CERTIFICATE This is to certify that the project entitled Plastic Money is successfully done by Tanvi.J.Shah during the Third year , 5th sem of B.com { Financial markets } under the university of Mumbai through the Thakur College Of Science and Commerce, kandivali ,Mumbai -400101.

_____________________ ____________________ ___________________Co-coordinator Project Guide Principal

Date- ___________ Place-Mumbai____________________________External Examiner

DECLARATION I Tanvi.J.Shah from Thakur College of Science and Commerce, student of T.Y.Bcom (financial markets), semester V, examination seat no.-___________, here by submit my project report on Plastic Money. I also declare that this project which is the partial fulfillment of the requirement for the degree of T.Y.Bcom (financial markets) of the Mumbai University is the result of my own efforts with the help of experts.

Date-____________

ACKNOWLEDGEMENT It gives me immense pleasure in presenting the project on Plastic Money. Firstly, I take the opportunity in thanking the almighty and my parents without whose continuous blessings; I would not have been able to complete this project. I would like to thank my project guide _____________ for his/her great help, valuable opinions, advice and suggestions in fulfillment of this project. I am also grateful to my coordinator Mrs.Rashmi.V.Shetty for always encouraging and given me new hope to do this project. I am thankful to our college for all the possible assistance and support, by making available the required books and the internet room which have proved useful to me in successful in completing my project. I hope that I have succeeded in presenting this project to the best of my abilities.

EXECUTIVE SUMMARY This book on plastic money is divided into two sections titled Concepts and Experiences. The former covers articles on the emergence of plastic money , different types of plastic cards and their growth in India and other related issues .An experience discusses the experiences of banks like Standard Chartered, Citibank , which deals with Plastic money and their growth in the market. The plastic payment card market has had tremendous growth over the last decade and there are by now 97 million payment cards in circulation in the UK only, with a predicted 130 million cards by the year 2000. As the industry life cycle comes into its mature stage competition becomes fiercer and consumer bargaining power is growing. Possible sources of value added have been mostly exploited. However, one of the less exploited sources of value added is the security aspect of plastic money. There are a number of different card types and everyone has its advantages and its disadvantages. Cards can be divided into categories by its technical features (smart card or magnetic stripe card) and by the way the issuer charges the account (charge-, credit-, and debit-card). Regardless of the type of card, the payment circle remains the same. It consists of the issuer of the card, the cardholder, the merchant and the acquirer. Most fraud occurs at the point of sale (POS) but the merchants cover only one third of the damage whereas the issuers cover the remaining two thirds. This puts the issuers on the receiving end of fraud. It is therefore not surprising that a perfect creditworthiness is a condition to possess a payment card. This is the reason why only 20 million citizens in the entire UK have a payment card. This situation is unlikely to change if the security standard remains at the current level since fraud is increasing again after a decrease some years ago. In order to combat fraud effectively current technologies have to be developed further and new technologies have to be implemented. Magnetic stripes, encryption and hot card file verification are examples of the first and smart cards and biometric verification are examples of the latter. There are a number of typical attack patterns and corresponding counter measures but so far security systems cannot guarantee a 100% security. If anyone issuer is to build a sustainable competitive advantage, the security aspect offers itself for further exploitation. Not only is it a good method to decrease losses due to fraud but it is also a valuable marketing tool as empirical evidence shows. The leader in terms of security has therefore a big advantage in establishing a cost leadership and in differentiating himself forms his competitors. But at the moment banks and other issuers hesitate to implement innovative solutions to battle fraud although some countries have shown a high readiness for the introduction of new methods (South Africa, Czech Republic and Russia). Furthermore have there been first attempts to establish future standards for new technologies by many countries e.g. UK and EC. Traditionally banks have been cautious about admitting losses due to fraud in order to avoid damaging their image but even the banks annual reports are mentioning the problem by now. This indicates that the future development will be one towards innovation and fraud detection and prevention.

In early age, there were many ways in which trade took place but they had their own limitations. Some of the ways are:-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 human kind 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. China, in 1,000 B .C. produced mock cowry shells at the end of the Stone Age.FIRST METAL MONEY: Tools made of metal, like knives and spades, were 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.NOSES: During 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. 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.OBJECTIVES OF STUDY Primary objective -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 anddebit cards To know the problems faced by respondents using plastic money. To study the satisfaction level of consumers towards plastic money.INDEXSR NO.CHAPTER NO.TOPIC PAGE NO.

1CH1.INTRODUCTION

2CH2.NEED AND SCOPE OF STUDY

3CH3.FUTURE SCENARIO OF PLASTIC MONEY

4CH4.TYPES OF PLASTIC MONEY

5CH5.CREDIT CARDS

6CH6.DEBIT CARDS

7CH7.ATM CARDS

8CH8.MASTER CARDS

9CH9.STANDARD CHARTERED

10CH10.ADVANTAGES V/S DISADVANTAGES

11CH11.TECHNOLOGY & INFRASTRUCTURE

12CH12.FRAUDS

13CH13.CASE STUDY

14CH14.METHOD TO PREVENT THE INCREASING ABUSE OF PLASTIC MONEY

15CH15.SURVEY

16-CONCLUSION

17-BIBLIOGRAPHY

40

CH(1)-INTRODUCTION

MEANING Plastic money refers to credit cards, you use them whenever you want and pay later (with interest, of Course). It makes it too easy for people to buy things they normally could not afford, which makes it easier to get into debt. Plastic money is a term that is used predominantly in reference to the hard plastic cards we use every day in place of actual bank notes. A colloquial name for credit card, cash card, debit card, or multifunctional card. It is often shortened to plastic.DEFINATION A slang phrase for credit cards, especially when such cards used to make purchases. The plastic portion of this term refers to the plastic construction of credit cards, as opposed to paper and metal of currency. The money portion is an erroneous reference to credit cards as a form of money, which they are not. Although credit cards do facilitate transactions, because they are a liability rather than an asset, they are not money and not part of the economys money supply. Plastic money or polymer money, made out of plastic, is a new and easier way of paying for goods and services. Such polymer bank notes incorporate many security features not available to paper banknotes, including the use of metameric inks; they also last significantly longer than paper notes resulting in a decrease in environmental impact and reduction of production and replacement costs .Nothing has come to represent cash the way plastic cards have. The idea of using a card to make purchases was first drawn by Edward Bellemy in 1887. The US was the first country to launch it in the early 1990s. It was dinner club international, the first independent credit card company in the world and the American Express which has changed the way cards were used .They developed it into tangible business phenomenon. In India, the concept of plastic money caught on in the late 1980s only after private sector banking came into practice. 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. Plastic 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. Plastic cards however became more popular with use of magnetic strip in 1970. Plastic card in India became popular with the introduction of foreign banks in the country. Plastic cards are financial instruments, which can be used more than once to borrow money or buy products and services on credit or debit. 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 was to reduce the risk of handling a huge amount of cash by individuals/ merchants. Plastic money can be used anywhere in the world and etc .Now as the world is becoming globalised so every card is accepted everywhere with the power of VISA which interconnects different countries. The cards are accepted worldwide, in which you can utilize your own money and also banks money .The card through which you spend your own money is known as debit card .The card through which you spend the amount of bank as loan is called credit card. 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 plastic 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 plastic 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 plastic 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. Plastic money are the alternatives to the cash or the standard money'. Plastic 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 plastic 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. 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 card-holders who have defaulted on payments or who are over their credit limit can be restricted until the balances are cleared. With 73 card issuers in the UK alone, competition is fierce and customer bargaining power is high. Issuers have tried to differentiate themselves from competitors through offering special services to their card holders in order to gain a competitive advantage. But those services have mostly been easy to copy and have therefore not been able to help any of the issuers to build a competitive advantage. Furthermore has the industry achieved such a high market penetration that it has become virtually impossible to attract new customers without taking them away from a competitor. The industry is therefore in its mature stage. Consolidation is taking place and critical size is crucial. Collaboration and strategic alliances are found throughout the industry. Table 1 demonstrates the size of the plastic card market as means of payment. As table 1 shows, the global amount of cards in circulation is now more than one billion cards. However, this amount of cards is held by a very small minority of the worlds population. The main reason for that is the missing financial infrastructure in vast parts of the globe and the lack of creditworthy customers.

Table 1Credit Card Market

Card holdersPoints Of Sale

EuropeGlobalEuropeGlobal

American ExpressN/A41.5m(12/96)N/A4.5m(12/96)

Diners Club2.5m(6/97)

7.6m(6/97)1.3m(6/97)3.6m(6/97)

Euro card/ Master card34m(12/96)435.1m(12/96)3m(12/96)13m(12/96)

JCBN/A34.9m(12/96)N/A4.4m(12/96)

Visa101m(3/97)540m(3/97)3.6m(3/97)14m(3/97)

CH (2)-NEED AND SCOPE OF THE STUDYNEED It is rightly said the plastic money is the need of the 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. Thats 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: 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 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 are convenient, accessible to 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.CH (3)- FUTURE SCENARIO OF PLASTIC CARDS Starting from 'Diners Club', some 50 years ago, the card industry has been growing with a rapid pace world over and so has been the growth in the domestic card industry. With only two players in domestic card industry, HSBC and Citibank in the early 80s, the number swelled to over 25 in the year 2001. Credit cards in India, made their debut in 1981, and are on the verge of an unprecedented boom. Between 1987 and 2001, the market has virtually grown to over 4 million cards with over 25-30% of compounded annual growth in new card holders base. There were almost 29 million debit card users as of 2006, with a projected 34.4 million users by 2016. However, online services like paypal are emerging as a way for people to pay their debts in new secure and convenient ways. Technology also exists to have devices implanted into phones, keys and other everyday devices so that the ability to pay at the point of scale is even more convenient. Its not that only the card numbers have increased, but even the types of cards on offer have seen a surge. Today the domestic card industry is flooded with different types of cards ranging from gold, silver, global, co-branded credit cards, smart to secure.the list is endless. Foreign banks have shouldered the major responsibility of increasing the card base and adding value-added services to the card products in the past. This is also evident from the fact that the market share of these foreign banks is estimated to be well over 70%. But the scenario has changed dramatically in the last of couple of years with the entry of State Bank of India (SBI), a domestic major in the banking sector. More and more nationalized banks and private sector banks like ICICI and HDFC Bank are aggressively launching credit card with value added features. There is immense growth potential in the domestic card industry. A glance at the Indian population reveals that India's middle/upper middle class (target segment) represents a population of over 10 m. There are only 2 to 3 m cardholders, each possessing an average of 2 cards. This is a very low figure given India's huge middle to upper class population. There is no doubt that the domestic card industry has to yet to mature and offers significant long-term growth potential. Given the lack of maturity of the domestic card industry, its growth will depend upon building core retail business, with more sophisticated products. In the expansion of domestic credit card market, the existing foreign players, SBI, other nationalized banks and the new domestic private sector banks are expected to play important role with complementary strategies. Foreign banks with the advantage of technology and industry experience are expected to concentrate on increasing card spending and customer loyalty in the major cities. SBI, on the other hand is expected to capitalize its superior distribution network to expand card acceptance in the smaller towns. The new private sector banks would have the opportunity to capture significant market share by combining the strengths of foreign banks and nationalized bank like SBI. Although at present the card market is mainly limited to India's relatively bigger cities and tourist locations only, there is also a potential in smaller cities. Domestic banks, owing to their vast network and reach to smaller cities, can easily tap this potential. They would be better off, penetrating into smaller cities and bringing credit card to the masses rather than cannibalizing other foreign banks' existing cardholder base. The efforts of these banks to increase the card base is going to be wholeheartedly supported by the residents of these smaller cities with their higher disposable income, changing lifestyle, increasing travel and the growth in the entertainment sector.CH (4) TYPES OF PLASTIC MONEY1. Credit Cards 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 to 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.

2. Debit Cards Debit cards are substitutes for cash or check payments, much the 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 reduced from our bank balance. Dont borrow on your credit card! Heres why A debit card is only accepted at outlets with electronic swipe-machines that can check and deduct amounts from your bank balance online. 3. Charge Cards A charge card carries all the features of credit cards. However, after using a charge card you will have to pay off the entire amount billed, by the due date. If you fail to do so, you are likely to be considered a defaulter and will usually have to pay up a steep late payment charge. When you use a credit you are not declared a defaulter even if you miss your due date. A 2.95% late payment fees (this differs from one bank to another) is levied in your next billing statement.

4. Amex Cards Amex stands for American Express and is one of the well-known charge card. This card has its own merchant establishment tie-ups and does not depend on the network of MasterCard or Visa. Credit cards: remember these dos and donts. This card is typically meant for high income group categories and companies and may not be accepted at many outlets. There are a wide variety of special privileges offered to Amex cardholders. 5. Dinner Cards 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 you own spending limits. Besides, the card has its own merchant establishment tie-ups and does not depend on the networks of Master card or Visa. However, since the 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.

6. Global Cards Global cards allow you the flexibility and convenience of using a credit card rather than cash or travelers cheque while travelling abroad for either business or personal reasons.

7. Co-branded Cards 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. A debit cards with a difference. For e.g.: the citi-times cards give you all the benefits of a Citibanks credit card along with a special discount on times music cassettes, free entry to times music events, etc.

8. Master Card & Visa Master cards 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 worldwide may use their respective credit cards to make various purchases.

9. Smart Cards 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 the 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. 10. Photo cards 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 cans function as you identity card as well.

11. Afffinity CardThe card issuer ties up with popular organizations/ institutions which are often non-profit organizations to offer an affinity card. When the card is used, a certain percentage is contributed to the organization /institution by the card issue

CH (5)-CREDIT CARDSDEFINATION OF CREDIT CARDS The credit card can be defined as A small plastic card that allows its holder to buy goods and services on credit and to pay at fixed intervals through the card issuing agency.

MEANING A credit card is a card or mechanism which enables card holder to purchase goods, travel and dine in a hotel without making immediate payments .the holders can use the cards to get credit from banks up to 45days.The credit card relives the consumers from the botheration of carrying cash and ensures safety. It is convenience of extended credit without formality. Thus credit card is a passport to, safety, convenience, prestige and credit.

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

HISTORY 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 favors 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 1920sshoppers 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. 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 programmer 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. A credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1.

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.1. Fees Most credit cards charge fees for various things, and it is important to know what these fees are and how to avoid them.2. 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.3. 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 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.4. 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.5. 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.

6. 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 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.7. 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.8. 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. A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 40 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met. Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charges incurred depend on the grace period and balance; with most credit cards there is no grace period if there is any outstanding balance from the previous billing cycle or statement (i.e. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.9. Technology And Infrastructure One of the most important features that Plastic Money offers is the technology associated with this business. Credit card business relies on very reliable and secure technology and demands very strong connectivity backbone. Although a third world country, with lot of insecurities and almost no infrastructure, Pakistan has no exception when it comes to credit card business. There is approximately 3000 Point of Sale Terminals (POST) present on merchant's sites connected with bank host system. Inter-city connectivity is accomplished through X.25 networks. Perhaps, it is the most important time in the history of Pakistan as the parameters of its infrastructure are coming into existence. There is an immense need of reliable wide area connectivity and this market is so huge and lucrative that it can accommodate many more industry giants. Soon the Automatic Teller Machines (ATMs) will be seen everywhere in Pakistan and it will require a very reliable and secure wide area connectivity setup.

10. Interest Charges Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, to encourage balance transfers from cards of other issuers. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue.

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

ADVANTAGES AND DISADVANTAGES OF CREDIT CARDS

Advantages Of Credit Card 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. Emergencies Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget, sometimes emergencies may lead to a large purchase anywhere. This completely debunks the statement that you need one to rent a car.

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. Benefit of customers The main benefit to each customer is convenience. Compared to debit cards and checks, a credit card allows small short-term loans to be quickly made to a customer who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card.Benefits To merchants: An example of street markets accepting credit cards. Most simply display the logos (shown in the upper-left corner of the sign) of all the cards they accept. For merchants, a credit card transaction is often more secure than other forms of payment, such as checks, because the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on the credit card payment (except for legitimate disputes, which are discussed below, and can result in charges back to the merchant). In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises. Prior to credit cards, each merchant had to evaluate each customer's credit history before extending credit. That task is now performed by the banks which assume the credit risk. Credit cards can also aid in securing a sale, especially if the customer does not have enough cash on his or her person or checking account. For each purchase, the bank charges the merchant a commission (discount fee) for this service and there may be a certain delay before the agreed payment is received by the merchant. The commission is often a percentage of the transaction amount, plus a fixed fee. In addition, a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges as a result of disputes. Some small merchants require credit purchases to have a minimum amount (usually between $5 and $10) to compensate for the transaction costs; though this is strictly prohibited by credit card companies and credit card companies attempt to get consumers to report such merchants. In some countries, for example the Nordic countries, banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will instead have to show their passport, and the passport number will be written down on the receipt, sometimes together with other information. Some shops use the card's PIN for identification, and in that case showing an ID card is not necessary.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 dont 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 $100savings. 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 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 dont 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. Don't loan your credit or give out your credit card information to anyone but reliable companies. Determents To Customers Credit cards with low introductory rates are limited to a fixed term, usually between 6 and 12months after which a higher rate is charged. As all credit cards assess fees and interest, some customers become so encumbered with their credit debt service that they are driven to bankruptcy. Credit cards will often stipulate a default rate of 20 to 30 percent in the event a payment is missed. That is, if a consumer misses a payment, the rate will automatically increase to a very burdensome level. This can lead to a snowball effect in which the consumer is drowned by unexpectedly high interest rates. Further most card holder agreements enable the issuer to arbitrarily raise the interest rate for any reason they see fit. Costs To Merchants Merchants are charged many fees for the privilege of accepting credit cards. The merchant may be charged a discount rate of 1%-3%+ of each transaction obtained through a credit card. Usually, the merchant will also pay a flat per-item charge of $0.05 - $0.50 for each transaction. Thus in some instances of very low value transactions, use of credit cards may actually cause the merchant to lose money on the transaction. Merchants choose to pay these costs in exchange for the increased profitable sales they can create. Thus, they are considering part of the overall cost of marketing. Merchants with very low average transaction prices or very high average transaction prices are more averse to accepting credit cards. But rates are often reduced in an attempt to include more of these types of merchant

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 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 discount; 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.