Download - A Project on Credit Card

8/11/2019 A Project on Credit Card

1/22

A PROJECT ON

"ON CREDIT CARD"(THE PLASTIC MONEY)

BY:

RUBYJAIN

HIMANI MALIK

ROHIT TANWAR


2/22

CONTENTS

EXECUTIVE SUMMARY OF CREDIT CARD INDUSTRY

INTRODUCTION

TYPES OF CARDS

SALIENT FEATURES

COMPARISON OF CREDIT CARDS

CONCLUSION


3/22

INTRODUCTION

ORIGIN

The credit card had its beginning in an embarrassing incident that took

place in the early 1950s in America. The story goes that Mr. McNamara; a

New York businessman took his friends out to dinner. At the end of meal

he discovered that he had forgotten his wallet at home, the proprietor

was kind enough to allow him a later settlement of bill. As McNamara

stepped out of the restaurant he had the brainwave for the introduction

of credit cards - system of availing instant credit upon confirming the

identity of cardholder. Thus was born the Diners Club Cards, the pioneer

of todays multibillion-dollar plastic money business.

Diners Club adopted a promising approach by recruiting various hotels

and restaurants to act as member establishments for accepting the cards.

Not only did these establishments pay a commission on members

purchases but the members also paid an annual subscription fee. Diners

Club vetted its members for credit worthiness and guaranteed payment

to participating establishment. Thus was born the first Travel and

Entertainment Card. It was followed by American Express, which is now a


4/22

dominant force in the Travel and Entertainment cards industry, and by

1959 by Carte Blanche, after many vicissitudes is now a part of Citi Bank

Empire Together With Diners Club. In the present time American Express

leads the travel and entertainment (T&E) card industry.

The next great leap-forward came from Bank of America, which in other

banks. Such cardholders could use their card 1966 offered to license its

successful blue, white and gold Bank America card to at any accepting

merchant establishments around the globe. Later in 1977 all the national

and international Bank America licenses were pulled together under the

single name of Visa.

Not to be outdone, a rival group of American Banks came together in

1966 under the name of Interbank, later renamed Master Charge and

later still Master Card. Ever since Master Card and Visa and their affiliates

have carved the world credit card market.

In the 1980s credit card concept was launched in India through the Diners

Club card, and soon, within a couple of months both Visa and Master card

entered into the Indian market.


5/22

What is a Credit Card?

Credit Cards itscredit to you!

A Credit Card is referred to as 'plastic money'. Carrying a lot of cash on

you can be cumbersome, risky and sometimes, you run short of it, just

when you most need it. (Remember the SALE at your favorite ready-

mades store?). A Credit card is the smart solution to these problems. It is

a convenient and safe alternative for cash.

Besides, it says things about you. Most people associate a credit card with

a prestige, which it most certainly bestows on you, but more importantly,

it says that you have taken the onus of being responsible - to be extended

credit! So, when you get yourself a card, remember that, because your

bank does!


6/22

Before i go any further, why not become familiar with the various terms

and jargons used by the credit card industry.

Credit CardA credit card is a financial instrument, which can be used

more than once to borrow money or buy products and services on credit.

Banks, retail stores and other businesses generally issue these.

Credit limitThe maximum amount of charges a cardholder may apply to

the account.

Annual fee A bank charge for use of a credit card levied each year,

which ranges depending upon the type of card one possesses. Banks

usually take an initial fixed amount in the first year and then a lower

amount as yearly renewal fees.

Revolving Line Of Credit - An agreement to lend a specific amount to a

borrower and to allow that amount to be borrowed again once it has

been repaid. Most credit cards offer revolving credit.

Personal Identification Number (PIN)- As a security measure, some cards

require a number to be punched into a keypad before a transaction can

be completed. The cardholder can usually change the number.

Teaser Rate - Often called the introductory rate, it is the below-market

interest rate offered to entice customers to switch credit cards.


7/22

Joint Credit - Issued to a couple based on both of their assets, incomes

and credit reports. It generally results in a higher credit limit, but makes

both parties responsible for repaying the debt.


8/22

TYPES OF CARDS

MasterCard MasterCard is a product of MasterCard International

and along with VISA are distributed by financial institutions around

the world. Cardholders borrow money against a line of credit and

pay it back with interest if the balance is carried over from month to

month. 23,000 financial institutions in 220 countries and territories

issue its products. In 1998, it had almost 700 million cards in

circulation, whose users spent $650 billion in more than 16.2 million

locations.

VISA CardVISA cards are financial institutions around the world

distribute a product of VISA USA and along with MasterCard. A VISA

cardholder borrows money against a credit line and repays the

money with interest if the balance is carried over from month to

month in a revolving line of credit. Nearly 600 million cards carry

one of the VISA brands and more than 14 million locations accept

VISA cards.

Standard Card It is the most basic card (sans all frills) offered by

issuers.


9/22

Classic CardBrand name for the standard card issued by VISA.

Affinity Cards- A card offered by two organizations, one a lending

institution, the other a non-financial group. Schools, non-profit

groups, pro wrestlers, popular singers and airlines are among those

featured on affinity cards. Usually, use of the card entitles holders

to special discounts or deals from the non-financial group.

Gold Card/Executive CardA credit card that offers a higher line of

credit than a standard card. Income eligibility is also higher. In

addition, issuers provide extra perks or incentives to cardholders.

Platinum Card A credit card with a higher limit and additional

perks than a gold card.

Titanium CardA card with an even higher limit than a platinum

card.

Secured Card A credit card that a cardholder secures with a

savings deposit to ensure payment of the outstanding balance if the

cardholder defaults on payments. It is used by people new to

credit, or people trying to rebuild their poor credit ratings.


10/22

Smart Card Smart cards, sometimes called chip cards, contain a

computer chip embedded in the plastic. Where a typical credit

card's magnetic stripe can hold only a few dozen characters, smart

cards are now available with 16K of memory. When read by a

special terminal, the cards can perform a number of functions or

access data stored in the chip. These cards can be used as cash

cards or as credit cards with a preset credit limit, or used as ID cards

with stored-in passwords.

Charge Cardfall between a debit and credit card. Works like the

latter and you don't have to be an accountholder. Just pay up in full

when the bill arrives with the mail. No outstanding are allowed, in

other words, no revolving credit facility either. American Express

and Diners are providers.

Rebate CardThis is a card that allows the customer to accumulate

cash, merchandise or services based on card usage.

Co-Branded CardThis is a marriage of convenience between two

service providers who want a trade-off with the other's strengths.

Specific facilities are made to members through these tie-ups. So,

Times Bank and Citibank have a co-branded card that allows


11/22

concessional rates for add-on cards or telephone banking. Stan

chart and Hindustan Lever Limited have a co-branded card to sell

Aviance beauty products. SBI-GE Capital has a co-branded card for

retail loans.

Cash CardCash cards, similar to pre-paid phone cards, contain a

set amount of value, which can be read by a special cash card

reader. Participating retailers will use the reader to debit the card in

increments until the value is gone. The cards are like cash -- they

have no built-in security, so if lost or stolen, they can be used by

anyone.

Travel Card these works mostly as debit cards for the limited

purpose of travel. Citibank Dollar Card, American Express, Bob card

Global and Hong bank Thomas Cook International Card are among

the players in this section.

Debit CardIt is the accountholder's mobile ATM. Open an account

with a bank that offers a debit card, and payments for purchases

are deducted from your bank account. The retailer swipes the card


12/22

over an electronic terminal at his outlet, you enter the personal

identification number on a PIN pad and the money is immediately

debited at the bank. Citibank and a few domestic banks like Times

Bank offer this.


13/22

SALIENT FEATURES

Annual Fee:

All credit card issuers charge an annual fee which is payable at the start of

the year. The start of the year, of course, is your membership year, and

not the calendar year.

Forwarding Balance (or Revolving):

The most attractive feature of a credit card is that you need not pay off

your dues in whole. You can opt to pay 5% of the total amount on or

before the due date, every month, the rest is carried forward.

APR or Annual percentage Rate:

The interest rate that reflects the yearly cost of the interest the

outstanding on your card is called the annual percentage rate. It might

sound low at 3%, but when you look at the interest rate over the year, it

turns out to be as high as 43%.

Cash Advance:

An important feature - lets you withdraw cash from designated ATMs

using your credit card. Use discretion when withdrawing cash on your

credit card because the charges for this facility are high, around 2.5% to

3% per transaction!


14/22

BENEFITS:

Credit:

When you use a Credit card to pay for anything, you get an interest-

free period of 45 days. Billing cycles are structured in such a way that

you definitely get at least 30 days out of these as clean credit time,

which is especially beneficial to salaried people. Better still, you can

opt to pay your bill in full when you receive it or you can carry forward

your payments by paying as little as 5% of the total amount on or

before the due date, every month. You can spend now , pay later.

Convenience:

With a credit card on you, you don't need to run the risk of carrying a

lot of cash.

Cash Advance:

Another advantage of a Credit card is that you can use it as an ATM

card too! But remember, there's a fee to it. It typically starts with a flat

fee going up to a percentage-based fee on the amount of the

withdrawal.


15/22

Do's & Dont's

Do not leave your Credit Card lying around the house or on your

desk at work.

If your card is lost or stolen, or you suspect it is being used

fraudulently, report it immediately to your bank.

Hold on to receipts from your transactions. In fact, keep your

receipts filed or in one place - you'll find them easily, should the

need arise. And when you want to throw them away, don't just

thrash into the bin, shred or tear them before you do.

Never give your Credit Card number over the phone, unless you've

made the call, and it is to your bank or someone you trust, and you

really, really need to!


16/22

COMPARISON OF CREDIT CARDS

Card Issuers Brand Card Type Acceptance

Citibank NA Gold/Preferred Master International

Citibank NA Gold/Preferred Visa International

Citibank NA Indian Oil Master Domestic

Citibank NA Silver/Classic Master International

Citibank NA Silver/Classic Visa International

Citibank NA Women Visa Domestic

Citibank NA WWF Visa Domestic

ICICI Solid Gold Visa International

ICICI Sterling Silver Visa Domestic

ICICI True Blue Visa Domestic

SBI Classic Visa Domestic Standard

Chartered Classic Master International

Standard Chartered Gold Visa International

With the credit card truly becoming an international citizen, issuers have

begun highlighting the value-added features offered along with the basic


17/22

product. While some of them are offering attractive interest rates, others

are luring customers by their reward schemes. With a plethora of choices

on offer it is not easy to come to a decision on any particular card.


18/22

CONCLUSION

Whenever Internet transactions are discussed, immediately the thought

of credit card comes to everybodys mind. This is because in US the

payments by credit a card is quite common. Even before online purchases

have become popular, normally purchases are made through credit cards

only. Therefore in US there was no problem in making people to switch

over to online purchases as this mode of payment is already in vogue.

Even in US, much discussion is going on as to how to avoid frauds,

misappropriation, etc of credit cards once the card number is given online

to a merchant. Encryption technologies. Secure socket layers, etc are

being introduced to avoid such things In spite of all these measures, still

reports keep coming regarding credit card frauds here and there. In other

words, there is no 100% foolproof to make credit card payment a safe

mode of payment.

In other countries, where credit cards payment system is not as popular

as US, online shopping through credit cards resulted in great failures. At

least in Singapore, a mega shop had experienced a fraud of huge


19/22

magnitude and decided to suspend immediately their online business.

Similar stories are not uncommon in other countries too.

Scenario in India

In India the situation is far from satisfactory to use the credit cards as a

means of making payments for online purchases for the following

reasons;

1.Use of credit cards is popular to only a few thousands of executives,

businessmen, etc from big cities.

2.That any person using credit card is liable to declare IT made many

people surrendering their cards. In other words if credit card is made the

payment mechanism, only IT payers will be eligible to buy goods online.

3.Still many leading credit card companies are yet to install their

infrastructure to process the online payments.

4.Then there is the question of sales tax laws Each State has its own rate

of tax structure for each and every commodity. How to charge tax when a

transaction takes place online and at what rate will pose problems of

billing.


20/22

5.Many establishments do not like to offer credit card facility due

to the service charges to be paid to cr card companies. They get the

payment only after a certain period of time once the goods are sold. Both

of them make the profit margin less.

As mentioned earlier, the fraud element is applicable to India also. In

view of all these factors, in India; Use of credit cards cannot be expected

to boost the sales of online sales, particularly business to customer

Then what is the way out?

There are other methods of payments for Indian online business, which

are given below:

Payments by electronic cash/ cheque may be made legally valid

including electronic signature .I believe once the cyber laws are passed

by GOI, this is possible.

Each merchant/shopper can allot a secret code number to the existing

clients (customers). On receipt of this code number, the goods can be

dispatched by VPP and other modes of dispatch, which will ensure

collection of payment against delivery. However, this facility can be

extended only to existing customers.


21/22

Banks should be asked to immediately create necessary facilities for

any of the a/c holders to operate the a/c through online. Once a

purchase is made, the a/c holder can transfer the required amount to

the merchant A/C online. The MERCHANT BANK CAN INTIMATE the

shopper about the transaction. All these activities can be carried out

instantly though proper programming. Activity can be made part of the

ordering activity.

Large organizations can issue authorization letters to each of their

employee who wants to avail the online purchasing facility and device

a mechanism through which the company itself pays the merchant his

dues. This would require installation of transaction servers in the

companies or can be integrated with their online business activity.

Similarly all government establishments can device a mechanism to

enable their employees make online purchases. These are all some of the

ideas to making the online purchases easier and smoother without

affecting the payment due to the shoppers.

They may look difficult to achieve but with proper programming

techniques and the use of appropriate servers, they can be easily

achieved. In conclusion, payment through credit cards will not result in


22/22

increasing the online shopping as generally believed. We need to device

different mechanisms taking into account Indian laws, shoppers

requirements, banking practices prevalent in our country