PLASTIC MONEY: TREND, ISSUES AND CHALLENGES IN INDIA

ABSTRACT

Communication and information technology has transformed the functioning of

business, the world over. It has bridged the gaps in terms of the reach and the
coverage of systems and enabled better decision-making based on latest and
accurate information reduced costs and overall improvement in efficiency. The
development of information technology and the emerging of a number of new
innovations are taking place in the area of retail payments known as electronic
money or plastic money. These innovations have the potential to challenge the
predominant role of cash for making small-value payments and could make
retail transactions easier and cheaper for consumers and merchants. Perception
of cardholders and member establishments towards plastic money in India is a
study that examines the perspective of users as well as member establishments
has towards the use of plastic money. It focuses on some vital aspects like
challenges experienced by customers and bankers, value attribution to plastic-
money adaptation and some factors attracting them to adopt and use plastic
money. It also analyses the current status and trends of plastic money in India.
The review of literature indicated that, most of the research work in the field
undertaken till now has been done in the development countries like United
States, Europe and fast developing countries. But research is still lacking in case
of developing countries like India. So, there is need to conduct such type of
research in India. Further, the existing studies have concentrated their attention
mainly on the usage of either debit cards or credit cards but mostly neglected
the joint effect and innovative cards. It was also revealed that, hardly any
comprehensive study has been conducted in India to examine the perception of
cardholders as well as member establishments towards plastic money. The fact
remains that every comprehensive research must have well defined objectives.
Hence, this study had six objectives on which it was based. The first objective
was to study the origin and development of plastic money.

The paper evaluates the issues and challenges of plastic money usage in India.
The entry of private players and adoption of information technology have
brought transformation in the way financial transactions are being done. Plastic
money has emerged as a cost effective and convenient way to make financial
transactions. The private banks are leaders in credit cards issue while public
sector banks lead in debit cards. The penetration of cards is low. The
conservative consumers prefer debit cards over credit cards. The IT savvy
government brings lot of hopes of improving financial inclusion by leveraging
technology. The cases of card frauds by cloning are issues, which require urgent
attention of industry and regulator. The paper concludes by evaluating the
advantages and challenges of plastic money. In Today’s Scenario, India has
come out of self-binding shackles to look Young as the words “India Shines”
reflects and another word which reflect this are “Plastic Money”. Today is the
age of Instant Swipes rather than having a huge sum of cash in the pockets and
anxiety in the mind. Plastic Money was launched in 1981 in India and it is the
entry of Foreign Banks which made them popular, especially after 1991 i.e. the
phase of Liberalization, Privatisation & Globalization, when India follows ‘Go
Global’ concept and it accepts all attachments of there concepts and try to
adhere with them. Plastic money or Polymer money made out of Plastic is a
new & easier way of paying for goods & services. Debit card, Credit card,
ATM’s, Smart card etc. are different forms of it. Though Diners club &
American Express launched the use of credit card in 1950, however they
became more popular with the use of Magnetic stripes in 1950.

INTRODUCTION

The information technology has been instrumental in transforming the manner

and ways of doing financial transactions. The plastic money has added
convenience to consumers lowered operational cost of banks and expanded the
customer base of banks. Plastic money is referred to the credit cards or the debit
cards that we use to make purchases. Various other types of plastic cards
provided by banks in India are ATM cards, Smart cards, Visa, master card,
Rupay card (Patil 2014). The National Payments Corporation of India has
launched India’s own card, Rupay. Rupay cards will have lower transaction
cost, address the needs of Indian consumers, protection of data in India, inter-
operability between different channels and products. The Rupay cards will
enhance the penetration of cards in unexplored and rural areas (NPCI, 2014).
The rural and semi urban markets have good potential to grow in terms of
penetration of cards, due to rising e-commerce and changes in life styles.

HDFC bank, the largest issuer of credit cards in country is now issuing 25% of
all credit cards in rural and semi urban areas. This is the age of Plastic Cards
with the rapidly growing upwardly mobile middle class in India being drawn to
the Plastic Money Culture. Plastic Money refers to the substitution of the usage
of currency money at the time when the transaction of buy & sell is taking
place, by usage of a card normally made of plastic representing such
substitution. India has come out of self binding shackles to look young again.
“India shines” are the words which reflect this and other words are “Plastic
Money”.

The Plastic Money offers an amicable solution when it comes to purchases 7

the inability to possess or carry cash. Today is the age of Instant swipes rather
than having a huge sum of cash in the pockets & anxiety in the mind. Australia
leads the world in plastic banknote technology. Due to the problem faced with
the paper note the invention of plastic money has been introduced. The paper
money has small life cycle and can’t be recycled but as compared with the
plastic money which has long life cycle and can be recycled

for further utilization in making plumbing fittings and etc. In Pakistan first
plastic money is introduced by the Habib Bank which was not get the
familiarity among people and then Allied bank’s Master card was launched
which was very popular among the customers, the different banks come up with
their different form of credit and debit cards. The card transactions, both debit
& credit, were up by more than 42% to Rs 70,459 crore during 2007-2008
according to latest data from the Reserve Bank of India (RBI).These data
indicates the increasing use of Plastic Money in India but before discussing in
detail we are dealing with types of Plastic Money available in India. Due to the
technological revolution in financial sector, the payments in banking system
have undergone a tremendous change.

The Number of innovative products for making payment has developed after the
privatization and globalization. Customers have showed their preference over
the usage of the plastic money generally over a period of time in the banking
process. Plastic money is an alternative to the cash or the standard ‘money’.
Plastic money is referring to the credit cards or the debit cards that we use to
make purchases .Various other types of plastic cards provided by banks in India
are ATM cards, Smart cards. The current study presents an overview of the
development of banking in the plastic cards usage trends since these have been
introduced in Indian banking sector. The study also highlights the role of these
cards as electronic payment tool to be used by customers and discusses the
penetration of these cards in replacement of cash and paper money

The Study is been carried out by taking a survey of 100 respondents by non
probabilistic convenience sampling method from a city of Mumbai by using
structured questionnaire and interview technique. The factors for adoption of
plastic money in replacement of cash and paper money have been identified
which shows the preference of the customers for plastic cards over the cash and
paper money. Some future plans made by various banks and institutions for
avoiding the frauds arisen due to the credit and debit cards are also been
discussed in a way that it depicts the picture of its future growth and prospects
in India.

The Indian economy is the world’s fourth largest economy with more than 1.2
billion people and the sixth largest economy in the world measured by nominal
GDP and the third largest by purchasing power parity. Its recent growth and
development has been one of the most significant achievements of all Wallets
and plastic money were an option earlier but they have become a need now. As
on March 2016 there were around 20 million credit card holders and around 662
million debit card holders in the country.

Yet in India, 95% of transactions were made in cash which shows there is a
huge potential to tap. But with demonetization, the trend of cashless transaction
has increased. The government’s encouragement to use plastic money is evident
from its decision to bear the transaction cost for all payments made through
plastic money. By limiting money circulation in economy, the interest rates are
expected to come down which will fuel the country’s economic growth so that
there will be an increase in use of plastic money.

Apart from curbing the black money, one of the objectives is to make India a
digital economy. A digital economy is an economy that is based on digital
computing technologies. It is also sometimes called the internet economy, the
new economy, or web economy. People are reluctant to try on new things unless
it is made mandatory. Thus, the demonetization has led the larger number of
individuals to lessen their dependence on cash transaction and resort to digital
payments. The year after year growth rate of registered internet users in India
stands at an impressive increase which means there is an increase in use of
digital technology and banking. Though the transition to digital economy will
be slow, it is in the path of becoming a digitalized economy where
demonetization played a crucial role.

The study was conducted mainly to know the challenges faced by banking
sector after demonetization and what are the opportunities available to
consumers in digital economy with special focus to plastic money. In India,
banks are increasingly using information technology for improving the quality
of customer services and also for better marketing of their products. The
flexibility of e-banking offers unprecedented opportunities for the bank to reach
out to its customers with the rapid expansion of the Internet facilities.

During the past decade, plastic cards have become more and more popular in
India. The reason for their popularity has shifted from being recognized as a
status symbol to convenience, security from misapportiae of theft and
worldwide acceptance. In the Indian market, the development of plastic money
is probably the most significant phenomenon of the modern banking era. Plastic
money comes in various forms but the most predominant form that it takes is
that of credit card. Plastic money and other forms of electronic payments are
nothing but newer and more convenient options of payment.

Even though today, cash is still the order the day, as payment mechanism
plastic money is making incisive forays into the cash turf. In fact, in the western
developed world, higher value purchases are increasingly being made through
plastic and cash in relegated to the world of low value purchases. Plastic notes
are similar to paper but the only difference is that they are made of plastic and
are more secured. But in travelling and shopping people used to carry huge cash
which was very unsecured and also increased the crime rate. Hence cards were
introduced in the world to resolve the issue of carrying huge cash. These cards
are known as plastic money.

The usage of plastic money (card) has increased in the mode of payment of
huge amount and hence broth there are lots of different types of plastic money
that can be used anywhere in the world. Credit cards, debit cards, kissan credit
cards etc., are a new innovation in financial services introduced by the financial
institutions in extending easy availability of money. Since many years, it is
expected that electronic and paperless payments will become a prominent
feature of banking. Global developments such as Clearing House Interbank
Settlement System (CHIPS), the Automated Clearing House System (ACH) and
Automated Teller Machines (ATM) have contributed to the development of
electronic payment products. Online payments are time saving & can be done
anywhere at once own ease this in turn curbs delay payments. Now the world is
becoming globalized so every card is accepted everywhere with the power of
VISA which interconnect different countries. Thus plastic cards are surely here
to stay and for long as there no better option available.

In India, the foreign banks and organization forayed first into the credit card
market. The pioneer in the Indian field is the Citibank’s Diner’s Club Card
which entered in 1969. However, it was only during 1981, when Andhra Bank
introduced its own credit card, did the Indian Banks constructively enter the
field. Andhra bank is the first nationalized bank to introduce it along with the
Vijaya Bank. In the same year, the Central Bank of India in association with
Vysya Bank, United Bank of India issued the Central Card. In 1985, the Bank
of Baroda along with Allahabad Bank launched the Bobcard.

The Mercantile Credit Corporation Limited’s Mercard came in 1986. The

Canara Bank made later entry into the credit card business in 1987 and the Bank
of India issued its own card, India card in 1988. Citibank’s Master and Visa
Cards appeared in 1990 along with Taj Premium Card of the Bank of India
which has also issued the ATM Card. Apart from these the Bank of Madura and
Bank of Maharashtra also tied up with Canara Bank and Bank of India
respectively for issuing their cards. The State Bank of India has introduced also
the State Bank cheque card. However, credit cards should not be confused with
cheque cards, as they perform a quite different function, although certain credit
cards can be used also as cheque cards. In 1992, the Hong Kong Bank entered
the field with its Visa International and MasterCard International and recently it
has launched the Hyatt Regency Preferred Gold Card. Plastic money is
gradually strengthening its position with the potential of further growth in the
future.

The use of plastic money has been expanding quite rapidly and its development
is a prominent trend in the area of retail payment. With the change in
technology and the improvement in the payment system has lead to further
development in plastic money. This development in plastic money helps the
customers to satisfy their ever changing needs. Banking has gone through
massive transformations in the past decades. This is a universal fact that
banking sector forms the core of any economy. Banking system captures an
important place in a nation’s economy. A banking institution is indispensable in
a modern society. The Banking sector in India has always been one of the most
preferred areas of study. In this decade, this sector has emerged as a sunrise
sector in the Indian economy. In this chapter, review of literature has been done
for various important components of banking sector like internet banking,
mobile banking, electronic payment systems, plastic money, banking sector
reforms, technology in banking, ATM banking, etc. The literature review is one
of the important academic requirements. A lot of work has been done in various
areas of banking sector.

REVIEW OF LITERATURE

The literature relating to the topic as under:

Reddy (2009) studied that there was a convergence of performance among

public, private and foreign banks in recent years due to acceptance and adoption
of new technology. There was an appreciating importance of non-interest
income in recent years for all banks. Though, PSBs comparing was extremely
poor with the other two categories in terms of profit, PSBs had the highest
efficiency in deposit mobilization. Further, foreign banks and private banks are
efficient in value added services.

“According to Karim, (2010) Indian banking sector had to welcome the

transformation in order to match with the market that resulted from the
acceptance of financial liberalization by the Indian Government. After the
transformation, banks have been very much progressive to come up with those
products that have a better match with customer demands and they have been
extremely successful in meeting up the customer needs. This fact is evident
from the continuous injection of products in the financial sphere of Indian
economy and accurateness in giving the customers what they want.”

Another study depicts that the reforms in banking sector have brought about
perceptible improvement in the overall performance of banks. Indian banking is
now operating in a more competitive setting with induction of new banks, both
Indian and foreign who have brought in new work technology, specialized
expertise and a variety of new financing Instruments. The authorities have move
towards simplifying and deregulating the complex administered system of
interest rates and have brought rates into closer alignment with underlying
market forces. There is greater transparency and consistency in banks’ account.

The capital status of banks has also got better by accessing the capital market.
Banks are attuning themselves to be market oriented and also responding
sensitively to the changes and monetary circumstances. (Seth, 2009) “While the
transition process in the banking sector has certainly not yet come to an end,
sufficient time has passed for an interim review.

The objective of the particular paper therefore is to assess the progress made in
liberalizing the banking sector so far and to test if the reforms have allowed the
banking sector to better perform its functions. (Roland)” “A study on reforms in
banking sector says that before the nationalization of large banks in 1969 and
1980, Government-owned banks dominated the banking sector. Due to the
scarcity of competition, the use of technology was minimal and quality of
service was not considered for performance evaluation. (Kumar, Malathy and
Ganesh, 2010

“A study taken says that many banks and other big organizations are anxious to
use this channel to deliver their services because of its relatively lower and
bearable delivery cost, higher sales capacity and potential for offering greater
convenience for customers. It is seen as a revolutionary development. (Shah and
Clarke, 2009)” “A study mentions the following point. If considering the legal
position prevalent, there is an indebtedness and obligation on the side of the
banks not just only to establish the identity but also to make enquiries about
integrity and reputation of the future potential customer. Thus, even though
request for opening account can be accepted over Internet and accounts should
be opened only after appropriate introduction and physical verification of the
complete identity of the customer.

From a legal point of view, security and protection procedure adopted by banks
for authenticating needs of the users to be recognized by law as a substitute for
signature. (Shukla and Shukla, 2011)” Numerous number of studies support the
idea that there exist a link between online banking and customer satisfaction
(Saha and Zhao, 2005; Casalo et-al, 2008). Various studies taken up by Raman
et-al (2008), Michael (2007) produced hard data passing successfully these
relationships about between online banking and customer satisfaction. Both
studies emphasized a direct relationship and connection between consumer
satisfaction and internet banking.

“A study reveals that many factors like education, knowledge in computer,

eagerness, zeal, receptiveness of the people, people‘s level of convenience and
awareness etc. are responsible for the successful operation of E-banking in any
area. Again a large no of people (especially the old generation) having no
computer knowledge are till now prefer the conventional banking but along
with some medium and moderate changes and quick service delivery system. A
thorough study of the data reveals that the young generation is more known to
computer and internet banking. So they are more interested in using the E-
banking system. (Paul, 2008)”

“A study taken by Irfana and Raghurama (2013) tries to analyze the customer
behavior towards e-banking services. It is found that most of the respondents
who used e-banking facility were in the age group of 30-40 years. Also,
majority of the respondents used e-banking facility for bill payment, sales,
account transfer, purchases, updating of savings account and online bank
statement status. Respondents followed basic safety measures while e-banking.
Online safety measures are not followed by majority of the respondents as they
are not aware of them. Offline safety measures are followed by the respondents
to some extent. Over all safety measures followed by the respondents while e-
banking is very low. Majority of the respondents are not aware of the frauds in
e-banking and the security procurable and available to control internet
warnings, dangers and challenges.” “Jenkins (2007) took up a study in North
Cyprus to analyze adoption of internet banking services in a small island state;
assurance of bank service quality. The findings of this study show that, despite a
very small and humble market to share, banks are consistently moving towards
providing internet banking services to their customers. The number of foreign
banks offering these services increased from two (33 percent) to five (83
percent) between 2004 and 2006.

On the other hand, the number of domestic banks offering internet banking
services increased from zero to two (11 percent) and they are expected to
increase to four (22 percent) by the end of 2006. Internet banking services are
expected to be offered by all domestic banks, except four very small banks, by
the end of 2008. When addressing the question of what motivated domestic
banks to introduce internet banking services, it was found that the quality
assurance of banks’ services was the most important factor affecting the
domestic bank’s decision. In other words, the long run benefits represented by
customer satisfaction and customer retention were more important for banks
than short-term profitability.” “Singh and Kaur (2012) in their study about SBI
and ICICI bank found that both the banks attempted to make their online portals
more secure, informative and user-friendly but still they differ on one account
or another. ICICI bank’s portal has good features such as direct access from
home page, Mandatory ‘One Time Password’ if login from different
locations/browsers, large number of transaction in mini statement, More
Download Formats of Account Statement, grouping of billers, facility of
prepaid recharge, Debit Card Grid Authentication, etc.

On the other hand, SBI bank’s portal has few good features like mandatory
profile password for number of transaction, drop down menu, display of biller
city –wise, display of payment alerts on Home page etc. From the comparative
position, it is clear that ICICI bank’s online portal has upper hand as compare to
SBI Bank. However, ICICI bank may also lack on few features when its online
portal will be compare with other banks in the industry. So, the present study is
just beginning in this line to compare the online portals. Research in future
which may be focused on comparison more and more online portals can come
out with the best features enabled model online banking portal which will be
helpful to the bankers and customers using internet banking.

Internet banking in India is only at its primitive stage dominated by the Indian
private and foreign banks. The use of Internet banking is confined to a few
consumer segments.” “Another work done in the area of internet banking
depicts that the risks associated with Internet banking are many, which the
banks have to model using sophisticated systems and extensive use of
technology. The legal framework as its exits requires an updating to streamline
and handle the issues associated with Internet banking. The functional model
can be used to prioritize perceptual variable concerning consumer behavior so
that value to the consumer can be maximized. The banks can focus on strategic
consumer groups to maximize its revenues from Internet banking. (Gupta,
2008)”

“One can access account at any time of the day and are no longer confined to
conventional business hours. Instead of having to adjust your personal schedule
to conform to the restrictive hours of branch offices, you can check your
balance and perform most transactions online from the comfort of your home.
For cash withdrawals, you might need to walk a few blocks to find an ATM, but
even this can be done at “odd” hours like 2 AM or 3 AM when the machine is
most likely to be unoccupied. E-Banking is generally faster and more
convenient. Traditional banking can be a relatively slow process, especially if
you encounter long lines at the teller windows or must delay transactions
because the bank has already closed.

Online access circumvents these kinds of hassles and allows you to do your
transactions relatively quickly once you are comfortable with the required
technology. As long as you have access to a computer and an Internet
connection, physical location is not a problem. If you're on vacation or traveling
somewhere for business reasons, you can still keep an eye on your accounts and
transfer money as needed. This is discussed by Kumar (2014).”

“A study discusses the major disadvantages of plastic money. There are many
cases where various companies do not permit their cards to be used in areas
where they have a regional dispute with. The magnetic strip of a credit card can
get worn out due to massive use. If such a condition happens while travelling,
and this is the only way of cash that the consumer has, then he or she has to wait
till the time they receive a new card, which can take a minimum of 48 hours.
Credit Card provider financial institutions and companies charge high interest
rates (may be 10% to 25%) on extra money if you fail to pay off up to the fix
date of the month. This interest is their earning, for which they give you extra
buying limits then your money. This is not a good idea that you owe loan on
high interest rates and spend it in unnecessary things or purchasing. This is
complete money wastages. (Satam, 2015)”

“A study on factors influencing young user’s online banking channel usage in

India shows that, young user’s actual usage is influenced by their negative
feelings towards security and privacy dimensions of online banking
transactions. This may be attributed to the loss experienced by their past online
transactions or lack of awareness of the existing security system. Hence the
banks have to create awareness among the students by educating about their
authentication system, soundness and privacy policies. The Technology
Accepted Model (TAM) identified few factors that influence actual usage of
online technology. The aim of this paper was to extend TAM to add the
perception towards risk of transacting online and online efficacy of individuals
to capture their combined influence on actual usage of online banking services
among young users in India. The study identified that all the variables,
perceived usefulness, perceived ease of use, online self-efficacy and risk to
influence youngster’s actual usage of online banking channel. In Indian context,
the young users are driven to use online banking technology because of its ease
and usefulness. (Kalaiarasi and Srividya, 2012)”

Rao (2013) in his study mentions that internet banking services the awareness is
very low in the rural area. It is suggested that The SBI should launch campaign
to educate and create awareness to consumers. Instead of merely displaying the
information in the branches through posters and banners, media could use
intensively for this purpose in local language. “It is suggested that The SBI has
to initiative necessary measures to increase the awareness level through
awareness programs in the rural areas and the bank has to concentrate more on
Promotional measures through agents, banks services, advertisement and
merchant establishments are the sources of information and awareness providers
for bank customers.

As part of create awareness SBI should pay attention to reach out their female
customers who are in a majority of cases would have less experience and
willingness to avail e-banking. It is suggested that the SBI is required to more
emphasis on training programs for their employees to aware them in order to
promote Online Banking Services& facilitate all the services to their
customers.” SBI can introduce expert mode of system to reduce troubles of
employees while providing guidance about online banking services as well as to
reduce troubles of customers while availing online banking services. “With the
development of the internet, more knowledge is accessible to people anywhere
at any time. Facilitating communication, data transmission, and global
interaction, the internet is a playing field unlike any other. Transcending the
traditional barriers of time and space, the internet is redefining the world of
banking.

The internet has created new methods for carrying out a variety of financial
transactions. With these developments, a new era of banking has emerged
which has come to be known as e banking. E-banking encompasses an array of
financial transactions, once done through the tangible exchange of information,
now are done electronically. While the benefits of such advancements have
been welcomed, there also have been drawbacks. Issues such as security, fraud,
and theft have deterred people from participating in the internet e banking
revolutions. (Taleghani, Sharifi, Gilaninia, 2011)”
“A study has identified the various factors which explain why certain
consumers are not using internet banking. The two most frequently mentioned
factors were perceptions about the risks associated with internet banking and the
lack of perceived need. Other less frequently mentioned factors were lack of
knowledge of the service, inertia, inaccessibility, lacking the human touch,
pricing and IT fatigue. The findings suggest that marketing campaigns which
aim to encourage consumers to become internet bank users are likely to attract
more males, the higher income groups, the better educated, those who have
already used the internet to buy services and /or goods and those who are
knowledgeable about internet banking. (Gerrard, Barton, Cunningham and
Devlin, 2006)”

“A study on effects of electronic banking on customer satisfaction and loyalty

shows that by offering personalized Internet banking services which tailor to
suit Internet banking products and services to specific user preference of
customers in developing countries, bank management and marketing
practitioners face stiff competition worldwide can still be victorious by
improving customer attitude towards using Internet banking.

By making sure that the customers can easily be reached through the creation of
email discussion list, asking customer opinions to improve a particular Internet
banking product and building customers profiles through the use of transaction
log to recommend the most suitable Internet banking services and products
based on customers previous purchasing activities over the Internet, bank
management and marketing practitioners can resolve the Internet banking risks.
By offering free Internet banking trainings and demonstrations to assist users
with frequent physical branches visit, it helps the management and marketing
practitioners may reduce the Internet banking risk of insufficient organizational
support.” (Momeni, Kheiry and Dashtipour, 2013)

“Walia and Jain (2012) suggest that at present, Indian banking system needs a
fresh outlook and keeping in mind the various distortions, government should
introduce third banking sector reforms. In the end the key to banking reform
may lie in the internal bureaucratic reform of banks, both private and public. In
part this is already happening as many of the newer private banks (like HDFC,
ICICI) try to reach beyond their traditional clients in the housing, consumer
finance.
Multimodal biometrics along with two tier security provides a higher level of
security. The error rates like FAR (False Acceptance Rate and FRR (False
Reject Rate) has been reduced, which avoids the various types of attacks in
ATM system and fraudulent activities are reduced. The chance given for
hackers to make use of fake biometrics to act as an authorized user is strictly
avoided, which makes the ATM system more secure. But the cost spend to
design and implement this type of system is higher when compared to the
existing ATM system. (Kande and Govardhan, 2013)

In recent years, with the wide utilization of internet technology it is necessary to

raise ATM security. However, the internet communication will be exposed there
by unwanted people allow to do different kinds of attacks on ATM System.
Some of the threats affected to the ATM are Eavesdropping spoofing,
Skimming Attack, Card Trapping, PIN Cracking, Phishing Attack ATM
Malware, ATM hacking, etc. This point is raised by Lavanya and Raju. (2013)

From a study taken up in Coimbatore city, it is concluded that most of the

customers are satisfied with the ATM services provided by the banks. But still
many customers have faced many problems such as unavailability of ATM
centers, non-functioning of ATM machines, wrong deductions of amount etc.
The main problem they have come across is the security problems like the
absence of security personnel and non-functioning of auto door locks. Hence all
these problems must be taken into consideration by banks to provide the
customers with better ATM services. (Umamaheswari and Bhuvaneswari, 2013)

Sachan (2008) highlights the ATM development strategies for the Indian
markets. The study results indicate that ATM Breakdown, ATM Functionality
and ATM Location are the three most important factors for the ATM users.
Banks can devise niche strategies to serve the specialist mark.

“A study shows that Mean values are more than 2.5 in all the cases, indicates
that people of Bihar are satisfied from ATM service of various public and
private sector banks. Results indicate that Convenience has the highest mean
score implying that it is the most important dimension of service quality.
Thereafter Responsiveness and Accessibility are next important dimensions of
service quality. This study attempts to find out the satisfaction level of
customers in ATM services in Bihar. For this purpose primary data was
collected from 100 respondents of different bank ATM users of Bihar. Data was
tested for normality and reliability and then analyzed to meet the objectives.
( Barun Kumar Jha, Shilpa Sureka and Shitika, 2014)”.

“According to a study, a high degree of association between the ratio of the

number of ATMs to the number of tellers and the ratio of the cost per ATM to
the cost per teller is seen. The degree of substitutability of the teller by the ATM
is quite high at 0.56, predicting the eventual replacement of the teller by the
ATM. Also the simultaneous decrease in the cost per ATM and the increase in
the teller wage bill have led to the rapid spread of ATMs. This shows that IT
investment is indeed important in the Indian banking sector. (Kumar et al,
2010)”

“A comparative study of customer attitude towards ATM of SBI and ICICI

bank highlights that there is a difference in attitude of customer of ICICI and
SBI bank towards use of ATM. Another objective was to identify the problem
usually face by customer while using ATM. This study find that the main
problem face by customer of SBI is that they get old currency notes from ATM
of SBI. 21% people agree that often it’s machine also get out of order. The main
problem from ICICI ATM is that its machine go out of cash and 18% says often
it’s ATM does not work. (Tuli, Khatri and Yadav, 2012)”

“Automated Teller Machine is a computerized telecommunications device that

provides the customers of a financial institution with access to financial
transactions in a public space without the need for a human clerk or bank teller.
On most modern ATMs, the customer is identified by inserting a plastic ATM
card with a magnetic stripe or a plastic smartcard with a chip that contains a
unique card number and some security information, such as an expiration date.
Security is provided by the customer entering personal identification number
(PIN). (Adepoju and Alhassan, 2010).

“A study conducted on Challenges of Automated Teller Machine (ATM) Usage

and Fraud Occurrences in Nigeria shows that most victims of ATM fraud are
students and ATM users who are not aware of any incidence of ATM fraud. A
total of 83 females (55. %) and 67 males (44.7%) from the three banks
participated in the study. From the data gathered in obtaining the most victims
of ATM fraud, 41 respondents out of 67 respondents of the male have ever been
a victim of ATM fraud. 24 out of 83 respondents of the female have been a
victim of ATM fraud. This implies that the males are the major victims of ATM
fraud from the study. Also, 33 out of the 60 respondents of the students have
ever been a victim of ATM fraud, 7 out of the 20 respondents of business
men/women have been a victim of ATM fraud. The age ranges that are most
victims of ATM fraud are respondents of age between 21- 25 years. (Adepoju at
el, 2010)

“Raheem and Krishnamoorthy (2011) in their study concluded that the of

effects of new banking technology on service quality in public sector banks in
Chennai city, using Multiple Log Linear Regression analysis, which explain that
the value of co efficient (b) of new banking technology variables viz., Net
Banking (1.65), ATMs smart, credit and debit cards (1.065), FOREX
Remittances (1.99), E-Finance (1.069), ATM and Bill Payments (1.04)
determined service quality in public sector banks is significant. The signs of the
co-efficient (b) of the entire five new banking technology attributes are positive
indicating that the higher the level of the new banking technology, higher will
be the service quality in public sector banks in Chennai city.

The value of co-efficient of determination (R2) indicates that the parameters

included in the new banking technology attributes bring about differences in
service quality by 0.6875 ( i.e 68.75 per cent) in public sector banks. Therefore,
the new banking technology attributes viz., Net Banking, ATMs smart, credit
and debit cards, FOREX Remittances, E-Finance, ATM and Bill Payments, are
most important variables which determined service quality of public sector
banks in Chennai City. The study has highlighted that new banking technology
and quality service in public sector banks in Chennai city which need to
improve to survive the competition posed by the new entrants in the foreign
sector.

The exiting organizational structure and policies of public sector banks are ill
equipped to meet the new objective. Despite various committees being set up to
examine the changes required in the exiting insurance framework, not much
work has been done to improve quality of service delivery. Asset management
not only entails the management of funds but also efficient handling of clients
who are the invisible assets on the balance sheet. If public sector banks hope to
survive, they will have to equip themselves with a commitment to quality
services”.

Due to the growth of IT sector, banks are being able to reach their customers
anywhere at any time. (Paul, 2013)
“In the last two decades, there has been a paradigm shift in banking industry by
the technology-based approach in business. Banks across the world are
motivated to integrate information technology (IT) into their daily operations to
gain top-line as well as bottom line benefits. (KesharwaniI and Radhakrishna,
2013)”

“With e-banking services, one can actually carry out a number of transactions
sitting on one’s seat with just a few clicks. Net banking customers view their
account balance and also open fixed deposits, transfer funds, pay electricity,
telephone or mobile phones bills and much more. The accounts of the customers
are updated as soon as the transaction takes place i.e., the accounts show the
information updated to the last second. This means if a cheque issued by you
has been debited from your account in the morning, your account status will
reflect this when you log in to your accounts in the afternoon as against the
earlier updating at the end of the day. This highlights the advantageous part of
technology in banking sector. (Singh, Pandey and Gupta, 2011)”

“The Internet is an extremely efficient channel for banks to collect the

information from customers and manage information flow to meet wide-range
financial needs of individuals and businesses. In fact, offering e-banking
services is not only allow small banks to enter markets and reach customers that
were previously off limits to them, but also to provide a considerable economies
of scale in record storage and data processing - which were only available to
large banks (which have the necessary equipment). (Yang, Whitefield, Bhanot
and Johnson)”

Technology is being used to engage customers throughout their lifecycle. Banks

are now focusing on their service offerings to suit customer preferences.
Technology is playing a strategic role in driving the growth of the organisation
and is no longer viewed as a support function, few banks are launching
campaign as a ‘corporate social responsibility’ objective with a purpose to
promote Green banking which is paperless and queue less banking and also
promotes use of recyclable products for Bank’s stationery using TYVEK
material. (Manohar and Kumar, 2013).
It is also deduced that E - Banking facilities have reduced the cost and the time
of customers. Technological up gradation in banking sector for reaching the
customers demand is a must. Majority of customers are satisfied by the high
safety and security provided by the bank. Banks should update the technological
innovation in order to satisfy the need of the customer. The suggestions say that
the banks should maintain of high quality assets. Protecting the pin number is
equally important as protecting hard cash. Replacement of old with new
technology helps to attract more customers. Bank should interact with the
customers to render better service

“Consumer acceptance of online banking: an extension of the technology

acceptance model is another good work in the field of mobile banking with
special reference to technology. Advances in electronic banking technology
have created novel ways of handling daily banking affairs, especially via the
online banking channel. The acceptance of online banking services has been
rapid in many parts of the world, and in the leading ebanking countries the
number of ebanking contracts has exceeded 50 percent. Investigates online
banking acceptance in the light of the traditional technology acceptance model
(TAM), which is leveraged into the online environment. On the basis of a focus
group interview with banking professionals, TAM literature and ebanking
studies, developed a model indicating onlinebanking acceptance among private
banking customers in Finland. The model was tested with a survey sample
(n=268). The findings of the study indicate that perceived usefulness and
information on online banking on the Web site were the main factors
influencing onlinebanking acceptance. (Pikkarainen, Pikkarainen, Karjaluoto
and Pahnila, 2004)”

“In the task of making banking services available to everyone, technology has
an important role to play in creation of channels beyond branch networks. The
RBI has set up an Advisory Group for IT Enabled Financial Inclusion to
facilitate development of information technology solutions for delivery of
banking services. Technology can play an important role in reducing operating
cost of providing banking services, particularly in the rural and low income
groups segments. The technology, if blended appropriately with the right
business model and policy, holds the key to extending affordable, viable and
sustainable access to finance for the population at large. (Trivedi, 2009)”
“Computerization in Indian banking sector and the use of modern innovation
has increased many folds after the economic liberalization as the country’s
banking sector has been exposed to the worlds market. In 1984a committee was
formed by RBI on mechanization in the banking industry whose chairman was
Dr. C Rangarajan, Deputy Governor of RBI. Under mechanization an electronic
ledger posting machine was installed which included a type writer keyboard, a
printer, two floppy disc drives and a video screen.

The machine was used to prepare statement on accounts for customers,

maintaining primary ledgers and post transaction entries in them. The reports
were submitted by the committee in 1989 and computerization began from 1993
with the settlement between bank administration and bank employees
association. In 1994 for issues related to payment system, security settlement
and check clearing a committee on technology was set up in the banking
industry which emphasized on Electronic Funds Transfer system. (Mittal,
Jadaun and Dash, 2013)”.

Mandeep Kaur and Kamalpreet Kaur(2008), in their article, “Development of

Plastic Cards Market: Past, Present and Future Scenario in Indian Banks”
conclude that Indian banking sector is accepting the challenge of information
technology as all the groups of bankers have now recognized it as essential
requirement for their survival and growth in future Despite the strong advances
in e-payments, an estimated 90 percent of personal consumption expenditure in
India is still made with cash which indicates the tremendous growth potential of
this business. So this can be considered as mere beginning which indicates the
bright future prospects of plastic card market in India. P Manivannan (2013) in
his research paper “Plastic Money a way for cash Less Payment System”
examined that Plastic Money i.e. usage of Credit card was measured a luxury,
and has become needed.

These plastic money and electronic payments was and used by only higher
income group. This facility extended not only to customers in urban areas or
cities, but also to customers residing in rural area. However, today, with
development of banking and trading activity, the fixed income group or salaried
classes are also start using the plastic money and electronic payment systems
and particularly Credit cards.
Anupama Sharma (2012)in her research paper “Plastic card frauds and the
countermeasures:towards a safer payment mechanism” have thrown light on the
number of frauds increased considerably in the usage of plastic cards as in case
of plastic card frauds the most affected parties are the merchants of goods and
services as they have to bear the full liability for losses due to frauds, the banks
also bears some cost especially the indirect cost whereas the cardholders are
least affected because of limited consumer liability and concluded that all these
losses can be dealt with by making the prudent use of the new technology and
taking the respective counter measures.

Bansi Patel and Urvi Amin (2012)in their research paper “Plastic Money :
Roadmay Towards Cash LessSociety” discussed that now days in any
transaction Plastic money becomesinevitable part of the transaction and with it
life becomes more easy and development would take better place and alongwith
the plastic money it becomes possible that control the money laundry and
effective utilization of financial system wouldbecome possible which would
also helpful for tax legislation.

In this research paper an attempt has been made to study an overview of the
development of banking in the plastic cards usage trends since these have been
introduced in Indian banking sector. The study also highlights the role of these
cards as electronic payment tool to be used by customers and discusses the
penetration of these cards in replacement of cash and paper money. The factors
for adoption of plastic money in replacement of cash and paper money have
been identified which shows the preference of the customers for plastic cards
over the cash and paper money.

OBJECTIVES OF STUDY

1. To study usage of plastic money in India.

2. To evaluate debit and credit card usage.

3. To evaluate drivers and challenges in adoption of cards in India.

4. The Various Opportunities available for the Plastic Money

5. To Understand the reason for their increasing use in India

6. Factors which hinders the use & functioning of Plastic Money in India.

7. Safety Measures taken by RBI to prevent the hindrances in functioning of

Plastic Money.

8. The Various Opportunities available for the Plastic Money

9. To Understand the reason for their increasing use in India

10.Factors which hinders the use & functioning of Plastic Money in India.

PLASTIC MONEY: SIGN OF MODERNIZING ECONOMY :- Money

is always regarded as an important medium of exchange and payment tool.
Initially barter system was used as the significant mode of payment. Over the
years, money has changed its form from coins to paper cash and today it is
available in formless form as electronic money or plastic card. Hence, the
major change in banks which has been brought in by technology is through
introduction of products which are alternative to cash or paper money.
Plastic cards are one of those types of innovations through which the
customers can make use of banking services just by owning the card issued
by bank and that too without restricting himself in the official banking hours.
Plastic cards as the component of e banking have been in use in the country
for many years now.

However, the card-based usage has picked up only during the last five years.
Payment by cards is now becoming a much preferred mode for making retail
payments in the country (Report on trend and progress of banking in India
2006-07, RBI). Thus, plastic cards are such payment tool which gives a
customer an opportunity of non cash payment of goods and services and are
designed to facilitate small value retail payments by offering a substitute for
bank notes and coins and thus to complement traditional payment
instruments.

The role of various parties involved in plastic cards payment

i. Customers or Cardholder: The authorized person holding the card and can
use it for purchase of goods and services also.
 ii. Card issuing bank: The bank or institution which issues the card to its
eligible customers.

iii. Merchants: Entities which sell the goods and services to the cardholder
and duly agree to accept the card for payment.

iv. Bank Card Association: The associations (VISA, Master Card, American
Express)

TYPES OF CARDS

Credit Cards

The term “credit card” generally refers to a plastic card issued to a

cardholder, with a credit limit, that can be used to purchase goods and
services on credit or obtain cash advances. It is issued by banks holding the
logo of one of the bank card association like Visa, MasterCard, Dinners club
etc. after proper verification of accountholders. Unlike debit cards, credit
cards also provide overdraft facility and customer can purchase over and
above the amount available in his account and thus regarded as authentic
payment tool (Mishra, 2007).

Interest charges are levied on the unpaid balance after the payment is due.
Cardholders may pay the entire amount due and save on the interest that
would otherwise be charged. Equated Monthly installments (EMI) scheme is
also offered by some banks to the customers who make huge purchases so
that they can feel convenient while paying back the outstanding amount
(Vardhaman, 2008). Clearing and settlement through credit card is a simple
and reliable process in which bank plays a crucial role.

Smart Card

A plastic card containing a computer chip and enabling the holder to

purchase goods and services, enter restricted areas, access medical, financial,
or other records, or perform other operations requiring data stored on the
chip. Smart card is currently introduced by BRTS which stands for Bus
Rapid Transit Services in Gujarat in India.
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.

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.

MasterCard and Visa

MasterCard and Visa are global non-profit organizations dedicated to

promote the growth of the card business across the world. They have built a
vast network of merchant establishments so that customer’s world-wide may
use their respective credit cards to make various purchases.

Debit Cards

Debit card is a magnetically encoded plastic card issued by banks which has
replaced cash and cheques. It allows the customers to pay for goods and
services without carrying cash with them. In some cases, debit card is
multipurpose which can also be used as ATM for withdrawing cash and to
check account balances. It is issued free of cost with the savings or current
account (Mishra, 2007). Debit card is one of the best online e-payment tool
through which the amount of purchase is immediately deducted from
customer account and credited to merchant’s account provided if that much
amount is available in customers account. It has overcome the delayed
payment process of cheques, due to which sometimes merchants have to
suffer. There are currently two ways that debit cards transactions are
processed.

1. Online debit(also known as PIN)

2. Offline debit ( also known as signature debit)

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.

ADVANTAGES OF PLASTIC MONEY

• Purchasing Power: Credit or Debit cards made it easier to purchase things.

Now we don’t have any need to carry hard cash in a large amount. Plastic
money is accepted everywhere, anytime.

• Time Saving: Through a credit card or debit card you can purchase
anything from anywhere without spend money on fare or cash transition. Just
provide your card details to seller store or companies and finalize your order.
Now you don’t have need to worry about time wastes. Use without any
tension. internet for minimum time consuming.

• Extra Safety: While you are not carrying cash, how can it be lost? But if
your card has lost, just contact to your bank or financial institution, which
provide you cards. It will block the account and nobody can draw a single
coin without your permission. So it is 100% safe.

DISADVANTAGES OF PLASTIC MONEY

• Shops Using Other Vendors: There are numerous shops which accept
credit cards of a specific company only. In this situation the cash is the only
way of payment for those who use a credit card of another company.

• Less Global Availability: there are many cases where various companies
do not permit their cards to be used in areas where they have a regional
dispute with.

• Worn out Magnetic Strip: The magnetic strip of a credit card can get
worn out due to massive use. If such a condition happens while travelling,
and this is the only way of cash that the consumer has, then he or she has to
wait till the time they receive a new card, which can take a minimum of 48 h.

• Increased Debt and High Interest Rates: Credit Card provider financial
institutions and companies charge high interest rates (may be 10% to 25%)
on extra money if you fail to pay off up to the fix date of the month. This
interest is their earning, for which they give you extra buying limits then
your money. This is not a good idea that you owe loan on high interest rates
and spend it in unnecessary things or purchasing. This is complete money
wastages.

• Fraud: Credit cards can be stolen. A thief may be use them directly or to
get their information (which is required in money exchange). In today’s
technical intelligence it is also possible to get a clone of any credit card or
debit card, which works like original and they can be give you a heavy
financial loss. So be aware from credit cards fraud as they are like stolen
your money from your pocket without your information.

Steps taken by the other countries towards cashless transaction

As per a recent Washington post article, in Sweden, only 3% of transactions

involve cash. Credit and Debit cards are dominant in Sweden payment
system. Not only in Sweden, but in most of the developed countries, above
90% of transactions are cashless. Mobile payment is bringing new way of
cashless payment system. Other prominent countries are Norway, Austria,
Finland etc.

In the United States today, only 7 percent of all transactions are done with
cash, and most of these transactions involve very small amounts of money.

Another method that can be used to make financial identification more

secure is to use implantable RFID microchips.

Reserve Bank of India Pitches for Cashless Society

With the Indian economy expanding rapidly at more than 7.5% per annum
and the middle-class budding, several financial firms believe and predict that
the use of plastic money in India will become very popular. However,
according to the recent estimates by the Reserve Bank of India (RBI), the use
of cashless transactions through credit card usage among Indians is actually
falling. The Reserve Bank of India (RBI) has prepared a road map to provide
card swipe machines to more than one crore retail businesses in the next
three years to promote electronic transactions for ushering in a less-cash
society in the country.
 According to the road map prepared by the central bank for cash-less
transactions, all schools and colleges in the country will also be equipped to
handle plastic transactions. According to an RBI estimate, only six lakh
retail traders accept credit card in the country. Steps are being taken to make
the facility available to at least one crore retailers by 2015.The government
and its financial institutions will initially bear the cost of each card swap
machine made available to retailers.

THERE ARE VARIOUS OTHER REASONS FOR INCREASING USE

OF PLASTIC MONEY IN INDIA WHICH ARE AS FOLLOWS:

1. The E-Payment Boom

The E-Payment is on boom now days in Indian Financial Sector. The bulk &
retail payments are being easily done through Electronic Clearing System
(ECS) which results in low transaction cost & less manual work. In the same
way Electronic Fund Transfer (EFT) such as Credit Card, debit card, smart
cards, prepaid & ATM cards has grown to Rs. 15,711 crore in 2004 from 0.6
crores in 1999.

2. Explosive Growth

Due to the conversion of Indian Financial sector from cash to e-payments

system lead to more & more money in banks. Also the costing of the banks is
also reduced to a greater extent as merely Rs.1 is being charged when a debit
card is used at merchant establishments as compared to the cash withdrawn
from bank by walk in customer. Therefore growth in deposits implies more
loans which give rise to economic activities.

3. Increased Acceptance

As most of the merchants have started using epayment modes, more & more
customers are using plastic money for paying off for goods & services.
Consumers usually prefer to use cards for high value items. Electronic
payments for purchase of consumer durables has grown by 56 per cent, while
jewellery purchases paid by card has grown by49 per cent. Moreover there has
been a drastic increase in the number of consumers who are now using cards to
pay for items of daily expenditure as well as big-ticket items. The major reason
for such an increase is the number of establishments accepting e-payments.

4. Growth Potential

The Growth Potential of Plastic Money is enormous as out of 150 million

Indians constituting the banked population, 30 millions are eligible for credit
cards & all are eligible for debit cards. India has received 15% of the world
wide remittances which is almost five times of FDI into the country so keeping
cash within the system has been crucial for India.

5. Debit Cards

As the economy is migrating towards E-Payments, the ‘buy now pay now’
character of debit card has shown a dramatic increase in India which has year
on year growth rate upto 76%.ATM cash withdrawals accounts for over 80% of
debit card volumes. Over 90% of the debit card holders withdraw cash from
ATM’s to pay for goods & services which would be a precursor to debit cards
being used for payment.

6. Other Advantages

The other benefit of shifting from the cash system to e-payment system is the
inbound tourism in which the Online Ticketing by the railways has been the
forerunner in e-payment acceptance. Thus, we conclude that E-Payments are
the main source of increasing consumption and increase money in the
economy. Therefore the Plastic Revolution will have a long stay with the
acceptance in infrastructure & regulation in place.

BUBBLING IN INDIAN PLASTIC MONEY MARKET

The Indian Plastic Money Market is bubbling with the activity, with both
Indian & Foreign Banks trying to expand their presence. The RBI’s latest
numbers testify that growth in Plastic Money was much higher than 24.51%
recorded in 2006-07.This Scenario is bound to brighten up & register an
exponential growth in coming years. India is poised to become the second
biggest market in the world next to U.S The following reasons may support the
above fact:-

 India has over 130 million people with the Bank Account.
  The large middle class segment of our population is increasingly
becoming consumerist bordering on 20 crore should easily provide the
bare for such growth.

 The desire on the part of the middle class 7 upper middle class to
enhance their lifestyles by accessing more products & undertaking more
leisure activities will switch them over to Plastic Money.

 India turning to be one of premium visitor destination.

 India has the largest “young” population in terms of sheer size & this
young segment is the major driver of Plastic Money in India.

 Thus, in consideration with the above reasons, we can say that the
plastic money will turn out to be of great use & acceptance in India.

 Explosive rise in corporate citizens, with the formation of more & more
Joint stock companies.

FACTORS HINDERING THE USE OF FUNCTIONING OF PLASTIC

MONEY

While on one hand, the plastic money has hampered the Indian middle class,
on the other hand, it has left many a card holders confused. Despite the fact
that there are about 3 million credit card industries, majority of them are
ignorant of card usage. The Credit Card & Management consultancy
conducted the study on this issue of Plastic Money. Though the use of the
Plastic Money is Revolutionary which will change the scenario of the
financial market and upgrade the situations but due to many unavoidable
situations its use is not increasing with the pace at which it is expected to.

SOME OTHER HINDERING FACTORS ARE:

1. Information Technology -

both opportunity & challenge Use of Plastic Money has increased the
dependency on the network which has brought IT department’s additional
responsibilities & challenges in managing, maintaing & optimizing the
performance of the banking networks. All bank products & services are
available at all times and across the entire organization. It is essential for
today’s retail banks to generate revenues & competition. Besides, there are
network management challenges whereby keeping there complex, distributed
networks & applications operating properly in support of business objective
become essential. Specific challenges include insuring that account
transactions applications run efficiently between the branch offices and data
centers.

2. KYC Issues & Money Laundering Risks

Competition for clients leads to KYC procedure being waived in the bid for
new business. Banks must also consider seriously the type of identification
documents they will accept & other processes to be completed. The RBI has
issued detail guidelines on application of KYC Norms in November in 2004.
Besides some issues related to the smooth functioning of Plastic Money in
India is in a state of preparedness for varied challenges of the future. As aptly
told by Charles Parwin”It is not the strongest of the species that survive nor
the most intelligent but the one most responsive today”.

3. Ignorance

There was a critical gap in the understanding of the card holders in the areas
such as interest rates & processing fees on outstation cheques. Due to snob
value people applies for cards & later on due to lack of knowledge they
realized the complicated aspect related to interest rates.

RBI: ACTING AS A REGULATOR

Use of Plastic Money is growing at an unprecedented rate in India. Plastic

Money is growing in leaps & bounds in India. Today numbers of banks are
offering cards. Though initially the foreign banks have a dominant share but
the entry of Indian Banks like SBI, ICICI & HDFC Bank will soon change the
rule of the game & with the entry of these banks the Central Bank of India will
act upon as a monitoring, regulating & controlling authority.

Plastic Money, despite of its small size-merely 14% of Indians has given
causes for so many complaints & for this RBI has to come with a roadmap for
setting up a grievances redressal mechanism.RBI has already set up a working
group for regulatory mechanism for cards.

RBI has received many complaints regarding the Plastic Money & major
issues are:

 Charging very high interest rates/service charges

 Lack of transparency in disclosing fees/charges/penalties. on disclosure

of detailed billing procedure.

 Unsolicited calls to members of the public by card issuing

banks/direct selling agents pressuring them to apply for credit cards.

 Communicating misleading/wrong information regarding credit cards,

regarding conditions for issue, amount of service charges/waiver of
fees, gifts/prizes.

 Sending credit cards to persons who have not applied for

them/activating unsolicited cards without the approval of the recipient.

The Working Group deliberated a major of number of issues relating to:

1. Customer Rights Protection

2. Code of Conduct

3. Customer Grievances & rights

4. Transparency & Disclosure

 The Group recommended that the most important terms & conditions should
be highlighted & advertised & sent separately to the prospective customer.
This includes issues relating to:-

1) Fees & Charges

2) Drawl Limits

3) Billing

4) Default

5) Termination/Revocation of card membership

6) Loss/theft/misuse of card

7) Disclosure

RBI is processing out all these recommendations & issue guidelines which
are going to pave the path of a healthy growth in the development of Plastic
Money in India. The RBI is also considering bringing the credit card disputes
within the ambit of the Banking Ombudsman Scheme. But while issuing its
guidelines RBI should consider the consumer along with the banks & frame a
layout which leads to the promotion of plastic money even into rural India &
smooth functioning of this in the developing financial sector.

RESEARCH METHODOLOGY

The descriptive research approach is used in the paper. The secondary data
from reliable sources, newspapers, research papers is used to analyze the trend
and challenges in adoption of plastic money in India.

CARDS IN INDIA

Andhra Bank and Central Bank of India introduced credit cards in 1981. Rupay
card has been recently introduced in India because India is also one of the
fastest growing economies in the world because the income of individuals is
increasing and thus the saving and investment are growing (Business Standard,
2013).

The current scenario of issuance and usage of cardsis depicted figure below

11 Figure-2: Number of ATM transactions of Credit Cards (June 2014)

The number of ATM transactions of credit cards is consistent with the number
of cards issued except for foreign banks. Public banks have better usage in
ATMS due to more number of ATM’s as compared to foreign banks, but in
POS transactions, foreign cards have better usage as compared to public sector
banks.

Figure-3: POS Transaction of credit cards

How to secure plastic money
As the government promotes cashless transactions and more people start paying
with their cards at point of sales terminals, bankers as well as payment
companies say that Indians need to be more careful about the security featuresof
plastic cards and learn more about how they can protect their accounts from
external fraudulent attacks. ET looks into various features of the plastic card
and how consumers should be careful while using it. 

1. Saving card 

Banks always ad vise customers to not save their 16 digit card number with
multiple payment gateways as the number may get stolen from a compromised
gateway and pose a securityrisk during any transaction. 
2. Small 3-digit code behind plastic cards 

The code is known as the CVV number. 

CVV stands for Card Verification Value or CSC (Card Security Code) this is
the three digit number usually mentioned at the back of a MasterCard or a Visa
card. It is an added security feature for card users who stand protect ed from
fraudulent transactions even if their 16-digit card num ber is stolen. 

For instance for card absent transactions like on line payments it is man datory
to put the CVV number which proves that the right bank cus tomer is using it. 

3. Decoding the card number 

The 16-digit card number is ex tremely vital as it helps identify the card service
provider. For Visa the starting number is 4, for MasterCard it is 5 and for
American Express it is either 34 or 37. For Discover cards it is 6, for other
petroleum cards it is 7 and for airline cards it is 1. It also helps identify the bank
which issued the card and contains a unique number to identify the
customer.Hence, customers are advised against sharing the 16-digit number. 

4. Expiry date 

Most debit and credit cards come with expiry dates requiring one to renew the
card every few years. Once a fresh card is issued by name, the delivery address
and KYC details are refreshed again, updating the bank's database and also
preventing fraudulent use. 

5. Magnetic Stripe 

Magnetic stripe is the black col our strip at the back of the card. 

The older range of cards needed to be swiped on a point of sales (PoS) terminal.
The magnetic stripe which needed to be swiped contains data around the card
number which helps the merchant identify the customer, card service provider
and bank. Magnetic stripe can be easily duplicated by a cloning machine
inserted in a compromised PoS terminal, as was seen in the case of Target, a
massive retail chain of the US where customer's bank details were stolen
through a compromised PoS machine. 
6. Chip and pin 

In order to avoid such cases of compromise the RBI has in structed all banks to
move to chip and pin based cards and not to issue magnetic stripe cards. In this
case, a smart chip is inserted into the card which creates a unique token every
time the card is used at a PoS terminal or for online transactions. This is a far
higher level of security than magnetic stripe since even if in some instance the
card is compromised the data stolen will be virtually useless as it changes with
every transaction. In case of magnetic cards the strip details remain unchanged
for all transactions.

More and more applications for plastic mone

An attractive woman comes out of the water dressed only in a skin-tight

bathing suit that emphasises her stunning figure. Her body and hair are
still wet as she walks into a shop close to the beach to do some shopping.
The salesman is puzzled, because it is obvious that she does not have a
purse with her. When asked how she intends to pay, the beautiful woman
gives him a seductive look and uses her deft fingers to pull out a
rectangular piece of plastic – a credit card – that has been hidden between
her bathing suit and right buttock. The salesman smiles in satisfaction.

Credit cards are in widespread use throughout the industrialised world as a

familiar way to pay without cash. In spite of the fact that they are so useful, they
are sometimes known disrespectfully as plastic money since they are made from
a polymer (PVC). Credit cards have many different advantages for users: the
fact that water does not harm them is just one of them: neither the structure nor
the quality of credit cards is damaged under the influence of moisture. Above
all, however, it is possible to remain comparatively relaxed even if they get
completely lost, provided their owner notices the loss quickly enough and has
the card in question taken out of service by phone, e.g. via the central number
(country code + 116 116). Abuse of the card by unauthorised third parties can
be prevented effectively by doing this. Losing cash, on the other hand, has
something depressingly final about it; the only hope the unfortunate loser
generally has in this case is that the money is found and turned in by someone
honest.

Credit cards – a valuable innovation made of plastic

Credit cards that make it possible to shop without cash have been on the market
since 1950. The idea behind this form of payment came from the USA and was
outlined as long ago as 1887 when the book “Looking Backward or Life in the
Year 2000” was published by the author Edward Bellamy. The first card was
issued by the credit card company Diners Club Inc. to its particularly credit-
worthy customers. Owners of a credit card were therefore demonstrating their
strong financial position, so that credit cards were also considered to be a status
symbol. In addition to this, owners could use them – starting in the United
States of America and then later all over the world too – to buy goods and
services from the company’s contractual partners by adding their signature to
the invoice.

There are many different plastic money cards in the meantime: Master and Visa
cards, American Express and various bank cards. Their simplicity, functionality
and practicality might suggest that money cards have the potential to replace
cash as the classic means of payment. As we all know, this is not so, however.
The saying “Cash is king!” still applies today.

Large amounts in small notes are extremely popular particularly – but not only
– with crooks. To get rich illegally, plenty of criminals therefore attempt to
master the difficult art of printing money in dark cellars and other secret places
– with varying degrees of success. At first glance, it appears that all that is
needed for this purpose is suitable paper, appropriate inks, a colour copying
machine and a certain amount of skill and talent. Counterfeit money is not,
however, quite as easy to print as it sounds. Some ingenious characters with
enough criminal energy and ability nevertheless manage to make and distribute
counterfeit money successfully.

 
 
Greater security in monetary transactions thanks to polymer materials
But how can banknotes be made forgery-proof? Canadian financial experts,
chemists, physicists and engineers asked themselves this question when the
proportion of counterfeit money circulating in the country reached a historical
high: in 2004, there were 470 forged banknotes for every one million genuine
ones. The Bank of Canada responded. On the one hand, it started to train
retailers to identify counterfeit notes. On the other hand, it set itself the goal of
making counterfeiters’ lives more difficult – by introducing banknotes made
from polymer materials.

The idea of plastic banknotes is not new; synthetic banknotes can be found in
the wallets of consumers in many different countries around the world
nowadays, including New Zealand, Romania, Taiwan, China, Ireland, Israel and
Paraguay. Australia pioneered this development, incidentally. When the country
switched its currency from the Australian pound to the Australian dollar in
1966, it wanted to present the most forgery-proof notes in the world.
Counterfeiters evidently took this announcement as a challenge to prove the
opposite, because the first forged banknotes were already circulating within the
country after only a short time

. In 1988, Australia finally introduced plastic banknotes that not only have more
security features than paper notes thanks to the material used, such as
holograms, windows and embossed patterns: “In addition to this, the
environmental impact of polymer banknotes is considerably lower than of paper
notes”, the Bank of Canada explains in a press release. The company also
predicts that the new plastic banknotes will stay in circulation at least 2.5 times
as long as paper notes. Quite apart from this, banknotes made of plastic retain
value after they are taken out of circulation too. At the end of their useful life,
plastic banknotes can, finally, be melted down or granulated and then be
brought back into circulation and use as recycled material.

Which only goes to show: money is particularly valuable when it is made from
a polymer.

 Money

What is Money?

The word “money” is omnipresent in our daily lives, which is centred around it.
We all need money to purchase things whether it be desirables or necessities.
We work hard for earning money and need money to reach our working places.
We need money if we need visit and travel to new destinations. We even need
money to receive medical care and to keep ourselves healthy, and to fulfil most
of our wants, needs, desires and necessities that we can possibly think of.

With this huge importance and all the focus on money in our day to day lives,
have we ever imagined or given a thought to what money really is?

Money is defined as any item or verifiable record or legal tender that is

generally accepted as payment for goods and services and repayment of debts in
a particular country or a particular socio-economic context, or can easily be
converted to such a form.
The main functions of money are: 

1) It must act as a medium of exchange;

2) It must act as a unit of account;
3) It must be a store of value;
4) It must be a standard of deferred payment.

Medium of exchange

Money act as a medium of exchange when it is used to intermediate the

exchange of goods and services.

Measure of value

For determining the market value of a good, service or any other transaction a
unit of account is a necessity which acts as a standard of numerical monetary
unit of measurement. It is also known as a “measure” or “standard” of relative
worth of goods and services and deferred payment. A unit of account is a
necessary prerequisite to formulate commercial agreements involving debt.
For carrying out trade, money acts as a standard measure and common
denomination, and is necessary for efficient accounting.

Standard of deferred payment

In simple terms a "standard of deferred payment" (i.e. payments which are

withheld until a specific time) is an accepted way of settling a debt. Money is
used for settling debts. So debts and their settlement can be denominated in
terms of money.
Store of value

Money acts as a store of value since it can reliably be saved, stored and
retrieved and is also predictably usable as a medium of exchange whenever
retrieved.

To summarise money is any item or verifiable record that fulfils all the
functions mentioned above.
Various kinds of money are there varying in their liquidity, liability and
strength. Society has modified money at different times and in the process
several types of money has come into existence. In earlier times there was
ample availability of metals which were cheap then, and as a result metal money
came into existence. As the value of metals increased metal money slowly
became infeasible and thus was substituted by the paper money. Several
commodities have been used as the medium of exchange at different times.
Therefore, it can be said that according to the needs and availability of means,
the kinds of money has changed.

There are 4 major types of money:

1) Commodity Money
2) Fiat Money
3) Fiduciary Money
4) Commercial Bank Money

Commodity Money

Commodity money is the simplest kind of money used in barter system in

which valuable resources fulfil the functions of money. The value of the
resources and the purpose determines the value of this kind of money and is
only limited by the scarcity of resources. The parties involved in the exchange
process of goods and services determine the value of this kind of money.

As commodity is used for the purpose of exchange, the commodity becomes

equivalent to the money and is thus called commodity money. Certain types of
commodity are used as commodity money.

Among them are precious metals such as gold, silver, copper, etc. In many parts
of the world seashells (also known as cowrie shells), tobacco and many other
items were used as a type of money & medium of exchange.

Example: gold coins, bronze coins, beads, shells, pearls, stones, tea, sugar,
metal, etc.

Fiat Money

The meaning of the word fiat is “command of the sovereign” (i.e. command of
authority holding supreme power). Fiat currency does not have any intrinsic
value and it cannot be converted into valuable resource. Government by order
determines the value of Fiat Money thereby making it a legal tender/instrument
for all transaction purposes in areas within the jurisdiction of that government.

Fiat money needs to be controlled, because it’s misuse may adversely affect the
economy of an entire country. All modern money systems today are based on
Fiat Money. Market forces of demand and supply determine the real value of
Fiat Money.

Example: Paper currency, Coins.

Fiduciary Money

The meaning of the word fiduciary is “involving trust”, and today’s monetary
system is highly fiduciary i.e. based upon trust. If a bank assures the customers
payment in different types of money and if the customer can also sell these
promises (legal tenders) or transfer them to somebody else, it is known as
fiduciary money.

Generally gold, silver or paper money is generally used for payments as

fiduciary money.  Bank notes and cheques also are the examples of fiduciary
money as both of them are kind of tokens/legal tenders which are used as
money and carry the same value.

Commercial Bank Money

Demand deposits or commercial bank money are claims against financial

institutions that can be used for the purchase of goods and services. A demand
deposit account allows the owner to withdraw funds at any time by the means of
cheque or cash withdrawal without giving the bank or financial institution any
prior notice. Banks are legally obligated to return the funds to the owner of a
demand deposit account immediately upon demand (i.e. at call). One can
perform demand deposit withdrawals in person, via cheques or bank drafts,
using ATMs (Automatic Teller Machines), or by the means of online banking.

There are some other types of money too, like the Credit money, Electronic
money, Coin and Paper money, Fractional money and Representative money
which are discussed below:

Credit Money

Any future monetary claim against an individual that can be used to buy goods
and services is known as Credit money. There are many forms of credit money,
such as bonds, money market accounts, IOUs etc. Any form of financial
instrument that matures after a certain period of time or cannot be repaid
immediately is considered as credit money.

Electronic Money

The money which exists only in banking computer systems and is not held in
any physical form or rather is present in electronic form is known as Electronic
money. In USA and many other developed countries, only a small fraction of
the currency or money in circulation actually exists in physical form. Most of
the money in such countries are in electronic form. Need of physical currency is
on the decline as more and more citizens use electronic alternatives to physical
currency.

Example: Bitcoins, etc.

Plastic Money

The term Plastic money is used predominantly to refer to the hard plastic cards
we use everyday in place of actual paper money/bank notes. There are many
different forms of plastic money such as credit cards, debit cards, cash cards,
pre-paid cash cards and store cards.

Coins

Coins are manufactured by stamping metals into particular weight and sizes.
Throughout human history various precious metals like gold, silver, copper,
bronze, etc. have been used to make coins. Governments authorize and control
the minting of coins.

Paper Money

Paper money does not have any intrinsic value by itself and it is a fiat money
which is approved by the order of the government to be treated as legal tender
to act as a medium of exchange of value. Paper money is printed by the
government according to requirements which is tightly controlled as it’s usage
and supply have effects upon the economy of the country.

Fractional Money

Fractional money is a kind of hybrid money. It has a dual character.  It is partly
backed by a commodity and it also has a fiat money transaction purpose. When
the commodity loses its value, the Fractional money converts into Fiat money.

Representative Money
It is the representation of a claim on a certain commodity and it can be
redeemed for that commodity at a bank, financial institution or commercial
institution such as a shop, or department store etc. It is kind of token or currency
that can be exchanged for a fixed quantity of commodity without the payment
of money to the limit of the value of the Representative money. Its value is
dependent upon the commodity it backs.
Example: gift cards, etc.

REVENUE STREAM FROM PLASTIC MONEY

Banking institutions typically charge a monthly account-keeping fee and,

sometimes, a fee per transaction. In the case of payments using a credit card,
financial institutions usually charge an annual fee rather than as per transaction
fee, and interest is charged on borrowings that are not repaid by a specified due
date. Customers receiving payments are also typically charged by their financial
institutions (Schmalensee, 2011).

The fee charged is rental fee for terminal and per transaction fee. Furthermore,
interchange fees work differently in the international (MasterCard and Visa)
card schemes and the local debit card system. In the MasterCard and Visa card
schemes, interchange fees are paid by the merchant's financial institution to the
cardholder's financial institution every time a payment is made using a
MasterCard or Visa card.

ADVANTAGES OF PLASTIC MONEY

a) Convenience: Plastic money provides easy way to make financial

transactions, without carrying cash. It also provides the benefits of anywhere
and anytime banking.

b) Check Counterfeiting: The proposed plastic currency notes will reduce the
chances of counterfeiting.

c) Long life of Plastic Currency Notes: The proposed plastic currency notes
will have life of five years as against oneyear life of paper currency notes.

d) Check on Black Money: It is possible to trace the financial transactions done

through cards. Developing a culture of plastic money will make it easy for
government to trace black suspected black money sources.

e) Supports Growth of e-commerce: The use of cards has supported the growth
of e-commerce. Growth of e-commerce enhances cost effectiveness and
alternative channels to improve economic growth.

CHALLENGES IN ADOPTION OF PLASTIC MONEY

People do not prefer much use of plastic money because of high rate of interest
and fraudulent transaction and increased burden of debt on consumers (Patil,
2014). This involves different type of risk that is physical risk, financial risk,
performance risk, social risk. The cultural factors also restrict the use of plastic
money like credit cards. The conservative nature of people restricts the adoption
of credit cards. Preference of Debit cards over credit cards: From the banker
point of view the preference of debit cards over credit cards, limits the earning
potential of banks.

It is found that almost 80% or about 1.04 million (10.4 lakh) users are not
paying any interest on credit cards,
leaving all issuers with only 260,000 (2.6 lakh) users from whom banks can
earn some money (Bhosale & Karbhar, 2013).

The percentage of population using credit cards are stagnant at 1.5%, whereas
percentage of population using debit cards has increased from 19% in 2011 to
32% in 2014

Plastic Money In India And Its Comparsion

The idea of using a card to make purchases was first thought of by Edward
Bellamy in 1887. He wrote a book, “Looking Backward”, which described his
idea of a utopian society. In this book, he coined the term “credit card.” Since
that time, advancements have been made that have allowed this idea to become
a reality.

Electronic verification systems emerged that allow merchants to verify a credit

card is valid and has enough credit available to cover a transaction in a matter of
seconds. The data from the card is most commonly obtained from a magnetic
strip on the back of the card. Software has been created by many credit card
companies that monitor the use of the credit card. If a purchase seems to be out
of the customer’s norm, a credit card may become inactive, until the purchase
can be confirmed by the customer. This added feature significantly decreases
the amount of fraud committed on these cards.

The surfacing of such technology has lead to the creation of many jobs. Every
credit card company employs thousands of customer service representatives.
These representatives are normally available 24/7 to answer any questions. Jobs
were also created for account managers, or better known to the public as
collection representatives. Fraud Prevention positions arose since fraud has
become a major issue with credit cards.

Training positions arose to keep all employees up to date in this always-

changing industry. Business Technology (BT) positions were produced to aid
with the creation, stability and updates of software used by customer service
and account managers. Most of these positions, except for BT, don’t require
extensive education, yet the income generated for the average employee is often
competitive with that of the average college graduate. An account manager at
Discover Financial Services Incorporated (DFSI) can make up to $20 dollars
per hour plus commission (but the average is closer to $15 per hour). This
commission can be as high as $3000 per month.

Benefits include a 401k plan with a company match, a month of Paid Time Off
(PTO), a health plan, discounts on company stock, tuition reimbursement and
even a pension! In order to save costs, many companies shipped these jobs to
other countries. Currently, DFSI has a call center in New Albany, Ohio, but
many of the employees don’t have a sense of job security. It is very likely that
one day DFSI will have a call center in another country.

Many third-party companies have also come into existence. Hundreds of

Consumer Credit Counseling agencies (CCCA) currently help credit card
holders pay back their debt. Consolidation companies came into view to help
people settle (pay back their debt for pennies on the dollar) their debts.
Ironically, most credit card companies will settle a customer’s debt once he/she
has become delinquent enough. So, these consolidation companies actually
don’t do anything for a card holder that a card holder couldn’t do for
him/herself, so these card holders actually end up spending more money, since
these consolidation companies require payment for their service.

A major issue with credit cards is that it is very easy to spend beyond ones
means. Until last year, the monthly minimum payments for most credit cards
was 2% of the balance. This meant if someone had a $1000 dollar balance, they
would only have to pay 20 dollars per month. This low monthly payment made
it incredibly easy to run up your debt, since you don’t truly feel the impact of
your heavy spending. As a last resort, people who were unable to pay back their
debt were allowed to file bankruptcy.

The most common types of bankruptcy filed were (and still are) Chapter 7 and
Chapter 13. Chapter 7 means you are completely forgiven for your debt,
whereas Chapter 13 means you still have to pay back your debt, but with a
lower interest rate or for pennies on the dollar (like a settlement). An individual
was allowed to file bankruptcy once every seven years. Many people took
advantage of this system and filed bankruptcy every 7 years, despite having the
means to pay back their debt.

Demonetization: India moving towards a Cashless Society with Plastic

Money
In November 8, in his address to the nation, Prime Minister Modi made Rs 500
and Rs 1000 notes invalid. He said it will curb the deep-rooted “disease” of
corruption and black money.
People with notes of Rs 500 and Rs 1,000 can deposit the same in the bank and
post office accounts from November 10 till December 30. Demonetization is a
radical monetary step in which a currency unit’s status is declared invalid as a
legal tender. This means a change of national currency, replacing the old unit
with a new one.

After the announcement, there were huge crowds outside banks across the
country as people lined up to deposit and exchange their old notes. Also, people
lined up in huge number to withdraw currency of smaller denominations from
ATMs.

New Avenues for Plastic Currency

In a single masterstroke, the Modi government has tackled all three diseases
currently plaguing the economy. These are a parallel economy, counterfeit
currency in circulation, and terror financing.

Furthermore, the Indian economy has gone a “reset” with huge positive

implications for liquidity, inflation, fiscal and external deficit in the short term.
With this move, India’s position on transparency and corruption will improve
on in the global stage, thus adding to its investor appeal.
As the process of demonetization comes into force, we should also look towards
plastic money as a new alternative to cash.

Also, we should take a cue from the example of Sweden. Sweden is among the
happiest and least corrupt countries on the globe. In Sweden, cash transactions
make up barely 2% of the value of all payments. This figure is estimated to drop
to 0.5% by 2020. Astonishingly, about 900 of Sweden’s 1,600 bank branches no
longer have cash on hand or take cash deposits.
India in dire need for breaking through the barriers of corruption can take much
inspiration from this country’s rapid adoption of plastic money. Plastic money
can eliminate the need for carrying huge cash, which is also risky and
inconvenient.

It also minimizes the risk of loss or theft as in the case of plastic money like
debit/credit card, you can report any matter of theft or loss to the bank and block
the card for avoiding misuse. One of the unique advantage it can provide is the
convenience of using it anywhere even abroad.

Various Forms of Plastic Money

Credit Card

Source Image
With a transaction using the credit card, there is no need to pay hard money to
the merchant or to Credit Card Company instantly.
That transaction amount is paid by Credit Card Company to the merchant and
then you can pay it to Credit Card Company during your billing period. Credit
card facilitates your payments during given period and in installments

SBI is also offering ‘zero annual fee’ SBI credit cards “Unnati” for a period of 4
yrs to all its Accounts holders including “Jan Dhan accounts” with balance of at
least Rs 25000.

Debit Card

 Imag
e Source
The debit card is the most real plastic money. Debit cards can be used for
paying for fuel, shopping, grocery, withdrawing money from the ATMs. You
need not carry hard cash to buy goods and services, the debit card does it for
you.
Charge Card

 Source
Image
Carrying all the features of credit cards, a charge card allows you to pay off the
entire billed amount billed by a due date. A high late payment charge is paid in
case you default on the payment.

Smart Card

 Source Image
With the use of an electronic chip, a smart card stores cash. It is mainly used to
pay for small purchases, for example, tea or bus fare. This card requires no
identification, signature, or payment authorization.
Smart card reading machines deduct the exact amount of purchase from the
smart card during payment. No change is provided. Currently available only in
very developed countries like the US, it must be promoted in India too.

Photo Card

 Image Source
The photo card may be debit or credit card which has an imprinted photograph
for identifying the user, thus it is considered safer. It may function as the
identity card as well.

Being a debit or credit card, you can use this card in every kind of financial
transaction.

Global Card

 Ima
ge Source
If you are traveling abroad for either business or personal reasons, global cards
provide the flexibility and convenience to use a credit card instead of cash.

You can use it for shopping as well as various other transactions.

Co-Branded Card

 Image
Source
Co-branded cards are credit cards carrying exclusive benefits for the consumer
as they shop at various places. They are issued by card companies having tie-
ups with a popular brand.

Consumers can earn reward points to shop more and avail discounts with this
type of card.
Affinity Card

 Image
Source
Affinity cards are credit cards with the link to popular non-profit organizations/
institutions. Whenever a consumer uses the card, there is contribution of a
certain percentage to the organization /institution by the card issuer.

Add-On Card
An add-on card is basically an additional credit card within the overall credit
limit. These are issued in the name of family members like father/ mother/
spouse/ brother/ sister/ all children above 18 years of age. The main billing
statement reflects the purchase details of the add-on card.

This card is emerging as a convenient mode of payment in India.

Why we should move towards
Plastic currency

There is a huge potential for use of plastic money in India. Apart from
providing enhanced convenience to the customers, plastic money can ensure
transaction secrecy and integrity to them. With demonetization, as the interest
rates can go down, the use of plastic money can get further encouraged. Also, as
you use credit cards and other such options, your credit rating and CIBIL score
will improve, leading to better chances of availing a loan.

Also, the banking service sector can benefit a lot from this move. With quick
payment method, plastic money can ensure higher customer retention for banks
with an enhanced level of customer satisfaction. The government can also plug
leakages of government funds as plastic money will ensure electronic payment.

If the government starts to use plastic money, it will enable effective resource
allocation with fewer chances of corruption. Also, there will be no forgery
headaches with plastic money having a lifespan more than four to five times of
paper money.
Issues that can be faced with plastic cards

 Im
age Source
Plastic cards were launched with the purpose of making transactions
convenient. However, there have been cases of concern with incidents related to
duplication of credit cards, robbery of ATM cards. In order to succeed in the
Indian market, plastic card issuers should improve their customer service
security.

Plastic money transactions have been in some trouble due to poor banking
infrastructure and machinery. Also, there is a major challenge of penetrating
rural parts of India with this new technology.
You must also stay aware of not sharing your ATM PIN or online banking
password with anyone. Even though you know a person very well, sharing your
banking credentials may land you in much trouble. So you must also stay
alerted and keep your banking credentials memorized. Even writing it on a
paper or storing it on your computer is not a risk-free idea.

The use of plastic money began with the rise of India as the IT hub. This current
step of demonetization can provide a further thrust to this concept. Now it is on
the part of Government and banks to further move India towards becoming a
cashless society. As there are chances of plastic money being a norm, the
government should ensure adequate use of technology and resources to make it
a win-win situation for all.

Will India Get Rid of Plastic Money by 2020?

India will make debit and credit cards "irrelevant," says head of policy think-
tank

 
 RESPONSES

After India's government took 86% of currency out of circulation a couple of

months ago, its main policy think-tank has a new plan for the country: rendering
plastic money "irrelevant" by 2020.

Amitabh Kant, Chief Executive Officer of NITI Aayog, which helps the
government formulate long-term policies, said Sunday that India was in the
midst of a "huge disruption" in financial technology and innovation, which will
enable the country to transition from using plastic money to mobile transactions.

"By 2020, India will make all debit cards, all credit cards, all ATM machines,
all [point-of-sale] machines totally irrelevant," Mr. Kant said at the Pravasi
Bharatiya Divas event inaugurated by Prime Minister Narendra Modi in
Bangalore.

"In 30 seconds flat, we'll all be doing our transactions by using our thumb."

The annual event is aimed at increasing engagement between the government

and Indians living overseas.

Mr. Kant was referring to a new mobile app launched by Mr. Modi last week as
the 50-day deadline for depositing invalidated 500- and 1000-rupee bank notes
came to an end.
Mr. Modi had on Nov. 8 announced the withdrawal of the country's largest bank notes to
crackdown on corruption and counterfeiting. The move caused a severe cash shortage in the
economy, although Mr. Modi said later that the problems would abate in 50 days once new bills
were back in circulation.
“Give me time until Dec. 30. After that, if any fault is found in my intentions or my actions, I am
willing to suffer any punishment given by the country,” he had said.

After 50 days, queues were still forming outside ATMs to withdraw cash, despite the work to
recalibrate almost all of the country's 215,000 ATM machines to issue the new, slimmer notes
being completed.
"Bhim," the new digital payments app currently allows users of Google's Android platform to
transfer money directly from one bank account to another. The government plans to link the app
to "Aadhar," India's unique identification program. Once that is done, consumers will be able to
transact by using their thumbprints to authorize transactions.
"In the next two years, the power of 'Bhim' will be such that you wouldn't need a smartphone,
feature phone or even Internet. Your thumb would be enough," Mr. Modi said at the unveiling of
the app on Dec. 30.

The app has already been downloaded by more than 10 million users, Mr. Modi said in a tweet on
Monday.

Narendra Modi

✔@narendramodi

Delighted to know that in a span of 10 days there have been over 10 million downloads of
the BHIM App. http://npci.org.in/documents/Pressrelease10M.pdf …

He also took to twitter to tell Indians how the app was a "fine example" of the government's
‘Make in India’ plan aimed at encouraging local manufacturing, and also the use of technology to
end corruption and black money.
Narendra Modi

✔@narendramodi

The BHIM App is a fine example of @makeinindia & how technology is being effectively
used to end the menace of corruption & black money.

On Sunday, Mr. Modi thanked 30 million Indians living abroad for contributing about $69 billion
to India’s economy through remittances and hit back at the critics of his government's currency
move.

"It is unfortunate that some worshipers of black money are calling our move anti-people," he said.

For breaking news, features and analysis from India, follow WSJ India on Facebook.

Will India's payments landscape see a future without

debit and credit cards?
In 2017, Niti Aayog CEO Amitabh Kant said debit cards and credit cards would
become redundant in the next three to four years, and people would use their
mobile phones for financial transactions.  And while there has been a decline
recenty in the number of debit cards in circulation, digital payment methods like
mobile wallets and Unified Payments Interface (UPI) may not be entirely
responsible. However, his statement does raise a valid question on what the
future holds for plastic money in the country? Will credit and debit cards
continue to be the preferred mode of payment for Indians?
Banks and card payment processors are quick to say that plastic is here to stay,
at least for some more time. Ritesh Pai, Chief Digital Officer at YES Bank,
says,

Cards are here to stay for some time, although the form factor might change.
One cannot deny that cards are internationally accepted because of the
availability of global infrastructure like Mastercard and VISA. It is a tried and
tested model globally."

Sudipta Roy, Head-Unsecured Assets and Cards at ICICI Bank, says cards –
both debit and credit - will be around for another 10 to 15 years, owing to the
convenience and standardised payment experience. He remarks, “Majority of
India is still looking at digital and card payments with fear. If a concerted effort
is made by the industry to tackle this fear and introduce audio-visual messaging
to give confidence to customers to use digital payments, then the journey of
adoption (of digital payments) can be shortened.”       Then again, one cannot be
entirely sure given the innovations afoot when it comes to credit and debit
cards.

Then again, one cannot be entirely sure given the innovations afoot when it
comes to credit and debit cards. Anil Ramachandran, EVP and Head, Marketing
and Retail Unsecured Assets at IndusInd Bank, says, “The environment is more
energised and disruptive for plastic cards than ever. Apart from co-branding
partnerships, the plastic card has looked similar over the past few decades. It is
only now that we see the industry working on the form factor and the ubiquity
and relevance of plastic cards in the country.

Says Sudipta, “Demonetisation was a watershed moment for debit cards; we

saw transaction volumes go up by 100 percent. However, as cash came back,
the prevalence of debit cards fell.” He adds that a structural change will be
needed for debit cards to see another strong growth phase.
“Unless the government does a structural change, we will not see a dramatic
shift in the numbers using debit cards. Some examples are countries like South
Korea and Hungary, where if a citizen expects a tax advantage, s/he must pay
digitally.”  Back to the numbers and, interestingly, RBI data shows that in
FY18, the growth of debit cards in circulation declined. As of January 2019, the
total number of debit cards in the country was at 931.26 million, up only 8
percent from March 2018. One reason for this could be lower acceptance
 infrastructure in Tier II geographies and beyond. Ritesh from YES Bank
explains,

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The Beginnings
With a history of “plastic money”, you cannot ignore charge cards. Charge cards laid the
groundwork for debit and credit cards. Company-issued charge cards can be found as far
back as the early 1900’s. These cards mainly just kept customers loyal to the company.

Charg-it

“Charg-it” was the first actual bank card and was issued in 1946. The card was invented by a
banker in Brooklyn, by the name of John Biggins. However, only local purchases could be
made.

The Diners Club Card

The concept of the credit card was initially acted upon by Frank Mcnamara. After dinner with
a fellow business associate, Frank found himself short on cash after forgetting his wallet.
What followed was an epiphany that led him to think of a charge card. This card, later known
as the “Diners Club Card”, could be used at multiple locations. This novel idea became the
first true model of the multipurpose charge card.
American Express

American Express issued their first credit card in 1958. Due to their international presence,
the Green Charge Card was globally accepted. This became the first internationally available
credit card.

BankAmericard

In 1958 Bank of America introduced a unique card that could be used to purchase anything
at participating merchants. In other words, it was a universal card so the cardholder did not
need multiple cards for specific destinations. This card also set industry standards such as
25-day grace periods, credit limits, and floor limits. The pilot program in 1959 initially had
60,000 customers and was a huge success. The program was then rolled out state wide in
California.
The Mag Stripe

Credit and debit cards would not be what they are today without the Mag Stripe. This
momentous leap in card technology arrived when the CIA hired IBM to attach a magnetic
stripe to their identity cards. The technology was already available; however, the main
problem was permanently attaching the stripe to the card without wrinkles. While working on
this problem, Forest Perry came home from work to find his wife ironing his clothes. When
he mentioned the problem about the stripe, Forest’s wife asked to see the prototype card.
Using the iron, she managed to melt the stripe to the card wrinkle-free. This solved the entire
problem, which allowed IBM to go into full production with the Mag Stripe on all their cards.

Automated Teller Machine (ATM)

One of the most convenient aspects of plastic money is the all-serving ATM. The ATM
(Automated Teller Machine) was brought into existence in the 1960’s by John Shepperd-
Barron. After an unfortunate and unsuccessful trip to the bank, John had to wait until the
next day when it opened again. That night, while reportedly taking a bath, John thought of a
self dispensing cash machine. Along with the invention of what was soon to be the ATM, he
also invented the 4-digit international standard pin code. John first wanted a six-digit army
serial; but his wife convinced him four digits would be easier to remember.

The Chicago Debacle

In the 1960s, unsolicited credit cards became a big problem for the Chicago market. The
Chicago market was untapped by credit card companies by the mid-60s, so several
companies began mailing “pre-approved cards”. This mailing tactic proved to be nearly fatal
for those credit card companies, because they were accidentally mailing them to convicted
felons, toddlers and even dogs. Organized crime rings even took advantage by using corrupt
workers to intercept cards. Since these intercepted cards were already pre-approved, the
people residing at the mailing address were billed thousands of dollars without even knowing
about the stolen cards.

VISA

Originally the Visa card started as the BankAmericard program and was never intended to
go national, or international for that matter. In 1965 BankAmerica begin a licensing program
with banks around California. After enough banks subscribed to the program, BankAmerica
was able to create a joint venture bank association. This eventually rolled out on an
international scale and BankAmerica changed the name of their card to VISA International.
They also created a domestic America version named VISA U.S.A. This two card system
allowed VISA International to be more easily accepted across other countries due to having
no association with America. The acronym VISA stands for Visa International Service
Association; BankAmerica felt the name change was appropriate since VISA would be
instantly recognized in many different languages. Their success continued and eventually
they joined the Plus ATM network becoming even more accessible to customers around the
world. These strategic branding choices allowed VISA to become one of the most
recognizable and successful consumer brands today.

Mastercard

While the BankAmericard was gaining precedent around California, in Kentucky their
competition was also gaining strong ground. Crocker National Bank, Wells Fargo, and Bank
of California came together and launched the Interbank Card Association (ICA) in 1966.
Three years later, Mastercharge changed their logo and came out with the iconic red and
orange overlapping circle. However, it was not until ten years later when Mastercharge
became the Mastercard we know today.  The 80s were also a revolutionary decade for
MasterCard. They released their emergency card replacement program; they entered the
Pacific Rim, and acquired Cirrus which was the largest ATM network in the world. After such
a successful decade, MasterCard capitalized on their advancements and became the other
key player in the market along with VISA.

Discover Card
The Discover Card was a revolutionary card in the 1980s. It specifically presented Sears and
Roebuck & Co. customers with a new credit card option. This card was the first of its kind to
have no annual fee, cash back, and high credit limits. The only problem was that since it was
associated with Sears, other retailers where weary of accepting it, as they would be helping
their competition. Eventually Discover realized that their brand needed to completely
separate from Sears and so they proceeded to do so.  Separating from Sears made
Discover more attractive for other merchants to adopt the card. By the early 1990s, Discover
became incredibly successful and was a regarded as a competitor of merit to Visa and
MasterCard.

1990s – Today

To adapt to an ever-evolving technological world, credit and debit cards have become more
efficient and instantly accessible across multiple mediums. With new technologies such as
mobile platforms, this presents numerous opportunities for vendors and consumers alike.

Chip and Pin

One of the more disruptive changes to plastic money came with the adoption of chip and pin
technology. This system has become a standard with credit and debit cards, and is preferred
to the magnetic stripe. Chip and Pin technology makes cards much more secure and
personal information is very hard to steal because of the encrypted chip. A cloned chip can
also be immediately recognizable as a fraudulent card, as each individual chip is specifically
encrypted for each individual card. Even though this card technology has been around since
the 1990’s, it has become nationally used across Canada, and will become mandatory in the
United States by October, 1st 2015.

Square
Being able to accept transactions through a mobile device is a game changer for
businesses. This was largely made possible by a company called Square. Square allowed a
cell phone to be used as a point of sale system and accept card payments anywhere. The
device simply plugs into the headphone jack and has a card slot for the customer to swipe
their card. Introduced to the market with a 2.75% flat rate fee, mobile card readers have
definitely a significant contribution to plastic money. Square has opened the door for many
small businesses across the world that can now offer their consumers more ways to pay.

Bling Tag

The Bling Tag makes it even faster to pay via mobile device. It is a sticker that contains an
NFC (Near Field Communication) chip. The NFC chip uses the same technology that is in
your traditional credit or debit card. Any Bling Tag user simply has to tap their phone on the
card accepter machine just like tapping a credit or debit card. This is convenience at an
entirely new level. Consumers can leave their wallets or purses at home.
 YesCard

The YesCard is a new way of accessing online loans and getting money instantly. The old
ways of taking loans in the form of a cheque or cash, having to wait days for processing and
then taking the time to deposit the money are gone! The YesCard allows you to access and
use your loans any time any place and faster than anywhere else.

Conclusion

We hope that you enjoyed our overview of plastic money over the last century. Taking
advantage of these new technologies could prove to be the first step in securing a
company’s competitive edge. We’d love to hear your stories about how these technologies
have impacted your lives.

 
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