of the banks are relying on freebees and bundle of services likefree accident policy, special shopping offers, purchase protection and add-ons like

additional cards for family members of the cardholder to woo customers. The smart ones

like HSBC are offering very high credit limit to tap customers. Last month, HSBC

launched `Maha' card `with jyada power' which offer customers 25 % higher credit limit

than the limit on any other credit card held by the cardholder. In order to track the 4

million potential customers presently untouched by the `plastic money' is immense. The

only solution is to expand geographical coverage, which is tricky for the simple fact that

Visa and MasterCard have distinct skews towards metros. Only banks, which penetrate

the Indian countryside, will be able to stand the test of the time. For present, consumer is

definitely the king.

The How's & Wherefores of Plastic Money

Not all credit cards are created equal. In fact, they can be as individualist as the people

who use them. So when you're trying to find the best one for your individual needs, it

can get very confusing very fast. Fortunately, there are lots of online credit card clearing

house type companies who help you do the research and save you time, money and

headaches. Just as with everything in life, a little homework goes a long way. It

behooves us all, in this fast-becoming-cashless-society. To familiarize ourselves with the

businesses that provide this credit card screening service; a short visit is a real eye

opener when you see how much is out there in the way of plastic money. There are low-

to-no interest credit cards, secured credit card, airline mile cards, cards that offer rewards

in the form of cash back bonuses on your purchases (or in other forms, such as points),


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cards with no annual fee, cards with different rates and terms - the list is almost endless.

And since you may well have to depend on your credit rating one day for something

important, using credit cards wisely makes very good sense. Let's say you stumbled on a

fantastic deal for a house. You weren't planning on it, but it would be a real opportunitylost if you couldn't take advantage of it. You go for a loan. The first thing your potential

creditors want to know is whether you are capable of repaying your debt. They'll look at

your job, how much overhead you have, where you live now, and all kinds of factors.

And they will definitely get your credit rating. This one number alone carries a heavy

weight in a creditor's mind. In fact, it could easily make or break the deal of a lifetime.

Use your credit card wisely, not frivolously, and you will build the strength of your

credit history with every purchase and payment. Credit card companies love to rake in

the late fees and raise interest rates when you fall behind. Being aware of these pitfalls is

part of being a responsible adult these days. Building a good credit card payment history

is part and parcel of good financial sense. You don't need to maintain a zero balance. In

fact, a balance can demonstrate, to your benefit that you're able to borrow and pay back

on a regular basis. Just keep the balance low. Take responsibility for your credit, and it

will be there for you and your family when you really need it.

PLASTIC CARDS & USES:-

1. Card Types and there uses.

This section of the Interlard web site is designed to help you understand the various

types of plastic card available and their respective uses.

2. Access Control Card

Access control card is a plastic card used to gain/control access to premises or enter

restricted areas. Usually associated with magnetic or chip cards and proximity cards

with or without photo e.g. ID badges.


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3. Affinity card

Affinity card is a form of loyalty card where the co-branding partner is a charity or

organization that benefits financially from card use.

4. Barcode Card

Barcode card is a card with printed codes made from vertical lines of different

thickness used for fast error free data entry printed somewhere on the face or reverse.

There is an array of machine-readable rectangular bars and spaces arranged in a

specific way defined in international standards to represent letters, numbers, and

other human readable symbols.

5. Blank Cards

Blank card it is totally blank card & cards with no printing usually used in imaging

machines.

6. Charge Card

Charge card is a payment card that provides automatic credit within a given invoice

date (usually monthly).

7. Cheque guarantee card

Cheque guarantee card is a card issued by a bank or building society for the purpose

of Guaranteeing settlement of cheques to third parties or supporting the encashment

of cheques at financial institutions up to a specified value. Most debit and some

credit cards may also function as cheque guarantee cards (multifunction cards).

8. Chip Card

Chip card is another name for a smart card; refers to a plastic card with an embedded

integrated circuit, which offers memory and micro processing capabilities.


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9. Combo Card

Combo card is a smart card with both "contact" and "contactless" technology on one

card. It is a smart card that transmits and receives data using radio frequencies (RF)

technology to communicate with compatible terminal. Any card where information istransferred to a reader via a series of contact points located on the card is knows as

contact card.

10.Company Card

Company card is a card issued to or by a company for use by an employee for

business-related transactions (e.g., purchases, logical access, and physical access).

11.Contactless Smart Card

Contactless smart card is a smart card that transmits and receives data using radio

frequencies (RF) technology to communicate with compatible terminal. Eliminates

physical contact or insertion into reader terminal while retaining intelligence.

12.Contact Smart Card

Contact smart card is a smart card that requires physical contact with a card reading

device to exchange data. Any card where information is transferred to a reader via a

series of contact points located on the card.

13.Credit Card

Credit card is a term used for a card allowing its owner to spend money with no

immediate reimbursement. It is basically use for any credit purpose in terms of

money.

14.Debit Card

Debit card is a card similar to a credit card, but differs by immediately withdrawing

money from an account and transferring it to another account. It replaces cheques

and does not have a credit line associated.


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SAFETY MEASURES & PRECAUTIONS

PLASTIC CARDS SAFETY MEASURES

Credit card security relies on the physical security of the plastic card as well as the

privacy of the Some merchants will accept a credit card number for in-store purchases,

whereupon access to the number allows easy fraud, but many require the card itself to be

present, and require a signature. Thus, a stolen card can be cancelled, and if this is done

quickly, no fraud can take place in this way. For internet purchases, there is sometimes

the same level of security as for mail order (number only) hence requiring only that the

fraudster take care about collecting the goods, but often there are additional measures.

The main one is to require a security PIN with the card, which requires that the thief

have access to the card, as well as the PIN. An additional feature to secure the credit


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card transaction and prohibit the use of a lost credit card is the MobiClear solution. Each

transaction is authenticated through a call to the user mobile

phone. The transaction is released once the transaction has been confirmed by the

cardholder pushing his/her pin code during the call. The PCI DSS is the securitystandard issued by The PCI SSC (Payment Card Industry Security Standards Council).

This data security standard is used by acquiring banks to impose cardholder data security

measures upon their merchants.

Interest on outstanding balances.

Interest charges vary widely from card issuer to card issuer. Often, there are "teaser"

rates in effect for initial periods of time (as low as zero percent for, say, six months),

whereas regular rates can be as high as 40 percent. In the U.S. there is no federal limit on

the interest or late fees credit card issuers can charge; the interest rates are set by the

states, with some states such as South Dakota, having no ceiling on interest rates and

fees, inviting some banks to establish their credit card operations there. Other states, for

example Delaware, have very weak usury laws. The teaser rate no longer applies if the

customer doesn't pay his bills on time, and is replaced by a penalty interest rate (for

example, 24.99%) that applies retroactively. So customers should be wary of these offers

that usually contain some traps.

Fees charged to customers the major fees are for:-

Late payments or overdue payments Charges that result in exceeding the credit limit on

the card (whether done deliberately or by mistake), called over limit fees Returned

cheque fees or payment processing fees (e.g. phone payment fee) Cash advances and

convenience cheques (often 3% of the amount) Transactions in a foreign currency (as

much as 3% of the amount). A few financial Institutions do not charge a fee for this.

Membership fees (annual or monthly), sometimes a percentage of the credit limit.

Exchange Rate Loading Fees (May not even appear on your statement!).


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debit cards), the card issuer must investigate errors reported to them within 60

days of the date your statement was mailed to you.

Keep a record - in a safe place separate from your cards - of your account

numbers, expiration dates, and the telephone numbers of each card issuer so youcan report a loss quickly.

Carry only those cards that you anticipate you'll need.

To Do:

Please sign on the signature panel on the reverse of the Card immediately with a

nonperishable ball-point pen (preferably in black ink). This will ensure that the

benefits of membership are yours and yours alone.

Keep the Card in a prominent place in your wallet. You will notice if it is missing.

Final Project Customer Attitude

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