2

Banking has evolved a long way from the days of the medieval money lenders counting coins
on the bench to the present scenario, where it is hard to trace the trail of money from the
beginning to the end.
The trail starts right from the small saver leaving a few rupees in his local bank to the billions
of rupee loans raised by a syndicate banks and financial institutions, capable of financing
projects in any country in the world. Still, these banking majors are heavily dependent upon
their retail home base of savers and borrowers. Most of the bankers began focusing on this
retail market segment as global competition intensified in late seventies and early eighties.
The debit card has emerged from the shadow of its older sibling, the credit card. Over the past
decade, debit card has grown from accounting for 274 million transactions in 1990 to 8.15
billion transactions in 2002, to challenge the credit card as the preferred payment card. As it
stands, the debit card industry is a multi-billion dollar engine that helps drive bank profits and
point-of purchase consumer sales - but is also beginning to redefine traditional payment
options in the business and government sectors, such as food stamps, benefits, and payroll.
The debit card has arrived and is here to stay.
And yet, though it remains poised for growth, the debit card has also reached a crossroads. A
recent settlement has cost VISA and MasterCard approximately $3 billion, and has
dramatically reduced the fees they can charge for signature-based debit purchases. The effects
of the settlement reach into every layer of the industry - from rewards incentives, to marketing
programs, to future fee arrangements, and future growth. Consumer preferences for PIN- or
signature-based debit will certainly influence how things unfold, and whether either debit card
option will suffer or bloom in the short, mid, or long term.
Credit cards, one of the banking products that cater products to the needs of retail segment has
seen its number grow in geometric progression in recent years. This growth has been strongly
supported by the development in the field of technology, without which this could not have
been possible.
The history of phenomenal growth in the credit cards segment traces way back to in 1950, the
time when Dinar Club was established .The card provided select members with credit at 22

3
restaurants in New York and collected a commission for paying the bills promptly. The credit
card industry got a further boost with the arrival of American express began selling their card
as a prestige to hotels,restaurants,shops or airlines in America and slowly expanded the
network across the world.
The success of these two players attracted many other banks to join the credit card business.
The entire breed of new players saw a fresh opportunity of granting unsecured loans at high
interest rates to those credit cardholders who did not pay their bills on time. These banks were
not so concerned with collecting commissions from shops but were thriving on high interest
income from those who did not pay their bills on time.
Its not that only the card numbers have increased, but even the types of cards on offer have
seen a surge. Today the domestic card industry is flooded with different types of cards ranging
from gold, silver, global, co-branded credit cards, smart to secure .the list is endless.
Foreign banks have shouldered the major responsibility of increasing the card base and adding
value-added services to the card products in the past. This is also evident from the fact that the
market share of these foreign banks is estimated to be well over 70%. But the scenario has
changed dramatically in the last of couple of years with the entry of State Bank of India (SBI),
a domestic major in the banking sector. More and more nationalised banks and private sector
banks like ICICI and HDFC Bank are aggressively launching credit card with value added
features.
Although at present the card market is mainly limited to Indias relatively bigger cities and
tourist locations only, there is also a potential in smaller cities. Domestic banks, owing to their
vast network and reach to smaller cities, can easily tap this potential. They would be better off,
penetrating into smaller cities and bringing credit card to the masses rather than cannibalising
other foreign banks existing cardholder base.
The efforts of these banks to increase the card base is going to be wholeheartedly supported
by the residents of these smaller cities with their higher disposable income, changing lifestyle,
increasing travel and the growth in the entertainment sector.

4
Over the years, Indians have been averse to credit cards. This is primarily because they
believed that spending through credit is a sure shot way of getting into the debt trap. Of
course, movies highlighting the sad state of a borrower did not exactly help matters. And even
the local kirana shops have the famous lines Aaj Nagad, Kal Udhari (cash today, credit
tomorrow).
But the situation is not actually that scary. And it is all about right timing. Credit cards can be
a useful tool at the hands of savvy consumers who can effectively use the benefits offered by
cards.
It is important to know that credit card is a financial tool that needs to be used responsibly.
While it ensures cash flow, it is not advisable for customers to borrow for a longer period of
time. Use it effectively and take good advantage of the time line and clear your debts, without
any additional costs.
Plastic Money: the Currency of Modern India
Indian consumers have never had it so good. The soiled notes are definitely out. Carrying cash
is no more `a pain in the neck' as consumers are relying more on the `plastic card' which gives
them money on credit.
Plastic money basically means debit cards and credit cards which is having a magnetic stripe,
logo, signature of the cardholder made of plastic.
Credit Cards have finally arrived in India. The card industry which is growing at the rate of
20% per annum is flooded with cards ranging from gold, silver, global, smart to secure.the
list is endless. From just two players in early 80s, the industry now houses over 10 major
players vying for a major chunk of the card pie.
Currently four major bishops are ruling the card empire---Citibank, Standard Chartered Bank,
HSBC and State Bank of India (SBI). The industry, which is catering to over 3.8 million card
users, is expected to double by the fiscal 2003. According to a study conducted by State Bank
of India, Citibank is the dominant player, having issued 1.5 million cards so far. Stanchart

5
follows way behind with 0.67 million, while Hongkong Bank has 0.3 million credit card
customers. Among the nationalized banks, SBI tops the list with 0.28 million cards, followed
by Bank of Baroda at 0.22 million.
The credit card market in India, which started out in 1981, is on the verge of an unprecedented
boom. Between 1987 and 2000, the market has virtually grown to over 3.8 million cards with
almost 25-30 % growth in new cardholders.
SBI, one of the late entrants in the card market, has managed to grab over 8 per cent of the
market share from the bigwigs like Citibank and Standard Chartered Bank. The bank's credit
card business has grown by 8 per cent over the last two years. According to bank officials,
SBI's card issue so far is to the tune of 0.28 million which is expected to In a bid to tap the
lower middle class segment, SBI is currently sharpening its marketing The bank is putting its
best foot forward to compete with global card majors like Citibank and Standard Chartered
Bank. The global bigwigs have already established themselves as the `bankable brands' in the
metros. However, in a bid to move to greener pastures, they are trying to tap the co-branded
card market which has vast potential for growth. Citibank, which is leading the card empire
recently launched a co-branded credit card in partnership with Indian Oil Corporation. The
card will offer its members reward points on every international spend which can be redeemed
for free fuel in India.
ATM- debit cards are the flavour of the season
The credit card business may have fallen short of expectations, but the debit card seems to
lend issuers and payment systems a cause for hope.
Plastic money is getting popular, according to a survey conducted by MasterCard international
in the Asia pacific region comprising of Korea, Malaysia, Indonesia, Philippines and Thailand.
Eighty percent of those who participated in the survey were either the owners of a card or
desired to own an ATM card. 50% owned one and 30% wish to own a card.
According to Jeff Portelli, Maestro (MasterCards debit card offering) has grown from zero to
70 m cards in the Asia pacific region since its launch six years ago. Today, Maestro is issued

6
in 16 Asia Pacific markets and is accepted at over 35,000 ATMs and more than 220,000 points
of sale. In India, the card is available through Citibank, Times Bank and HDFC Bank.
The concept of debit cards has been a slow starter in India. Debit cards are currently offered
by only a handful of banks, which has made availability low. Besides, the annual fee attached
to these cards adds to the perception that consumers are asked to pay for their own money.
However as the market get cracking, these fears are expected to be alleviated in future.

DEBIT CARDS
A debit card is a plastic card which provides an alternative payment method to cash when
making purchases. Physically the card is an ISO 7810 card like a credit card; however, its
functionality is more similar to writing a cheque as the funds are withdrawn directly from
either the cardholder's bank account (often referred to as a check card), or from the remaining
balance on a gift card.

7
Depending on the store or merchant, the customer may swipe or insert their card into the
terminal, or they may hand it to the merchant who will do so. The transaction is authorized
and processed and the customer verifies the transaction either by entering a PIN or,
occasionally, by signing a sales receipt
As it is popularly known, it is an ATM card on the move. The Debit Card gives the freedom to
access the Savings or Current Account at merchant locations and ATMs. Whenever to make
payments, the amount will be instantly debited to the account. There are around more than 5.3
lakh Visa/PLUS ATMs and equally strong Mastercard/ Cirrus ATMs in over 140 countries
worldwide. All the purchases and cash withdrawals will be in the currency of the country are
in, while account will be debited in rupees. So you needn't carry traveller's cheques or foreign
exchange the next time you travel
Debit Card can be used at any merchant location displaying the Visa or Mastercard logo or at
any ATMs displaying the Visa/PLUS or Mastercard/Cirrus logo. Besides that, one can always
use it at any of the bank ATMs as a normal ATM card.
Working of Debit Card
The user has to present the card to merchant who will swipe it through the electronic terminal
and enter the amount of purchase. The customers need to sign the transaction slip. Account
will be automatically debited for the amount of the purchase and the transaction can be
verified by entering the PIN. Debit Card can be used to access the Account from over 5,000
Shops, Department Stores, Petrol Pumps and Restaurants and over 235 ATMs in India .It can
also be used at over 4 million Visa Electron merchant locations and equally strong Mastercard
outlets. If Debit Card ever gets lost or stolen, card companies protect from fraudulent usage at
the loss.
It is necessary to have a savings or current account with the debit card issuer; by filling an
application form. The card company then couriers the card across around a weeks time. The
Debit card does have a daily limit which could be somewhere around Rs. 15,000 at ATMs, and
Rs. 10,000 at merchant locations. This again is subject to the balance available in the account.

8
Advantages of Debit Card

Debit Card is often easier to get than a credit card.

Check approval or to show identification at store is not required.

No need to carry cash, a checkbook or traveler's checks.

Debit cards are more readily accepted than checks, especially at the time of traveling.

No interest charges are to be paid by debit cardholders.

Debit card processing fee for the merchant are generally lower than credit card fees.
Disadvantages of a debit card

Enough money is required in bank account to have debit card.

Once the amount is paid for purchase, if something goes wrong with the purchase.. Bank
won't put money back into your account for items that are never delivered, don't work or were
misrepresented.

Bank feessuch as monthly service charges, per-transaction costs or penaltiesfor dropping

below the required minimum balance are charged by debit card holders.

More chances of lose or misuse of debit card than a credit card.

Two types of debit cards: There are currently two ways that debit card transactions are
processed: online debit (also known as PIN debit) and offline debit (also known as signature
debit). In some countries including the United States and Australia, they are often referred to
at point of sale as "debit" and "credit" respectively, even though in either case the user's bank
account is debited and no credit is involved.
In India there are basically three types of cards namely Visa, Master Card and Amex.
Participating banks like ANZ Grindlays, BoB then issue these cards to the subscribers. Both

9
Visa and Master Card have been popular in India and Amex a relatively new player in India as
it issues its cards only through American Express
ATM Cards
These cards are typically used at automatic teller machines (ATMs) to withdraw cash, make
deposits, or transfer funds between accounts. ATM card is used by inserting the card into an
automatic teller machine and enter a personal identification number, or PIN, for security. The
system checks the account for adequate funds before permitting any transaction.
Check Cards
These cards can be used to purchase products at any merchant that accepts VISA or
MasterCard credit cards. On the surface, they look exactly like ATM cards. However, check
cards cannot be used at automatic teller machines. When using a check card no PIN is used.
Instead, you will be asked to sign a transaction slip as would be done with a credit card.
Debit Card Problems can be worse than Credit Card Problems
When an improper charge appears on the credit card it can not automatically out the money
and simply need to work with the credit card issuer to have the charge removed from the bill.
When an improper charge occurs with a debit card, however, the funds are automatically taken
from the account and customer is burdened with attempting to get the money back.
Meanwhile, he may experience cash flow problems and the legitimate checks could bounce.
Traveling with your Debit Cards
The reverse side of the debit card will display the names or symbols of the various ATM
systems that will accept the card. Debit card can be used at any ATM in the world as long as
the ATM displays one of the same system names or symbols that is on debit card. When
obtaining funds at an ATM in a foreign country the funds dispersed will be in the currency of
the country going to visit..

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CREDIT CARDS
A credit card is a system of payment named after the small plastic card issued to users of the
system. A credit card is different from a debit card in that it does not remove money from the
user's account after every transaction. In the case of credit cards, the issuer lends money to the
consumer (or the user) to be paid to the merchant. It is also different from a charge card

11
(though this name is sometimes used by the public to describe credit cards), which requires
the balance to be paid in full each month. In contrast, a credit card allows the consumer to
'revolve' their balance, at the cost of having interest charged. Most credit cards are the same
shape and size, as specified by the ISO 7810 standard.
Credit cards in India are gaining ground. A number of banks in India are encouraging people
to use credit card. The concept of credit card was used in 1950 with the launch of charge cards
in USA by Diners Club and American Express. Credit card however became more popular
with use of magnetic strip in 1970.
Credit card in India became popular with the introduction of foreign banks in the country.
Credit cards are financial instruments, which can be used more than once to borrow money or
buy products and services on credit. Basically banks, retail stores and other businesses issue
these.
Major Banks issuing Credit Card in India

State Bank of India credit card (SBI credit card)

Bank of Baroda credit card or (BoB credit card)

ICICI credit card

HDFC credit card

IDBI credit card

ABN AMRO credit card

Standard Chartered credit card

HSBC credit card

Citibank Credit Card

How credit cards works

12
A user is issued credit after an account has been approved by the credit provider, and is given
a credit card, with which the user will be able to make purchases from merchants accepting
that credit card up to a pre-established credit limit. Often a general bank issues the credit, but
sometimes a captive bank created to issue a particular brand of credit card, such as Chase,
Wells Fargo or Bank of America, issues the credit.
When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder
indicates their 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 (CNP) transaction.
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, either to encourage balance transfers from cards of
other issuers, or to encourage more spending on the part of the customer. 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. As the rates and terms
vary, services have been set up allowing users to calculate savings available by switching
cards, which can be considerable if there is a large outstanding balance
Because of intense competition in the credit card industry, credit providers often offer
incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1
percent based on total purchases) to try to attract customers to their program.
Parties involved:

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Cardholder: The owner 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.

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. Transaction processing networks include: Cardnet, Nabanco, Omaha,
Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.
Benefits of Accepting Plastic

More Sales: Studies show that credit card customers spend 2 1/2 times more than customers
who only carry cash.

Impulse Buying: Credit cards give customers freedom to spend for previously unplanned
purchases.

More Expensive Merchandise: Credit cards entice customers to purchase more expensive
merchandise than they had originally planned to buy.

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Competitive Weapon: Credit card customers are often less conscious of slight
price differences and will seek out businesses that offer credit card payment options.

Enhanced Advertising: Since customers are more likely to shop at businesses where they
have credit card acceptance, they tend to look for and read those ads first.

Steadier Sales: Credit smoothes out business peaks. Cash shoppers buy heavier on paydays
and just before holidays; credit card customers buy whenever the need arises

Customer Loyalty: Research shows customers who spend more on credit tend to return to the
same business again.
Disadvantages
On the other hand, credit cards can

1. Cost much more than other forms of credit, such as a line of credit or a personal loan, if not
paid on time.
2. It damages the credit rating if payments are late.
3. Allow to build up more debt than actually handled by customer.
4. It has complicated terms and conditions.

DIFFERENT TYPES OF CREDIT CARDS

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Charge card
A charge card carries all the features of credit cards. However, after using a charge card you
will have to pay off the entire amount billed, by the due date. If you fail to do so, you are
likely to be considered a defaulter and will usually have to pay up a steep late payment charge.
At the time of using the card he is not declared not as a defaulter even if misses due date. A
2.95 per cent late payment fees (this differs from one bank to another) is levied in the next
billing statement.

Amex card
Amex stands for American Express and is one of the well-known charge cards. This card has
its own merchant establishment tie-ups and does not depend on the network of MasterCard or
Visa.

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

Diners Club card

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Diners Club is a branded charge card. There are a wide variety of special privileges offered to
the Diners Club cardholder. For instance, as a cardholder you can set your own spending limit.
Besides, the card has its own merchant establishment tie-ups and does not depend on the
network of MasterCard or Visa.
However, since this card is typically meant for high-income group categories, it may not be
acceptable at many outlets. It would be a good idea to check whether a member establishment
does accept the card or not in advance.

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

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

Co-branded card
Co-branded cards are credit cards issued by card companies that have tied up with a popular
brand for the purpose of offering certain exclusive benefits to the consumer. .

Affinity card
The card issuer ties up with popular organisations/ institutions which are often non-profit
organisations (Citi-WWF card or the Stanchart-Cricket cards) to offer an affinity card. When
the card is used, a certain percentage is contributed to the organisation /institution by the card
issue

MasterCard and Visa

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

Debit cards (pay from a checking / savings account)

Credit cards (pay monthly payments with interest)

Prepaid cards (pay from a cash account that has no check writing privileges)

Visa operates the PLUS ATM network and the Interlink EFTPOS network, which facilitate the
"debit" protocol used with debit cards and prepaid cards.
Visa card

Credit vs. debit

Even though the service is offered by thousands of banks, the end result is standardized for
consumers by the Visa International Association. Two protocols are used, depending upon the
type of card marketed, often called "credit" and "debit." The names of the two protocols use

18
the arbitrary "debit" and "credit" from accounting meaning left and right, and they originally
had the meanings (and still do to many people) that with credit the cardholder pays later for
the purchase, and with debit the cardholder pays immediately. The debit protocol involves
using the card at a point of sale terminal (POS) or automated teller machine where the PLUS
or Interlink logo is shown, with a Visa card that has the PLUS or Interlink logo on the back of
the card. A PIN (personal identification number, known by its acronym) is used to identify the
cardholder. The money is deducted from the attached checking account or prepaid account
(which is similar with no paper check-writing capability). The credit protocol involves using
the card at a POS or a banking center where the Visa logo is shown. The cardholder's
signature is generally used for identification, often together with the cardholder's civic
registration number or ID card/passport. Holders of any Visa card may use the credit protocol
even if the card is marketed as a debit card or prepaid card (basically since it has the Visa logo
on the front of the card)
MasterCard: MasterCard Worldwide is a multinational corporation based in Purchase,
New York, USA. Throughout the world, its principal business is to process payments between
the banks of merchants and the banks of purchasers that use its "MasterCard" brand debit and
credit cards to make purchases. MasterCard Worldwide has been a publicly traded company
since 2006. Prior to its initial public offering, MasterCard Worldwide was a membership
organization owned by the 25,000+ financial institutions that issue its card.
It was originally created by United California Bank (later First Interstate Bank, subsequently
merged into Wells Fargo Bank), Wells Fargo, Crocker National Bank (also subsequent .As at
31 March 2007, over 187 million MasterCard cards (excluding Maestro and Cirrus) had been
issued by MasterCard customer financial institutions across APMEA. Cardholders in the
region made more than 667 million purchase transactions in the first quarter of 2007 and
could use their MasterCard cards at 25.1 million acceptance locations worldwide. Serving
nearly 25,000 member financial institutions worldwide, MasterCard is the #2 payment system
in the US. The company does not issue credit or its namesake cards; rather, it markets the
MasterCard (credit and debit cards) and Maestro (debit cards) brands, provides the transaction
authorization network, establishes guidelines for use, and collects fees from members. The
company provides services in more than 210 countries and territories; its cards are accepted at

19
more than 23 million locations around the globe. MasterCard also operates the Cirrus ATM
network.
As a significant link between monetary institutions plus millions of businesses, cardholders
and traders globally, mastercard card provide services in further than 210 countries along
with territories. Debit mastercard plus credit mastercard moves forward trade worldwide by
increasing extra secure, suitable and satisfying payment results, dealing out billions of
expenses flawlessly transversely the globe, and structuring fiscal connections that speed up
business.
The mastercard com modernized and smart approach to dealing out enables competent trade
on a global level. It is found on a supple network, lone of the biggest VPNs in the globe,
which presents unmatched speed, combination, and consistency. MasterCard assists banks
along with merchants raise by enabling fast acceptance of new ways to disburse and offering
modified solutions that bring importance in the course of technology
As it seems to the prospect, MasterCard are dedicated not just to ongoing to distribute value
to its clients and further stakeholders, but as well to helping the benefits of electronic
payments, speeding up the dislocation of cash as well as checks, and going forward trade
transversely the world.
To help educate consumers on financial management, MasterCard launched free tools that are
designed to be easily understandable for consumers in order to help them manage personal
finances

DIFFERENCE BETWEEN A DEBIT CARD AND A CREDIT CARD

A debit card looks like a credit card; it works more like cash or a personal check. pay now."
With a credit card, you "pay later."

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Debit means "subtract." In case of debit card the amount is automatically subtracted from
checking or saving account, credit cards are used in stores for purchases. At check-out, the
card reader electronically contacts the bank and subtracts the amount from the account. The
money in bank account limits how much the customer can spend. However, if the customer is
not careful in watching the daily account balance, he can over withdraw the account. Some
systems will allow to use the debit card even when don't have enough money in the account to
cover the purchase. This can result in hefty overdraft fees.
Using a credit card is somewhat like taking out a loan from a bank or other financial
institution. Customer have to pay back the credit used each month. If he pays back less than
the full amount owe each month, he is to pay interest on the amount not paid back. The credit
card company sets the total amount that can charge based on your credit history, income, debts
and ability to pay.
Some cards are dual-purpose credit/debit cards. Before swiping the card through the reader,
select a "credit" or "debit" button on the reader. If you select "debit," then enter your Personal
Identification Number (PIN). If select "credit," the credit receipt is given to sign and credit
charges will appear on the next charge account bill.

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