Introduction Credit Card- The Credit Card can be defined as "a small plastic card that allows its holder

to buy
goods and services on credit and to pay at fixed intervals through the card issuing agency". A credit card is an instrument which provides instantaneous credit facilities to its holder to avail a variety of goods and services at the merchant outlet. It is made of plastic and hence popularly called as “plastic money”. The holders can use the cards to get credit from banks up to 45 days. The credit card relieves the consumers without any risk of carrying cash and ensures safety. It is a convenience of extended credit without formality. Thus credit card is a passport to, “safety, convenience, prestige and credit”. Characteristics of Credit Cards A) Credit Limit- All Banks have different limit sets for customers depending upon the type of cards in their possession. Even within a particular type of card, limits may vary depending upon the credit worthiness of the individual. This depends upon the gross income of the individual and the period for he/she is using the card. B) Interest charges- This is the biggest source of revenue for the issuing bank. The interest generally varies from 1.99%-3% per month. This is equivalent to around 24%-35% per year. The interest charges are also applicable on the accrued interest. C) Annual charge- This is a fixed amount which has to be paid every year irrespective of the extent of usage. D) Grace period-This is the extra period which is offered to the customer for repaying the credit. In the Indian scenario, first warning is given at the end of three months and a black mark is put against the customer in case of non payment for more than seven months. E) Value added benefits-These includes airline ticket booking and insurance benefits on lost luggage and accidental deaths. The latest in line of value added features are the reward programs. Here a cardholder earns a certain number of points by spending a particular sum of money from their credit cards.

History-During 1914, a number of oil companies in United States issued the first credit card to their
customers for the purchase of gasoline, oil and accessories at the companies' stations. Thereafter, local departmental stores, air travel companies and railway companies also started issuing credit cards. In 1950, the Diners' Club Inc, was the first company to issue an all purpose card. The Franklin National Bank of New York was, in 1951, the first bank in the United States to adopt a credit card plan. Around 1958, the American Express Company and two large banks, the Bank of America and Chase Manhattan entered the credit card field.

Some of these companies introduced their cards into United Kingdom, and in 1966 Barclays Bank was the first British Bank to introduce credit cards, known as 'Barclays Cards'. In 1972 "Access" cards were introduced by Lloyds Bank. Credit Cards by Indian Banks is a recent history. Timelines of Innovations in Credit Cards Period Innovations 1946 John C.Biggins, Flatbush National Bank of Brookyln, New York launched a credit card called “CHARGE-IT”. 1950 Diners Club Credit card introduced. 1951 Franklin National Bank of New York in the United States adopts a credit card plan. 1958 American Express Company and two large banks, the Bank of America and Chase Manhattan entered the credit card field. These companies also introduced their cards in UK 1966 Barclays Bank was the first British Bank to introduce credit card known as “BARCLAYS Card”. 1972 Lloyds Bank introduced “Access” cards

types of cards are as follows: 1. Cash Cards: A special plastic card used for getting currency notes from a machine installed generally near a bank. The Machine is known as Automated Teller Machine. 2. Debit Cards: Debit cards allow for direct withdrawal of funds from a customer's bank account. The spending limit is determined by the user's bank depending upon available balance in the account of user. It is a special plastic card connected with electromagnetic identification that one can use to pay for things purchased directly from his bank account. Under the system, card holders' accounts are immediately debited against purchase or services through the computer network. Hence, under debit card the card holder must have adequate balance in his account. This system is intended to replace cheque system of payment. Issue of debit card and smart card by banks in India should be approved by the respective bank's Board as well as by RBI. These can be issued only for customers maintaining satisfactory accounts and for a minimum period of six months.

3. Cheque Cards: It is a card given to the customer by the bank that he must show when he writes a cheque which promises that the bank will pay out the money written on the cheque. Under' Cheque cards' system, the card-holder is given a card and a cheque book. He has to use the cheques, while purchases are made and the trader gets guaranteed payment. The customer does not get free credit, he has to keep sufficient balance in his account or the bank will provide overdraft up to a specified limit, of course on interest payment basis. 4. Charge Card: A small usually plastic card provided by an organization with which one may buy goods from various shops, etc. The full amount owed must then be paid on demand. In credit cards, the card holders get credit or loan for payment of periodical bills when sufficient balance is not available in their accounts. In a charge card such credit facility is not available. The periodical bill amount should be paid off by charging it to customers' account. A fee is also payable by the card holder to the card issuing institution. 5. Smart Card: With the use of credit cards, we may avail of credit facility on our purchase of goods/services from approved sales outlets. A smart card however, enables the card holder to perform various other banking functions apart from credit purchases. For example, with smart cards, we can draw cash from ATMs, we can verify entries in our accounts, seek information pertaining to our accounts, etc. This is possible because the card has an integrated circuit with microprocessor chip embedded in the card for identification purposes. The card can also perform calculations and maintain records. 6-CORPORATE CREDIT CARDS: Corporate cards are issued to private and public limited companies and public sector units. Depending upon the requirements of each company, operative add-on cards will be issued to the persons authorized by the company i.e., directors, Secretary of the company. The name of the company will be embossed on add-on cards along with the name of the add-on cardholder. The main card is only a dummy card no. in the name of the company for the purpose of billing all the charges of the add-on cards. The transactions made by add-on cardholders are billed to the main card and debits are made to the company’s account.

7. BUSINESS CARDS: A business card is similar to a corporate credit card. It is meant for the use of proprietary concerns, firms, firms of chartered accounts, etc. This card helps to avail certain facilities for reimbursement and makes their business trips convenient. An overall ceiling fixed for this card is also based on the status of the firm. Other types of Credit Cards are: Standard Credit Card-This is the most commonly used. One is allowed to use money up to a certain limit. The account holder has to top up the amount once the level of the balance goes down. An outstanding balance gets a penalty charge. Premium Credit Card-This has a much higher bank account and fees. Incentives are offered in this over and above that in a standard card. Credit card holders are offered travel incentives, reward points, cask back and other rewards on the use of this card. This is also called the Reward Credit Card. Some examples are: airlines frequent flier credit card, cash back credit card, automobile manufacturers' rewards credit card. Platinum and Gold, MasterCard and Visa card fall into this category. Secured Credit Card- Peoplewithout credit history or with tarnished credit can avail this card. A security deposit is required amounting to the same as the credit limit. Revolving balance is required according to the 'buying and selling' done. Limited Purpose Credit Card-There is limitation to its use and is to be used only for particular applications. This is used for establishing small credits such as gas credits and credit at departmental stores. Minimal charges are levied. Charge Credit Card- This requires the card holder to make full payment of the balance every month and therefore there is no limit to credit. Because of the spending flexibility, the card holder is expected to have a higher income level and high credit score. Penalty is incurred if full payment of the balance is not done in time. Specialty Credit Card-is used for business purposes enabling businessmen to keep their businesses transactions separately in a convenient way. Charge cards and standard cards are available for this. Also, students enrolled in an accredited 4-year college/university course can avail this benefit. Prepaid Credit Card-Here, money is loaded by the card holder on to the card. It is like a debit card except that it is not tied up with a bank account.

GROWTHIndian banks are increasing their credit card issuance for the first time since the financial crisis five years ago. Card issuance by banks and financial institution grew by 11% to 19.6 million in 2012-13 according to

the Reserve Bank of India (RBI) data. In context of the Indian market, the leading credit card service providers are ICICI, HDFC, HSBC and Standard Chartered to name a few. These financial institutions have tried their hands on ensuring value-addition while offering customer-friendly credit card deals. The Best credit cards in India are usually meant for specific user group such as women, students and small business owners. These cards are offered to the prospective customers with appealing deals. Statistics have clearly revealed that the numbers of credit card holders in India are close to 22 million as on January, 2007. It has been also revealed that the increasing consumerism in the country has led to a two-fold increase in the number of credit card transactions from FY 2003-04 to 2005-06. The trends were as favourable as ever in the financial years, FY 2006-07 and 2007-08 and the same is likely to continue in the coming financial years. A snapshot, as in Figure below, indicates that in volume terms 56% of retail electronic transactions are through credit and debit cards (though in value terms, it is only 10%). In India, the number of valid credit and debit cards in circulation is 2,000 lakh. During 2009-10, the number of transactions on such cards had been of the order of 4,040 lakh and the amount of transactions ` 89,270 crore. The number of card transactions increased by 193% during the period 2003-04 to 2009-10.

Sales

31%

25% Debit Card NECS/ECS Cr ECS Dr. 12% NEFT/EFT Credit Card

12% 20%

Changing Scenario
According to a new research report Indian Payment Card Market Forecast to 2012, by RNCOS, Indian Payment Card Industry presents enormous growth potential for market players in various segments. Despite a decline in credit card base, the industry has seen huge growth in terms of cards transaction as debit and credit card transaction by value has increased at a CAGR of around 46% and 9%, respectively during FY 20082011. Improving payment infrastructure, regulatory environment, and change in spending pattern is expected to set the industry for rapid growth in future.

Some of the key changing scenario’s of the credit card industy include the following: - Estimated surge at a CAGR of around 21% during FY 2012-2014 in the number of debit cards issued by banks. - Despite decline in credit card base, transaction through credit cards showing a healthy growth. - Number of premium credit cards estimated to increase at a CAGR of around 12% during FY 2011-2014. - Change in consumer spending pattern, growing trend of e-shopping, and improving payment infrastructure is expected to drive the growth of payment card in India. - Innovations like prepaid cards, smart card, and EMV cards along with increasing ATM network and POS Terminal is expected to boost the payment card industry in India. Credit cards declining and debit cards on the rise The decline in the number of active credit cards can be attributed to the fact that banks became stringent about issuing new credit cards after the financial downturn in 2008 and withdrew cards from defaulters.The number of debit cards is on the rise due to the increasing access of people to banking services. but average value of credit card transactions still higher than that of debit card transactions. The volume of credit card transactions has increased over the years despite the decrease in the number of credit cards. Debit card transactions have recorded a healthy uptake, in line with the growth in their number. The value of transactions carried out on credit and debit cards has been increasing. However, the average transaction value of credit cards has been higher than that of debit cards and is continuing to grow, while average debit card transaction values have been flat. The higher average credit card transaction value indicates that credit cards are still the preferred mode of payment for high-value transactions and are used by individuals with high spending power. The lower average debit card spend could be due to the fact that this medium is preferred for mobile recharge and bill payment.

300

278

250

227 182 137.4 102.4 Credit Cards Debit Cards

200

150

100 49.8 17.3 0 Fy 06

75 27.6

50

23.1

24.7

18.3

18

17.6

Fy 07

Fy 08

Fy 09

Fy 10

Fy 11

Fy 12

Number of Credit Cards in India Source:RBI

350 300 259.6 250 200 156.1 150 100.2 100 50 0 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 37.8 41.5 45.7 60.2 129.5 88.3 228.2 234.2 265.1 237.1

324.5 317.3

169.5 127.7

170.2

Credit Cards Debit Cards

FY 12

Value of transactions (millions) Source:RBI

Credit Card holder behavior According to Visa Internationals latest data, average Indian cardholder uses his card 9.3 times, spending about Rs. 14,700 per year. A number of card owners do not use their cards and almost 20 – 30 % cards are inactive (less than one usage every quarter). An important fact that should be observed is that it is only in the past few years that the Indian customer is beginning to accept ‘Credit’. The Indian culture doesn’t promote credit, and it is this outlook change which is the most important development for the credit card industry. ABN Amro, for instance, backed up their launch of the ‘Freedom Card’ with research that showed that the Indian middle class views the credit card as a potential debt trap. Unmet Needs ‘Unmet needs’ analysis in qualitative research has brought to light benefits which are not currently being offered by the credit card industry and hence present an opportunity.

Need for a Card customized for Internet transactions: With rapid growth of business over the Internet, there now exists a great need for a card suitable for transacting safely and conveniently over the Internet. The growing number of Internet users will provide a lucrative market for this product. Need for ‘Premium’ benefits: Even though there are credit cards like Diners in the premium segment, there is a dearth of ‘premium’ benefits. Examples of these are Special airport Lounges etc. These benefits are available to the Indian consumer once he goes abroad, but within India, he doesn’t get all the extra ‘premium’ benefits which can associated with Premium cards. Proliferation of ATMs: The credit card can be used for withdrawing cash from an ATM. This revolving credit facility is also a major revenue earner for the issuing bank (interest charges range from 1.99 % to 3 % per month). There are very few ATMs in the metros, and are not there in most non-metro cities. The lack of the ATMs doesn’t allow the credit card to be used to its potential. Wider Acceptability: Though the numbers of Merchant Enterprises are on the increase, more ME should be included in the credit card framework Product Characteristics translating into need gaps (as told by consumers) a) Low Credit limit b) High Interest Charges (& interest charges applicable on the interest itself) c) High Annual charge d) Grace period (mentioned, but not much importance given) e) Lost card liability of Rs 1, 000 on non-photo card (eg. Stanchart) as opposed to nil on photo card f) Low Value added benefits and inadequate information updates Other factors affecting sales level · With a parallel economy of the same order as the country’s GDP, for a large number of people, the incentive to use credit card is low.

· Lack of a strong telecom network hinders efficient card operations. · Without the full convertibility of the rupee, internationally acceptable cards could not till recently be launched in India and full potential of the card business is still not realized. · The average consumer is more comfortable with cash and is averse towards credit. · Moreover, the problems of reluctant MEs and postal delays may hinder the development of the card market.
Target Audience

a) Customer Segments: The segmentation of the card industry can be done on the basis of income. Further research can only be conducted after preliminary secondary research of the income profiles in the country. The Indian market reflects considerable diversities in income levels and lifestyles. A World Bank estimate places average annual household incomes (in terms of purchasing power) at US $6452. But there are large segments of people, whose income levels are significantly higher, growing faster and spurring a consumer revolution. It is difficult to obtain correct estimates of this group, as there is a very small percentage of India’s ‘rich’ who pay income tax and their income levels are correctly reported. Therefore to conduct this segmentation, we shall have to make use of National Council of Applied Economic Research (NCAER) data and not the estimates from the income tax department. The segment which have been identified are as follows: Segments Very Rich Consuming Class Climbers Aspirants Destitute Income Group (Rs.) 2,15,000+ 45,000 – 2,15,000 22,000 – 45,000 16,000 – 22,000 < 16,000

Segments with high unrealized potential · Mid-Size cities in India have low credit card penetration. The residents of such cities are affluent and they are good markets for Citibank cards. This low penetration is due to comparatively low acceptance of credit cards. · Rich farmers who live in the rural belt but also spend quite some time in the nearby towns can be tapped. A product can be introduced to serve their specialized needs. · The growing number of netizens represents a segment with high-unrealized potential. b) Customers Motivations Preliminary qualitative research has identified certain motivators differentiated on the basis of the income segments. Further quantitative research shall be conducted keeping this in mind to arrive upon the ideal positioning. Segments Very Rich Limit Consuming Class Charges Climbers Motivations Convenience and acceptability, Level of service, Credit ‘Prestige’, Convenience and acceptability, Level of service, ‘Prestige’, Charges

Charges include all commissions, interest rate, annual fees, which are to be paid to the bank. The motivational factor has been derived from the credit card holder behavior and income levels. This shows differentiation as we move along the various segments. Fee charges are not at all important for the ‘Very Rich’ but they assume a fair degree of importance as we move down the segments. In case of ‘Climbers’, Level of service has very little motivation to offer. This segment primarily has either the non-premium cards or cards issued by the nationalized banks. In both the scenarios, level of service is not very high. The other segments have not been considered since they do not fall into the potential customer category. However, with the introduction of ‘Kisan’ Cards (The major issuing banks are: Dena Bank, Punjab National Bank, State Bank of India Benegal Circle, State Bank of Indore, Vijaya Bank), these segments are also being brought into purview of credit card users (assumption: 65% of low-income households are associated with agriculture).

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