SCHOOL OF ECONOMICS

DAVV
MAJOR RESEARCH PROJECT

TITLE: “CREDIT CARD ANALYSIS AND SUGGESTIONS

TO ITS SAFETY”

SUBMITTED TO: SUBMITTED BY:

Mr. Vasim Khan Sourabh Kharade
MBA(Fs)4th Sem
Roll No.-9349
 ACKNOWLEDGEMENT

In completing this project I am deeply conscious of my debt to all those,

without whose warm support, enragement & guidance this project was not possible
to complete. I am specially greatful to Mr. Vasim Khan my guide to this project,
He actually gave the life to this project. I am also grateful to my parents for their
support because of them this project took shape. They provided me much needed
criticism & encouragement.

Sourabh Kharade

DECLARATION
 I am Sourabh Kharade studying in MBA [FS] IV Sem declare that I have
done a project on “CREDIT CARD ANALYSIS AND SUGGESTIONS TO ITS
SAFETY”. As required by the university rules, I state that the work presented in this
thesis is original in nature and to the best my knowledge, has not been submitted so
far to any other university.
Whenever references have been made to the work of others, it is clearly
indicated in the sources of information in references.

Student
(Sourabh Kharade)

Place: Indore
Date: May, 2011

CONTENTS
 EXECUTIVE SUMMARY OF CREDIT CARD INDUSTRY

INTRODUCTION

TYPES OF CARDS

SALIENT FEATURES

 OBJECTIVES

 RESEARCH METHODOLOGY

 INDIAN CREDIT CARD SCENARIO

 DECIDING ON THE RIGHT CREDIT CARD

 ANALYSIS

 COMPARISON OF CREDIT CARDS

 SUGGESTIONS OF THE STUDY

 LIMITATIONS OF THE STUDY

 CONCLUSION

 RECOMMENDATION

 BIBLIOGRAPHY

 QUESTIONNAIRE
 INTRODUCTION

ORIGIN

The credit card had its beginning in an embarrassing incident that took place in the
early 1950’s 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 today’s 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 member’s 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 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.

What is a Credit Card?

“Credit Cards - It's credit 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!
 Before i go any further, why not become familiar with the various terms and
jargons used by the credit card industry.

Credit Card – A 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 limit – The 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.

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.
 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 Card – VISA 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.

 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.

 Standard Card – It is the most basic card (sans all frills) offered by issuers.

 Classic Card – Brand name for the standard card issued by VISA.

 Gold Card/Executive Card – A 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 Card – A 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.

 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 Card – fall 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 Card – This is a card that allows the customer to accumulate cash,
merchandise or services based on card usage.

 Co-Branded Card – This 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 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 Card – Cash 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 Card – It 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 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.
 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.
So, if you got yourself a card in March, you can expect to be billed the annual fee
every March until you cancel your card. As a privilege, this fee is sometimes waived
the first time. When the time comes for renewal of your card, you can even use the
reward points you have accumulated from using the credit card over the year to settle
your annual fee.

 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. But there's a price to pay for this extended credit -
interest! Normally, interest varies between 2.5% and 3% per month.

 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. This rate is charged to the cardholder on the
amounts carried forward beyond the due date for the payment of balances. Most card
issuers will tell you their monthly rate of interest. 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!

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.
DRAWBACKS:

 Greed!

Just because you have credit being extended to you doesn't mean that you should go
on a rampage! Use your card with discretion and caution. Remember, it is an
extremely expensive way to borrow money! View it as a convenient and safe way to
carry cash, a timely help in an emergency or taking advantage of an opportunity that
you would have otherwise lost out on, like an investment!
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!
 EXECUTIVE SUMMARY OF CREDIT CARD INDUSTRY

The credit card industry in India has registered an encouraging growth in recent
times, but the usage pattern of credit cards remains a point of conc0ern, those in the
industry say. There has been a seven-fold increase, with the number of cardholders
touching over 38 lakh. These figures point towards the fact that the credit card
industry in India is growing at a brisk annual rate of 30 per cent and is expected to
grow at a similar rate in the coming years.

While issuing the cards may seem to be easy, the challenge for the banks lies in
being able to manage their portfolios by keeping the delinquency levels at the lowest
and customer satisfaction levels at the highest. Customer satisfaction is the key to
success. You want customers to be happy with the products and services you
provide. If they feel they have received good value for their money, your business
will prosper. Getting your customers to tell you what’s good about your business,
and where you need improvement, helps you to be sure that your business measures
up to their expectations.

Apart from attracting potential card users, customer retention is also one of the most
important factors influencing a card issuer’s success. ----. With the influx of new
financial institutions in the card market, people have started using cards on a more
regular basis. The level of services provided by these organizations is increasing day
by day. In order to ensure that the existing customers stay loyal, Organization has to
ascertain whether its existing customers are satisfied with its current service
offerings.

This research has tried to study the satisfaction levels of a sample of 100 credit card
holders. These respondents each hold credit cards, which may be of different kinds.
 INDIAN CREDIT CARD SCENARIO

The credit card industry in India has registered an encouraging growth in recent
times, but the usage pattern of credit cards remains a point of concern, those in the
industry say. Seven years back, India had a base of around five lakh credit cards.
There has been a seven-fold increase, with the number of cardholders touching over
38 lakh. These figures point towards the fact that the credit card industry in India is
growing at a brisk annual rate of 30 per cent and is expected to grow at a similar rate
in the coming years. This fortifies the view that conservative purchasing ideas are
giving way to the big in-thing. But it is the usability that raises doubts.

According to a survey by the Credit Card & Management Consultancy (CCMC), 71

per cent of first time credit card applicants in the country have expressed the need for
advice on appropriate card selection despite the plethora of cards available in the
market. Through this survey it has come to realize a long felt need of potential and
existing cardholders for advice on suitable selection of a credit cards. The whole idea
behind the introduction of the credit cards was to increase the purchasing capacity of
the cardholder. With this in mind, the foreign banks launched a credit card blitzkrieg
on the Indian customer.

The innovations have already begun to show their effect. The Standard Chartered
Bank has seen its credit card base shoot up after the launch of its Global Rupee Card
in March last year.

It has seen the fresh issuance of global card increase by more than one lakh, and the
bank now has a base of more than half a billion. But the real challenge for the banks
is to make the holder spend more on the card. Going by estimates, India has a long
way to be anywhere near the matured markets. The markets like the United States
and England have an average annual card spend of 1,300 and 3,600 dollars
respectively.

The credit card players will have to think about simplifying the foreign exchange
transactions. When one uses the card, it is entirely his responsibility to make sure
that exchange controls have been complied with. The banks that issue the cards have
made it abundantly clear that one has to look out for him. It is upon him to find out
the facts of regulatory life. The real point of worry is the spending on the credit
cards. According to estimates, the average card spending in India is even less than
that in Indonesia. Those in the credit card business say that per capita credit card
spending in India is about five hundred dollars (Rs 21,500), whereas in Indonesia, it
is about 678 dollars (Rs 29,154). At present there are over a dozen players in the
credit card market in India, and the fact is the foreign banks are clearly the leaders.
The leaders will surely be identified by the innovations for the card users.

But the alarm has been raised for the banks by the figures that show that while the
average usage in Malaysia is 27 times annually, in India it is only 11 times. Some of
the key factors impacting the cards business in India are limited credit, wide
geographical spread, limited telecommunication infrastructure and emerging
regulatory controls. The other players feel that the card acceptance base in India has
to be widened. Suggestions include credit card usage at petrol pumps and railway
bookings.

They also point out that though the cards business has been in the country for long,
but even today the insurance premium cannot be paid by card. Though LIC is talking
about the introduction of this facility to customers, but its turning into reality may
take time. There is talk of widening the card business with new features, but the
present scenario does not paint a positive picture, with many loopholes remaining to
be plugged.

Of the twenty million taxpayers in India, more than ten per cent of them are
cardholders. Those in the industry point out that this figure is not bad, considering
the fact that; the cards business is still in its initial stages. However, the players feel
that the business has not reached an optimum level to say that they are making
money. Even the largest player in the Indian market does not still have the
economies to make the card business really profitable in India, despite the fact that it
has more than one million credit card holders. Less than two per cent of private
consumption spending in India is done on cards.

While issuing the cards may seem to be easy, the challenge for the banks lies in
being able to manage their portfolios by keeping the delinquency levels at the lowest.
Huge investments in systems and infrastructure are, therefore, a necessity. The
increase is being attributed to new ideas such as round-the-clock functioning of card
issuing banks and pulling out all stops even at a loss, to grab a sizeable share of the
expanding pie. Not to be left behind in this race, even the big brother, the State Bank
of India in association with GE Capital entered the card business.

The spurt in the card business has gathered momentum during the past couple of
years. For instance, the Hong Kong & Shanghai Banking Corporation (HSBC), was
in the credit cards business since seven years, but from 50,000 card holders in 1997,
it has about three lakh card holders now.

India’s fastest growing credit card company - SBI Cards 2.5 lakh credit cards…25
cities…16 months. The joint venture between India’s largest bank – State Bank of
India and one of the world’s leading financial services companies – GE Capital, SBI
Cards & Payment Services (SBI Cards) has issued 2.5 lakh credit cards across 25
cities (the largest distribution network in the payment card industry) within 16
months. Thereby achieving the target in the fastest period seen in India’s payment
card industry.

SBI Cards & Payments Services attributed this success to SBI’s enormous brand
equity, and unparalleled retail branch network coupled with GE Capital’s payment
card process and technology expertise. He also highlighted Speed, Simplicity and
Service as the key drivers of growth for the SBI Card. Speed Unique and exclusive
14-day average turnaround time, coupled with availability of the SBI Card in 25
cities in just 16 months. Simplicity Simple application process with minimum
documentation. Service 24 hours a day/7 days a week local call access to the SBI
Card Help line across 25 cities. As a result of the focus on the Speed, Simplicity and
Service growth platform, SBI Cards today offers the largest distribution and widest
cash advance network for India’s middle class customers. SBI Cardholders can
access cash for emergency purposes from over 158 SBI branches across 68 locations
in India.

INTERMEDIARIES:

In their attempt to increase their market share, credit card companies are opting for
Direct Sales Agents. These DSAs are paid a flat rate against the approved
applications. The DSA team comprises aggressive salesmen who visit different
organizations and professionals. They collect filled forms and produce them to the
bank for approval. After cards are issued they also deliver the same to the
individuals.

DECIDING ON THE RIGHT CREDIT CARD

How much is the joining fee and the annual fee?

Generally, a card with a higher annual fee enjoys more benefits like higher credit
limit, higher accident insurance cover, accessibility to airport lounges, travel
discounts etc. OF at least the used to be the case. With cutthroat competition between
the card issuing banks, players are ready to waive joining fees and also one-year
membership fees for anyone. Grab these offers, or negotiate this for yourself.

How much is the Add-on card fee?

If you are interested in buying add-on cards for your children, spouse or friend, ask
for the add-on card fee. Remember that you will be settling the bills on the add-on
card that you so touchingly gift to someone dear to you - the statement will come to
you, and the responsibility for payment is yours (as far as the credit card company is
concerned)

What is the interest rate?

This is actually a question that you should be asking fairly soon in the discussion.
Remember, while the up front one off fees are bread and butter for the credit card
Company, this is the jam! If you are the sort who forgets to pay on time, or likes to
live it up and live off credit, the interest rate would be of paramount importance.
Most credit card companies charge anywhere between 2% to 3 % per month. (Read a
whopping 35% to 43% per year). That's where they make their gravy, and that's
where you pay! It is always advisable to pay off the entire amount on due date, or, if
you have a large bank balance, look for card companies that provide the transfer
balance facility. The balance transfer rate is lower for a certain period (say six
months) and then the normal rates apply. But again this is a temporary solution to a
chronic problem.

4. What is the reach?

Not an important question - most outlets in India accept both the Master card and the
Visa card, and most credit card companies provide Visa or Master cards. So its fairly
simple, and doesn’t need much head scratching - they're all more or less the same.
One thing you could do is to check out for the Automated Teller Machines nearest to
your house or work place (ATMs - almost all credit card companies now provide you
the facility of withdrawing cash from machines - I guess for things that cards just
cant buy. These machines are called ATMs, and are helpfully scattered all over the
city/country/world). Having more ATM outlets in Thailand wouldn’t be of any
relevance to a person who rarely travels abroad, though it may certainly be a goal to
work towards after buying the card. Please also remember that Amex credit cards are
not part of the Visa/ Master chain, and have a separate chain of outlets where it’s
accepted.

5.Is it a Global card?

Now this could be useful to you if you are an overseas traveler. A Global card can be
used for paying expenses in foreign currency just like you use a credit card to pay in
rupees. Nowadays, a Global card is being issued at the same cost as for a similar
domestic one. It is better to have a global card, especially if there is no premium
attached.

6.How useful are branded or affinity cards?

A partnership between a card issuer and the non-profit, social or lifestyle association
is what results in an affinity card. This is for providing financial rewards to the group
or association. E.g. Citibank Women’s card, Citibank WWF cards. Citibank WWF
Visa card donates a percentage of the transaction value made through the card to the
WWF fund for its environmental conservation activities. A subscription to such
cards helps ease the conscience though it provides no monetary value.

A partnership between a bank card issuer and a commercial partner result in a co-
branded card. This entitles the cardholder to lots of freebies, prizes, discounts on co-
branded products. Logic: If a customer is loyal to one brand, he will want to
purchase the other. So if you were loyal to a particular brand, it would make sense
going for those co-branded cards. e.g. Citibank and IOC, Bank of India and Taj
group of hotels etc.

7. What’s the lost card liability?

Most Card issuers mention in the brochures that lost card liability is Rs 1000. Be
careful, that is actually AFTER it is reported to the Bank. The liability is actually
unlimited before reporting (in cases like this, you would actually thank the credit
limit because though the liability is unlimited, the ceiling should logically be your
credit limit, and the outlets accepting your stolen card should actually check that you
(or the person who stole your card) haven’t exceeded your credit limit). Avoid banks
that make you liable for card misuse for a single minute after reporting it.

8. Are there any freebies?

Citibank gives a Pond’s gift hamper free on subscription to its Citibank Women card.
Personal accident insurance for Air, Road or Otherwise is packaged along with the
subscription. Also Baggage cover, Purchase Protection cover and credit shield is
bundled free of cost along with the card. If you feel one these parameters are
important, and then settle for the one that gives a higher cover.

9. Is immediate cash withdrawal possible?

Check out if the Bank has any ATMs near your house or workplace. This surely
helps in times of emergency. The cost component for a cash withdrawal could be
classified as follows: Service fee (transaction fee) each time you pull out money, and
Interest rate for the period for which you have used the money - until settlement date.
If you are going to withdraw cash frequently, better watch out for this cost.

10. How long is the free credit period?

The days of credit one gets depends on the statement date and the date of transaction.
On an average, you could assume you'd get around 20 days of free credit. However,
if you buy just after the statement date, you could end up getting unto 50 days of
credit. Look for cards that give you the highest free credit period!

11. Is a Helpline available?

A 24-hour Helpline service from the Card Company helps the cardholders during the
non-banking hours. Reporting of theft, checking of available credit limit and other
enquiries can be made by the cardholder round-the-clock. In the end, like everything
else in life, the card you want is really up to you - what matters the most to you -
credit, reach, the freebees, international reach or a combination of parameters. Use
our card category on the left bar to simply list out the names of the cards, or choose
by bank name and see the cards they offer. Or look for cards offering the lowest
interest rate. Of the lowest charges on cash withdrawal (believe me, it gets to be a
serious consideration as one goes along). Go to our shortlist card section, and search
for cards based on any criteria that you want. Happy hunting, and stay careful - you
may like to use our section on how to use the card carefully to minimize the chance
of its misuse by someone else.
 Review of Literature

Future growth potential in this market is tremendous, particularly due to low

payment card penetration coupled with low card spending. Shift in consumer
spending patterns will also give impetus to the growth of Indian payment card
market. Consumers have now been preferring the use of payment cards for these are
safer to carry and provide credit facility (in case of credit cards) as well. Besides,
there are many other benefits, like reward points and discounts by merchants as well
as bankers, which lure customers to shop by their payment cards.

This research also indicates that the future growth trend, to some extent, will be
impacted by the current financial turmoil and credit squeeze. Bankers will also
become a little more conscious while doing risk evaluation of credit card applicants.
But the overall trend will remain positive over the forecast period.

The report provides a comprehensive research and prudent analysis on the emerging
payment card market in India. This extensive research will help the clients to identify
the market trends and evaluate the leading-edge opportunities critical to the success
of the payment card markets. This study gives an overview on the various factors
driving the market, together with the forces that are blocking the growth of the
industry.

The research report provides forecast on

§ Number of credit cards issued

§ Credit cards payment Transaction by volume

§ Credit cards payment transaction by value

§ Number of debit cards issued

§ Debit cards payment Transaction by volume

RESEARCH METHODOLOGY
 Confining our study to the geographical limits of Indore, we chose a sample
of 100 people - 50 cardholders and 50 non-card users, using the probability sampling
technique where every individual fulfilling the above criteria had an equal chance of
being selected for the survey. Following are some of the facts that were revealed
through the survey.

Sources and Method of Data Collection

The data on the present study will be collected by the investigator himself.
It's customary to distinguish data between primary and secondary.

Collection of Primary Data:

The collection of primary data done with the help of personal meet with the
Managing Director and Supervisory and Official Staff after Securitization of records
maintained.
A personal survey and surprise check are prompt to be carried out to ascertain
the fact on the basis of survey of credit card at personal interest.

Collection of Secondary Data:

• News papers,
• Press Media
• Magazines
• Telecommunication

Research Tools:
• Research design :
• Sampling Unit
• Sampling Size
• Sampling technique :
Exploratory
: Area of Indore
: 100 people- 50 Cash holder, 50
non- cash user
Probability Sampling

OBJECTIVES OF THE STUDY

 Study is the one of the important parts of any study. Following are the objectives
of the study: -

• To analyze credit card business in India

• To determine the working procedure of credit cards

• To learn about credit card frauds and its security issues

• To make the customers aware about credit card and its safety
 FINDINGS
WORKING PROCEDURE OF CREDIT CARD

• How credit cards work

Credit cards are issued by a credit card issuer, such as a bank or credit union, after an
account has been approved by the credit provider, after which cardholders can use it
to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The
cardholder indicates consent to pay by signing a receipt with a record of the card
details and indicating the amount to be paid or by entering a personal identification
number (PIN). Also, many merchants now accept verbal authorizations via telephone
and electronic authorization using the Internet, known as a card not present
transaction (CNP).

Electronic verification systems allow merchants to verify in a few seconds that the
card is valid and the credit card customer has sufficient credit to cover the purchase,
allowing the verification to happen at time of purchase. The verification is performed
using a credit card payment terminal or point-of-sale (POS) system with a
communications link to the merchant's acquiring bank. Data from the card is
obtained from a strip or chip on the card; the latter system is called Chip and PIN in
the United Kingdom and Ireland, and is implemented as an EMV card.

For card not present transactions where the card is not shown (e.g., e-
commerce, mail order, and telephone sales), merchants additionally verify that the
customer is in physical possession of the card and is the authorized user by asking
for additional information such as the security code printed on the back of the card,
date of expiry, and billing address.

Each month, the credit card user is sent a statement indicating the purchases
undertaken with the card, any outstanding fees, and the total amount owed. After
receiving the statement, the cardholder may dispute any charges that he or she thinks
are incorrect (see 15 U.S.C. § 1643, which limits cardholder liability for
unauthorized use of a credit card to $50, and the Fair Credit Billing Act for details of
the US regulations). Otherwise, the cardholder must pay a defined minimum
proportion of the bill by a due date, or may choose to pay a higher amount up to the
entire amount owed. The credit issuer charges interest on the amount owed if the
balance is not paid in full (typically at a much higher rate than most other forms of
debt). In addition, if the credit card user fails to make at least the minimum payment
by the due date, the issuer may impose a "late fee" and/or other penalties on the user.
To help mitigate this, some financial institutions can arrange for automatic payments
to be deducted from the user's bank accounts, thus avoiding such penalties altogether
as long as the cardholder has sufficient funds.

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 general calculation formula most financial
institutions use to determine the amount of interest to be charged is APR/100 x
ADB/365 x number of days revolved. Take the annual percentage rate (APR) and
divide by 100 then multiply to the amount of the average daily balance (ADB)
divided by 365 and then take this total and multiply by the total number of days the
amount revolved before payment was made on the account. Financial institutions
refer to interest charged back to the original time of the transaction and up to the
time a payment was made, if not in full, as RRFC or residual retail finance charge.
Thus after an amount has revolved and a payment has been made, the user of the
card will still receive interest charges on their statement after paying the next
statement in full (in fact the statement may only have a charge for interest that
collected up until the date the full balance was paid, i.e. when the balance stopped
revolving).

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.

Benefits to customers

The main benefit to each customer is convenience. Compared to debit cards and
cheques, 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.

Many credit cards offer rewards and benefits packages, such as offering enhanced
product warranties at no cost, free loss/damage coverage on new purchases, and
points which may be redeemed for cash, products, or airline tickets. Additionally,
carrying a credit card may be a convenience to some customers as it eliminates the
need to carry any cash for most purposes.
Detriments to customers

Low introductory credit card rates are limited to a fixed term, usually between 6 and
12 months, after which a higher rate is charged. As all credit cards charge fees and
interest, some customers become so indebted to their credit card provider that they
are driven to bankruptcy. Some credit cards often levy a rate of 20 to 30 percent after
a payment is missed; in other cases a fixed charge is levied without change to the
interest rate. In some cases universal default may apply: the high default rate is
applied to a card in good standing by missing a payment on an unrelated account
from the same provider. 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.

Grace period

A credit card's grace period is the time the customer has to pay the balance before
interest is assessed on the outstanding balance. Grace periods may vary, but usually
range from 20 to 50 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.

Benefits to merchants

An example of street markets accepting credit cards. Most simply display the
acceptance marks (stylized 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 cheques, 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. Extra
turnover is generated by the fact that the customer can purchase goods and/or
services immediately and is less inhibited by the amount of cash in his or her pocket
and the immediate state of his or her bank balance. Much of merchants' marketing is
based on this immediacy.

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 (interchange rate). 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 to compensate for the
transaction costs, though this is strictly prohibited by credit card companies & must
be reported to the consumer’s credit card issuer.

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.
Costs to merchants

Merchants are charged several fees for the privilege of accepting credit cards. The
merchant is usually charged a commission of around 1 to 3 per-cent of the value of
each transaction paid for by credit card. The merchant may also pay a variable
charge, called an interchange rate, for each transaction. Thus in some instances of
very low-value transactions, use of credit cards will significantly reduce the profit
margin or cause the merchant to lose money on the transaction. Merchants must
accept these transactions as part of their costs to retain the right to accept credit card
transactions. Merchants with very low average transaction prices or very high
average transaction prices are more averse to accepting credit cards. In some cases
merchants may charge users a "credit card supplement", either a fixed amount or a
percentage, for payment by credit card.[10] This practice is prohibited by the credit
card contracts in the United States, although the contracts allow the merchants to
give discounts for cash payment.

Parties involved

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

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

the credit card to the cardholder. This bank bills the consumer for repayment and
bears the risk that the card is used fraudulently. American Express and Discover
were previously the only card-issuing banks for their respective brands, but as of
2007, this is no longer the case. Cards issued by banks to cardholders in a
different country are known as offshore credit cards.

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

products or services sold to the cardholder.

 Acquiring bank: The financial institution accepting payment for the products
or services on behalf of the merchant.

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

the acquiring bank.

 Merchant account: This could refer to the acquiring bank or the independent
sales organization, but in general is the organization that the merchant deals with.
  Credit Card association: An association of card-issuing banks such
as Visa, MasterCard, Discover, American Express, etc. that set transaction terms
for merchants, card-issuing banks, and acquiring banks.

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

electronic transactions. May be operated by an independent company, and one
company may operate multiple networks.

 Affinity partner: Some institutions lend their names to an issuer to attract

customers that have a strong relationship with that institution, and get paid a fee
or a percentage of the balance for each card issued using their name. Examples of
typical affinity partners are sports teams, universities, charities, professional
organizations, and major retailers.

The flow of information and money between these parties — always through the
card associations — is known as the interchange, and it consists of a few steps.

Transaction steps

 Authorization: The cardholder pays for the purchase and the merchant
submits the transaction to the acquirer (acquiring bank). The acquirer verifies the
credit card number, the transaction type and the amount with the issuer (Card-
issuing bank) and reserves that amount of the cardholder's credit limit for the
merchant. An authorization will generate an approval code, which the merchant
stores with the transaction.

 Batching: Authorized transactions are stored in "batches", which are sent to

the acquirer. Batches are typically submitted once per day at the end of the
business day. If a transaction is not submitted in the batch, the authorization will
stay valid for a period determined by the issuer, after which the held amount will
be returned back to the cardholder's available credit (see authorization hold).
Some transactions may be submitted in the batch without prior authorizations;
these are either transactions falling under the merchant's floor limit or ones where
the authorization was unsuccessful but the merchant still attempts to force the
transaction through. (Such may be the case when the cardholder is not present
but owes the merchant additional money, such as extending a hotel stay or car
rental.)
  Clearing and Settlement: The acquirer sends the batch transactions through
the credit card association, which debits the issuers for payment and credits the
acquirer. Essentially, the issuer pays the acquirer for the transaction.

 Funding: Once the acquirer has been paid, the acquirer pays the merchant.
The merchant receives the amount totaling the funds in the batch minus either the
"discount rate," "mid-qualified rate", or "non-qualified rate" which are tiers of
fees the merchant pays the acquirer for processing the transactions.

 Chargeback’s: A chargeback is an event in which money in a merchant

account is held due to a dispute relating to the transaction. Chargeback are
typically initiated by the cardholder. In the event of a chargeback, the issuer
returns the transaction to the acquirer for resolution. The acquirer then forwards
the chargeback to the merchant, who must either accept the chargeback or contest
it.

Features

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
cards are 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 cashback).

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.

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 10% difference is the "net interest spread" and the 5% is the
"interest expense".

• 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. Depending on the issuer, marketing programs are also a
significant portion of expenses.

• 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.)

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. If the amount is large (generally over $1500–$2000), there
is the possibility of a lawsuit or arbitration.

• Rewards

Many credit card customers receive rewards, such as frequent flyer points, gift
certificates, or cash back as an incentive to use the card. Rewards are generally tied
to purchasing an item or service on the card, which may or may not includebalance
transfers, cash advances, or other special uses. Depending on the type of card,
rewards will generally cost the issuer between 0.25% and 2.0% of the spread.
Networks such as Visa or MasterCard have increased their fees to allow issuers to
fund their rewards system. Some issuers discourage redemption by forcing the
cardholder to call customer service for rewards. On their servicing website,
redeeming awards is usually a feature that is very well hidden by the issuers. With a
fractured and competitive environment, rewards points cut dramatically into an
issuer's bottom line, and rewards points and related incentives must be carefully
managed to ensure a profitable portfolio. Unlike unused gift cards, in whose case
the breakage in certain US states goes to the state's treasury, unredeemed credit card
points are retained by the issuer.

Fraud

In relative numbers the values lost in bank card fraud are minor, calculated in 2006
at 7 cents per 100 dollars worth of transactions (7 basis points).[18] In 2004, in the
UK, the cost of fraud was over £500 million.[19] 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 refunds will, 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. Most banking services have their own credit card services that handle fraud
cases and monitor for any possible attempt at fraud. Employees that are specialized
in doing fraud monitoring and investigation are often placed in Risk Management,
Fraud and Authorization, or Cards and Unsecured Business. Fraud monitoring
emphasizes minimizing fraud losses while making an attempt to track down those
responsible and contain the situation. Credit card fraud is a major white collar crime
that has been around for many decades, even with the advent of the chip based card
(EMV) in some countries was in place to prevent this fraud case, there are still many
cases reported and still around in this countries.

Revenues
Offsetting costs are the following revenues:

• Interchange fee

In addition to fees paid by the card holder, merchants must also pay interchange
fees to the card-issuing bank and the card association. For a typical credit card issuer,
interchange fee revenues may represent about a quarter of total revenues.

These fees are typically from 1 to 6 percent of each sale, but will vary not only from
merchant to merchant (large merchants can negotiate lower rates), but also from card
to card, with business cards and rewards cards generally costing the merchants more
to process. The interchange fee that applies to a particular transaction is also affected
by many other variables including: the type of merchant, the merchant's total card
sales volume, the merchant's average transaction amount, whether the cards were
physically present, how the information required for the transaction was received, the
specific type of card, when the transaction was settled, and the authorized and settled
transaction amounts. In some cases, merchants add a surcharge to the credit cards to
cover the interchange fee, encouraging their customers to instead use cash, debit
cards, or even cheques.

• 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 their bills on time, and is replaced by a
penalty interest rate (for example, 23.99%) that applies retroactively.
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 overlimit 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 (sometimes these might not be reported on the
customer's statement, even when applied).The variation of exchange rates applied
by different credit cards can be very substantial, as much as 10% according to
a Lonely Planet report in 2009.
 Credit Card Frauds

The fraud begins with either the theft of the physical card or the compromise of data
associated with the account, including the card account number or other information
that would routinely and necessarily be available to a merchant during a legitimate
transaction. The compromise can occur by many common routes and can usually be
conducted without tipping off the card holder, the merchant or the issuer, at least
until the account is ultimately used for fraud. A simple example is that of a store
clerk copying sales receipts for later use. The rapid growth of credit card use on the
Internet has made database security lapses particularly costly; in some cases,
millions[4] of accounts have been compromised.
Stolen cards can be reported quickly by cardholders, but a compromised account can
be hoarded by a thief for weeks or months before any fraudulent use, making it
difficult to identify the source of the compromise. The cardholder may not discover
fraudulent use until receiving a billing statement, which may be delivered
infrequently.
Stolen cards

When a credit card is lost or stolen, it remains usable until the holder notifies the
issuer that the card is lost. Most issuers have free 24-hour telephone numbers to
encourage prompt reporting. Still, it is possible for a thief to make unauthorized
purchases on a card until it is canceled. Without other security measures, a thief
could potentially purchase thousands of dollars in merchandise or services before the
cardholder or the card issuer realize that the card is in the wrong hands.
The only common security measure on all cards is a signature panel, but signatures
are relatively easy to forge. Some merchants will demand to see a picture ID, such as
a driver's license, to verify the identity of the purchaser, and some credit cards
include the holder's picture on the card itself. However, the card holder has a right to
refuse to show additional verification, and asking for such verification is usually a
violation of the merchant's agreement with the credit card companies. Self-serve
payment systems (gas stations, kiosks, etc.) are common targets for stolen cards, as
there is no way to verify the card holder's identity. A common countermeasure is to
require the user to key in some identifying information, such as the user's ZIP or
postal code. This method may deter casual theft of a card found alone, but if the card
holder's wallet is stolen, it may be trivial for the thief to deduce the information by
looking at other items in the wallet. For instance, a U.S. driver license commonly has
the holder's home address and ZIP code printed on it.
Card issuers have several countermeasures, including sophisticated software that can,
before a transaction is authorised, estimate the probability of fraud. For example, a
large transaction occurring a great distance from the cardholder's home might seem
suspicious. The merchant may be instructed to call the card issuer for verification, or
to decline the transaction, or even to hold the card and refuse to return it to the
customer. The customer must contact the issuer and prove who they are to get their
card back (if it is not fraud and they are actually buying a product).
Compromised accounts

Card account information is stored in a number of formats. Account numbers are

often embossed or imprinted on the card, and a magnetic stripe on the back contains
the data in machine readable format. Fields can vary, but the most common include:
• Name of card holder
• Account number
• Expiration date
• Verification/CVV code
There have been high profile examples of companies being compromised resulting in
large scale identity theft, the largest to date being TJX.
[edit] Card not Present

The mail and the Internet are major routes for fraud against merchants who sell and
ship products, and impacts legitimate mail-order and Internet merchants. If the card
is not physically present (called CNP Card Not Present) the merchant must rely on
the holder (or someone purporting to be so) presenting the information indirectly,
whether by mail, telephone or over the Internet. While there are safeguards to this, it
is still more risky than presenting in person, and indeed card issuers tend to charge a
greater transaction rate for CNP, because of the greater risk. To many people's
surprise, telephone ordering is the most risky, far more risky than the Internet
It is difficult for a merchant to verify that the actual cardholder is indeed authorizing
the purchase. Shipping companies can guarantee delivery to a location, but they are
not required to check identification and they are usually not involved in processing
payments for the merchandise. A common recent preventive measure for merchants
is to allow shipment only to an address approved by the cardholder, and merchant
banking systems offer simple methods of verifying this information. Before this and
similar methods were introduced, mail order carding was rampant as early as 1992.
[6], using a method in which the carder obtains the credit card information for a local
resident and intercepts expensive computer equipment he ordered using the stolen
card and shipped to the address, often by staking out the porch of the residence.
Small transactions generally undergo less scrutiny, and are less likely to be
investigated by either the card issuer or the merchant. CNP merchants must take
extra precaution against fraud exposure and associated losses, and they pay higher
rates for the privilege of accepting cards. Scam artists[who?] bet on the fact that
many fraud prevention features are not used for small transactions.
Merchant associations have developed some prevention measures, such as single use
card numbers, but these have not met with much success. Customers expect to be
able to use their credit card without any hassles, and have little incentive to pursue
additional security due to laws limiting customer liability in the event of fraud.
Merchants can implement these prevention measures but risk losing business if the
customer chooses not to use the measures.
Identity theft

Identity theft can be divided into two broad categories: Application fraud and
account takeover.
Application fraud

Application fraud happens when a criminal uses stolen or fake documents to open an
account in someone else's name. Criminals may try to steal documents such as utility
bills and bank statements to build up useful personal information. Or they may create
counterfeit documents.
Account takeover

Account takeover happens when a criminal tries to take over another person's
account, first by gathering information about the intended victim, then contacting
their card issuer masquerading as the genuine cardholder, and asking for mail to be
redirected to a new address. The criminal then reports the card lost and asks for a
replacement to be sent.
Some merchants added a new practice to protect their consumers and their own
reputation, where they ask the buyer to send a photocopy of the physical card and
statement to ensure the legitimate usage of a card.
Skimming

Electronic-type credit card skimming

Skimming is the theft of credit card information used in an otherwise legitimate
transaction. It is typically an "inside job" by a dishonest employee of a legitimate
merchant. The thief can procure a victim’s credit card number using basic methods
such as photocopying receipts or more advanced methods such as using a small
electronic device (skimmer) to swipe and store hundreds of victims’ credit card
numbers. Common scenarios for skimming are restaurants or bars where the
skimmer has possession of the victim's credit card out of their immediate view.[7]
The thief may also use a small keypad to unobtrusively transcribe the 3 or 4 digit
Card Security Code which is not present on the magnetic strip.
Instances of skimming have been reported where the perpetrator has put a device
over the card slot of a ATM (automated teller machine), which reads the magnetic
strip as the user unknowingly passes their card through it. These devices are often
used in conjunction with a pinhole camera to read the user's PIN at the same time.[8]
Skimming is difficult for the typical cardholder to detect, but given a large enough
sample, it is fairly easy for the card issuer to detect. The issuer collects a list of all
the cardholders who have complained about fraudulent transactions, and then uses
data mining to discover relationships among them and the merchants they use. For
example, if many of the cardholders use a particular merchant, that merchant can be
directly investigated. Sophisticated algorithms can also search for patterns of fraud.
Merchants must ensure the physical security of their terminals, and penalties for
merchants can be severe if they are compromised, ranging from large fines by the
issuer to complete exclusion from the system, which can be a death blow to
businesses such as restaurants where credit card transactions are the norm.
Carding

Carding is a term used for a process to verify the validity of stolen card data. The
thief presents the card information on a website that has real-time transaction
processing. If the card is processed successfully, the thief knows that the card is still
good. The specific item purchased is immaterial, and the thief does not need to
purchase an actual product; a Web site subscription or charitable donation would be
sufficient. The purchase is usually for a small monetary amount, both to avoid using
the card's credit limit, and also to avoid attracting the card issuer's attention. A
website known to be susceptible to carding is known as a cardable website.
In the past, carders used computer programs called "generators" to produce a
sequence of credit card numbers, and then test them to see which were valid
accounts. Another variation would be to take false card numbers to a location that
does not immediately process card numbers, such as a trade show or special event.
However, this process is no longer viable due to widespread requirement by internet
credit card processing systems for additional data such as the billing address, the 3 to
4 digit Card Security Code and/or the card's expiration date, as well as the more
prevalent use of wireless card scanners that can process transactions right away.
[citation needed] Nowadays, carding is more typically used to verify credit card data
obtained directly from the victims by skimming or phishing.
A set of credit card details that has been verified in this way is known in fraud circles
as a phish. A carder will typically sell data files of the phish to other individuals who
will carry out the actual fraud. Market price for a phish ranges from US$1.00 to
US$50.00 depending on the type of card, freshness of the data and credit status of the
victim.[citation needed]
Profits, losses and punishment

The examples and perspective in this article may not represent a worldwide view
of the subject. Please improve this article and discuss the issue on the talk page.
Who pays for credit card fraud? In the US the short answer is the merchant; in other
countries it is the card issuer, and in others the cardholder.
But even if the cardholder does not lose money, the inconvenience can be quite
costly and tiring. And credit card companies have to pay for preventing fraud while
maintaining a good customer experience.
Credit card companies like Visa and MasterCard receive revenue from every
transaction, typically 2% to 4% depending on the payment method. So they are
motivated to increase total volume of transactions, consequently pursue policies to
increase number of transactions. This creates conflict of interest for the credit card
companies. On one hand they are obliged to fight credit card fraud, but on the other
hand policies against credit fraud may impose certain restrictions that may negatively
affect number of transactions and cumulative transaction volume. Besides fraud
investigation costs tend to be higher than costs of write-off
Detection and Punishment

In the US, people that commit credit card crime largely go unpunished and
repeatedly victimize consumers and businesses. The Secret Service handles crimes
involving the U.S. money supply; they have a limit of $150,000 before investigating
each crime.[citation needed] Most credit card criminals know this and keep
purchases from any one business below $150,000. Credit card fraud can be reported
to the Federal Trade Commission (FTC) and to local and regional authorities. It is
the standing policy of the FTC not to investigate reports where the value of fraud
does not exceed $2,000. Local law enforcement may or may not further investigate a
credit card fraud, depending on the amount, type of fraud, and where the fraud
originated from
Credit card companies

The examples and perspective in this article or section might have an extensive
bias or disproportional coverage towards one or more specific regions. Please
improve this article or discuss the issue on the talk page.
To prevent being "charged back" for fraud transactions Merchants can sign up for
services offered by Visa and Mastercard called Verified by visa and MasterCard
SecureCode. This requires consumers to add additional information to confirm a
transaction.
Often enough online merchants do not take adequate measures to protect their
websites from fraud attacks, for example by being blind to sequencing. In contrast to
more automated product transactions, a clerk overseeing "card present" authorization
requests must approve the customer's removal of the goods from the premise in real
time.
Credit card merchant associations, like Visa and MasterCard, receive profit from
transaction fees, charging between 2% and 4% on each transaction.[citation needed]
Cash costs more to bank up, so it is worthwhile for merchants to take cards. Issuers
are thus motivated to pursue policies which increase the money transferred by their
systems. Many merchants believe this pursuit of revenue reduces the incentive for
credit card issuers to adopt procedures to reduce crime, particularly because the cost
of investigating a fraud is usually higher than the cost of just writing it off.[citation
needed] But in the US credit card issuers do not take these costs; they are passed on
to the merchants as "chargebacks". This can results in substantial additional costs:
not only has the merchant been defrauded for the amount of the transaction, he is
also obliged to pay the chargeback fee, and to add insult to injury the transaction fees
still stand.[citation needed]
Merchants have started to request changes in state and federal laws to protect
themselves and their consumers from fraud, but the credit card industry has opposed
many of the requests.[citation needed] In many cases, merchants have little ability to
fight fraud, and must simply accept a proprortion of fraud as a cost of doing
business.[citation needed]
Because all card-accepting merchants and card-carrying customers are bound by
civil contract law there are few criminal laws covering the fraud.[citation needed]
Payment transfer associations enact changes to regulations, and the three parties—
the issuer, the consumer, and the merchant— are all generally bound to the
conditions, by a self-acceptance term in the contract that it can be changed.[citation
needed]
Merchants

The merchant loses the goods or services sold, the payment, the fees for processing
the payment, any currency conversion commissions, and the chargeback penalty. For
obvious reasons, many merchants take steps to avoid chargebacks—such as not
accepting suspicious transactions. This may spawn collateral damage, where the
merchant additionally loses legitimate sales by incorrectly blocking legitimate
transactions.

Credit Card Fraud Prevention Tips

1. Keep an eye on your credit card every time you use it, and make sure you get it
back as quickly as possible. Try not to let your credit card out of your sight whenever
possible.
2. Be very careful to whom you give your credit card. Don't give out your account
number over the phone unless you initiate the call and you know the company is
reputable. Never give your credit card info out when you receive a phone call. (For
example, if you're told there has been a 'computer problem' and the caller needs you
to verify information.) Legitimate companies don't call you to ask for a credit card
number over the phone.
3. Never respond to emails that request you provide your credit card info via email --
and don't ever respond to emails that ask you to go to a website to verify personal
(and credit card) information. These are called 'phishing' scams.
4. Never provide your credit card information on a website that is not a secure site.
5. Sign your credit cards as soon as you receive them.
6. Shred all credit card applications you receive.
7. Don't write your PIN number on your credit card -- or have it anywhere near your
credit card (in the event that your wallet gets stolen).
8. Never leave your credit cards or receipts lying around.
9. Shield your credit card number so that others around you can't copy it or capture it
on a cell phone or other camera.
10. Keep a list in a secure place with all of your account numbers and expiration
dates, as well as the phone number and address of each bank that has issued you a
credit card. Keep this list updated each time you get a new credit card.
11. Only carry around credit cards that you absolutely need. Don't carry around extra
credit cards that you rarely use.
12. Open credit card bills promptly and make sure there are no bogus charges. Treat
your credit card bill like your checking account -- reconcile it monthly. Save your
receipts so you can compare them with your monthly bills.
13. If you find any charges that you don't have a receipt for -- or that you don't
recognize -- report these charges promptly (and in writing) to the credit card issuer.
14. Always void and destroy incorrect receipts.
15. Shred anything with your credit card number written on it.
16. Never sign a blank credit card receipt. Carefully draw a line through blank
portions of the receipt where additional charges could be fraudulently added.
17. Carbon paper is rarely used these days, but if there is a carbon that is used in a
credit card transaction, destroy it immediately.
18. Never write your credit card account number in a public place (such as on a
postcard or so that it shows through the envelope payment window).
19. Ideally, it's a good idea to carry your credit cards separately from your wallet --
perhaps in a zippered compartment or a small pouch.
20. Never lend a credit card to anyone else.
21. If you move, notify your credit card issuers in advance of your change of
address.

Important RBI guidelines on credit cards for the help of customers :

1.RBI in its guidelines has advised the banks that they can issue a credit card or any
other product only after getting a customer’s explicit consent-meaning that it cannot
be processed on an implied understanding. And by chance such a card is lost and
misused; it shall be the bank’s sole responsibility and not yours. On the contrary, if a
bank rejects your application for a credit card, it has to provide to you in writing the
reason for doing so. You can also choose the chards with options of photos, PINs and
laminated signatures, as advised by RBI to reduce the risk of stealing or misuse of
cards.
2. In case you find that you are paying a higher rate of interest than your neighbor,
you can ask for the explanation regarding this from your bank – whether it’s due to
your poor payment and default history or some other reason, as banks have been
advised to publicize through their Website and other means the interest rates charged
for various categories of customers.
3. If you have always worried about the constant delays in receiving bills or
statements, expect online dispatches in future if you are not getting them already
then RBI has instructed banks that customers are entitled to at least 15 days’ time to
pay the credit card bill before the interest begins to be charged
4. There are very few customers who have not had to spend hours stuck to a phone to
correct a billing fault. If you have been one such discontented card-holder, RBI has
provided some respite. RBI has asked the banks to have qualified call centre staff
members who can deal with all complaints competently, and also to automatically
forward the unresolved complaints from a call centre to higher authorities.
5. In case you inform the bank that you want to close your credit card account, banks
will have to honor your request immediately. More significantly, if you’ve lost your
card and want to block it, the banks have to follow your instructions and do it the
minute you inform them, and the formalities, if any, including the lodging of an FIR,
should follow within a reasonable period of time.
 ANALYSIS

It was found that for the frequent travelers acceptability was the most important
criteria and was given the highest weightage

Following attributes have been analyzed as per the consumer survey conducted

The attributes are as follows:

 ACCEPTIBILITY

 CREDIT LIMIT

 CREDIT PERIOD

 MEDICAL AND HOSPITAL SERVICES

 OTHERS

PROMOTION STRATEGIES

The changing trends in the payment systems are global and even in India revolve
around the change in customer needs and the evolution of financial markets.
Traditionally Indians like to pay in cash or at the most avail the services of a bank.
As a result credit card companies had to educate the consumers and spread
awareness of the uses of its products. The companies have tried to address this issue
through promotional campaigns:

 Placing of take away firms of credit card at more than a thousand merchant
establishments.

 Appointing of DSAs

 Using business magazines and newspapers for advertisement.

 Mailing of forms along with contests to professionals and middle

management executives etc.

 Tapping the get member route

 Reducing their minimum eligibility criteria and changing income
documentation structure.

 Introduction of photo cards.

 Tying up with durable consumer goods manufacturer ( e.g. Onida, 0Philips )

to sell their products.

 Providing ATM facility to their card holders

 Travel assistance via tele-banking.

 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 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.
CONCLUSION

Whenever Internet transactions are discussed, immediately the thought of credit card
comes to everybody’s 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 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.

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.

 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 increasing the online shopping as generally
believed. We need to device different mechanisms taking into account Indian laws,
shopper’s requirements, banking practices prevalent in our country.
 RECOMMENDATIONS

HOW TO PROTECT -

The following are my recommendations. There may be other options available as

well.

1. Never give your credit card to the company. Make payment by cheque instead.

2. Monitor your credit card statements.

3. If there is an unauthorized charge, report it to Micro Forecasts immediately and

demand a charge reversal. Wait several days and then check with your credit card
company to see if you received the credit. Do not wait for your next statement to see
if the credit appears.

4. If the refund is not there, call Micro Forecasts again. Most importantly, deny the
charge immediately with your credit card company.

For this to be effective, it must be done in writing, and must be done within 60 days
from the date you received the statement on which the disputed charge appeared.
This time frame is as per federal law. I believe you are much more likely to get your
money back if the credit card company is involved.

5. Report your credit card as lost/stolen so that no further charges can occur. You
will get a new card within a couple of week. Many people have done this, including
myself.

6. Report the problem to authorities as per the next section is?

Very likely

Somewhat likely

Not sure

Somewhat unlikely

Very unlikely

To what extent does credit card service exceed your expectations?

Very great extent

Great extent

Some extent

Little extent
Very little extent

Which of the following statements, according to you most representative of your

credit card service provider?

They are Helpful and Friendly.

They are polite, cheerful and are knowledgeable operators

In tune with the needs of its clients

Prompt in dealing with customer complaints

Unwilling to go the extra mile for its customers

Poor customer phone support

You are often put on hold for a long time

How satisfied are you with the efficiency of call handling when placing calls to
credit card service provider?

Very satisfied

Somewhat satisfied

Neutral

Somewhat dissatisfied

Very dissatisfied

Credit card service provider understands my service needs.

Strongly agree

Agree

Neutral/Not sure

Disagree

Strongly disagree.

What are the added benefits you wish to acquire from the card?

Acceptability
Longer credit period

Higher credit limit

Lesser charges

Better offers

Please rank the services of the following card issuers in order of your preference.

Citibank

HSBC

Bank of Baroda

Bank Of India

Standard Chartered

ANZ Grindlays

Times card

ICICI

SBI

Personal details:

Age:

Profession

Income: 15,000-25,000 25,000-40,000

40,000-60,000 Above 60,000

Thank you for taking the time to complete this survey

 BIBLIOGRAPHY
 Marketing management: Philip Kotler

 Financial Management: Khan & jain

 Business Statistics: K.K.Khanna & Jagjit Singh

 Google search

 Yahoo search

 Citibank.com

 Rbi.org

 Apnaloan.com

 Mouthshut.com

 Sbicards.com
SUGGESTIONS OF THE STUDY

The banks battle today is more with cash than with other banks. Considering the
huge potential of the Indian market, it is in the interest of the issuers to educate the
consumers about the benefits of holding credit card. The campaigns must also be
convincing enough to clear the myth that credit cards increase spending. Focus
should be on changing non-card related spending to card related spending. The
issuers must focus on service and pricing and must recognize the importance of the
billing and payment process to retain credit card holders.

The credit cards schemes would be successful only if they meet the customer’s
requirement of wider acceptability rather than fringe benefits like non-crisis credit or
prestige proposition. Emphasis should be on offering a wider basket of services
through credit cards enabling purchases for a wide variety of products along with
ATM usage, backed by much more comprehensive merchant establishment network.
The banks must also increase the number of cardholders by reducing the initial-one
time subscription fee.

The banks should step up advertising that will help to build a brand image and create
a higher brand recall like that of Citibank. With more and more people willing to
adopt to credit cards, banks should undertake innovative strategies to increase card
spends. Simultaneously, to cater to high net worth customers and those with niche
needs, banks should provide more of premium plastic and CO-cards that piggyback
on the existing infrastructure, but provide holders with exclusive add-ons.

Future promotions could include: Telemarketing, direct sales, direct mail,

promotional advertising through media, common ATM services between banks (to
reduce cost of operations), schemes like card carnival and sales executives contests
and a plethora of augmented services should be introduced to induce greater number
of people to adopt to plastic money.
LIMITATIONS OF THE STUDY

• The study is confined to NCR only.

• Most of the information is subjective data collected through personal interaction

with people transacting in the plastic money market. As a result the personal
biases of individuals could affect the study. However, to counter this the data has
been verified from a number of different sources to give it a measure of
authenticity.
• Study was constrained by limited availability of data. Not all banks could reveal
their confidential marketing strategies and statistical information.
INTRODUCTION
TYPES OF CARDS
SALIENT FEATURES
 OBJECTIVES &

SCOPE OF THE STUDY

RESEARCH METHODOLOGY
EXECUTIVE SUMMARY OF CREDIT
CARD INDUSTRY
INDIAN CREDIT CARD SCENARIO
DECIDING ON THE RIGHT CREDIT
CARD
ANALYSIS
COMPARISON OF CREDIT CARDS
LIMITATIONS OF THE STUDY
SUGGESTIONS OF THE STUDY
CONCLUSION
RECOMMENDATION
BIBLIOGRAPHY
QUESTIONNAIRE