A STUDY ON PLASTIC MONEY

A project submitted to University of Mumbai for partial completion of the

degree of Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce
By
Ms. Preshita Danny Vaithy
Under the guidance of Mr. Hardik Goradiya

Thakur Ramnarayan College of Arts & Commerce

Thakur Ramnarayan Educational Campus,
S.V Road, Dahisar (East), Mumbai- 400 068

March 2022
 A STUDY ON PLASTIC MONEY
A project submitted to University of Mumbai for partial completion of the
degree of Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce
By
Ms. Preshita Danny Vaithy
Under the guidance of Mr. Hardik Goradiya

Thakur Ramnarayan College of Arts & Commerce

Thakur Ramnarayan Educational Campus,
S.V Road, Dahisar (East), Mumbai- 400 068

March 2022
 INDEX

 
Introduction
Banking has evolved a long way from the days of the medieval money lenders counting
coins on the bench to the present scenario, where it is hard to trace the trail of money from
the beginning to the end. The trail starts right from the small saver leaving a few rupees in
his local bank to the billions of rupee loans raised by a syndicate banks and financial
institutions, capable of financing projects in any country in the world. Still, these banking
majors are heavily dependent upon their retail home base of savers and borrowers. Most of
the bankers began focusing on this retail market segment as global competition intensified
in late seventies and early eighties. The debit card has emerged from the shadow of its older
sibling, the credit card. Over the past decade, debit card has grown from accounting for 274
million transactions in 1990 to 8.15 billion transactions in 2002, to challenge the credit card
as the preferred payment card. As it stands, the debit card industry is a multi-billion dollar
engine that helps drive bank profits and point-of purchase consumer sales - but is also
beginning to redefine traditional payment options in the business and government sectors,
such as food stamps, benefits, and payroll. The debit card has arrived and is here to stay.
And yet, though it remains poised for growth, the debit card has also reached across roads.
A recent settlement has cost VISA and MasterCard approximately $3 billion, and has
dramatically reduced the fees they can charge for signature-based debit purchases. The
effects of the settlement reach into every layer of the industry – from rewards incentives,
to marketing programs, to future fee arrangements, and future growth.
Consumer preferences for PIN- or signature-based debit will certainly influence
how things unfold, and whether either debit card option will suffer or bloom in the short,
mid, or long term. Credit cards, one of the banking products that cater products to the needs
of retail segment has seen its number grow in geometric progression in recent years. This
growth2has been strongly supported by the development in the field of technology, without
which this could not have been possible. The history of phenomenal growth in the credit
cards segment traces way back to in1950, the time when ‘Dinar Club’ was established .The
card provided select members with credit at 22 restaurants in New York and collected a
commission for paying the bills promptly. The credit card industry got a further boost with
the arrival of American express began selling their card as a prestige to hotels, restaurants,
shops or airlines in America and slowly expanded the network across the world. The
success of these two players attracted many other banks to join the credit card business. The
entire breed of new players saw a fresh opportunity of granting unsecured loans at high
interest rates to those credit cardholders who did not pay their bills on time. These banks
were not so concerned with collecting commissions from shops but were thriving on high
interest income from those who did not pay their bills on time. It’s not that only the card
numbers have increased, but even the types of cards on offer have seen a surge. Today the
domestic card industry is flooded with different types of cards ranging from gold,
silver, global, co-branded credit cards, smart to secure. The list is endless. Foreign
banks have shouldered the major responsibility of increasing the card base and adding
value-added services to the card products in the past. This is also evident from the fact that
the market share of these foreign banks is estimated to be well over 70%. But the scenario
has changed dramatically in the last of couple of years with the entry of State Bank of India
(SBI), a domestic major in the banking sector. More and more nationalised banks and
private sector banks like ICICI and HDFC Bank are aggressively launching credit card with
value added features. Although at present the card market is mainly limited to
India’s relatively bigger cities and tourist locations only, there is also a potential
in smaller cities. Domestic banks, owing to their vast network and reach to smaller
cities, can easily tap this potential. They would be better off, penetrating into smaller cities
and bringing credit card to the masses rather than cannibalising other foreign banks existing
cardholder base.3The efforts of these banks to increase the card base is going to be whole
heartedly supported by the residents of these smaller cities with their higher disposable
income, changing lifestyle, increasing travel and the growth in the entertainment
sector. Over the years, Indians have been averse to credit cards. This is primarily because
they believed that spending through credit is a sure shot way of getting into the debt trap.
Of course, movies highlighting the sad state of a borrower did not exactly help matters. And
even the local kirana shops have the famous lines
 Aaj Nagad, Kal Udhari 
(cash today, credit tomorrow).But the situation is not actually that scary. And it is all
about right timing. Credit card scan be a useful tool at the hands of savvy consumers who
can effectively use the benefits offered by cards. It is important to know that credit card is a
financial tool that needs to be used responsibly. While it ensures cash flow, it is not
advisable for customers to borrow for a longer period of time. Use it effectively and take
good advantage of the time line and clear your debts, without any additional costs.
Plastic Money: the Currency of Modern India
Indian consumers have never had it so good. The soiled notes are definitely out. Carrying
cash is no more `a pain in the neck' as consumers are relying more on the `plastic card'
which gives them money on credit. Plastic money basically means debit cards and credit
cards which is having a magnetic stripe, logo, signature of the cardholder made of plastic.
Credit Cards have finally arrived in India. The card industry which is growing at the rate of
20% per annum is flooded with cards ranging from gold, silver, global, smart to secure. The
list is endless. From just two players in early 80s, the industry now houses over 10 major
players vying for a major chunk of the card pie. Currently four major bishops are ruling the
card empire---Citibank, Standard Chartered Bank, HSBC and State Bank of India (SBI).
The industry, which is catering to over 3.8million card users, is expected to double by the
fiscal 2003. According to a study conducted by State Bank of India, Citibank is the
dominant player, having issued 1.5million cards so far. Stan chart follows way behind with
0.67 million, while Hong Kong Bank has 0.3 million credit card customers. Among the
nationalized banks, SBI tops the list with 0.28 million cards, followed by Bank of Baroda at
0.22 million he credit card market in India, which started out in 1981, is on the verge of an
unprecedented boom. Between 1987 and 2000, the market has virtually grown to over
3.8million cards with almost 25-30 % growth in new card holders. SBI, one of the late
entrants in the card market, has managed to grab over 8 per cent of the market share from
the bigwigs like Citibank and Standard Chartered Bank. The bank's credit card business has
grown by 8 per cent over the last two years. According to bank officials, SBI's card issue so
far is to the tune of 0.28 million which is expected to Ina bid to tap the lower middle class
segment, SBI is currently sharpening its marketing The bank is putting its best foot forward
to compete with global card majors like Citibank and Standard Chartered Bank. The global
bigwigs have already established themselves as
 Highlight
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The `bankable brands' in the metros. However, in a bid to move to greener pastures, they are
trying to tap the co-branded card market which has vast potential for growth. Citibank,
which is leading the card empire recently launched a co-branded credit card in partnership
with Indian Oil Corporation. The card will offer its member’s reward points on every
international spend which can be redeemed for free fuel in India.
ATM- debit cards are the flavour of the season
The credit card business may have fallen short of expectations, but the debit card seems to
lend issuers and payment systems a cause for hope. Plastic money is getting popular,
according to a survey conducted by Master Card international in the Asia pacific region
comprising of Korea, Malaysia, Indonesia, Philippines and Thailand. Eighty percent of
those who participated in the survey were5either the owners of a card or desired to own an
ATM card. 50% owned one and 30%wish to own a card. According to Jeff Portelli,
Maestro (MasterCard’s debit card offering) has grown from zero to 70 m cards in the Asia
pacific region since its launch six years ago. Today, Maestro is issued in 16 Asia Pacific
markets and is accepted at over 35,000 ATMs and more than 220,000 points of sale. In
India, the card is available through Citibank, Times Bank and HDFC Bank. The concept of
debit cards has been a slow starter in India. Debit cards are currently offered by only a
handful of banks, which has made availability low. Besides, the annual fee attached to these
cards adds to the perception that consumers are asked to pay for their own money. However
as the market get cracking, these fears are expected to be alleviated in future.6
DEBIT CARDS
A debit card is a plastic card which provides an alternative payment method to cash when
making purchases. Physically the card is an ISO 7810 card like a credit card; however, its
functionality is more similar to writing a cheque as the funds are withdrawn directly from
either the cardholder's bank account (often referred to as a check card ), or from the
remaining balance on a gift card. Depending on the store or merchant, the customer may
swipe or insert their card into the terminal, or they may hand it to the merchant who will do
so. The transaction is authorized and processed and the customer verifies the transaction
either by entering a PIN or, occasionally, by signing a sales receipt as it is popularly known,
it is an ATM card on the move. The Debit Card gives the freedom to access the Savings or
Current Account at merchant locations and ATMs. Whenever to make payments, the
amount will be instantly debited to the account. There are around more than 5.3 lakh
Visa/PLUS ATMs and equally strong Master card/ Cirrus ATMs in over 140 countries
worldwide. All the purchases and cash withdrawals will be in the currency of the country
are in, while account will be debited in rupees. So you needn't carry traveller's cheques or
foreign exchange the next time you travel Debit Card can be used at any merchant location
displaying the Visa or Master card logo or at any ATMs displaying the Visa/PLUS or
Master card/Cirrus logo. Besides that, one can always use it at any of the bank ATMs as a
normal ATM card.
Working of Debit Card
The user has to present the card to merchant who will swipe it through the electronic
terminal and enter the amount of purchase. The customer need to sign the transaction slip.
Account will be automatically debited for the amount of the purchase and the transaction
can be verified by entering the PIN. Debit Card can be used to access the Account from over
5,000 Shops, Department Stores, Petrol Pumps and Restaurants and over 235 ATMs in
India .It can also be used at over 4 million Visa Electron merchant locations and7equally
strong Master card outlets. If Debit Card ever gets lost or stolen, card companies protect
from fraudulent usage at the loss. It is necessary to have a savings or current account with
the debit card issuer; by filling an application form. The card company then couriers the card
across around a week’s time. The Debit card does have a daily limit which could be
somewhere around Rs.15, 000 at ATMs, and Rs. 10,000 at merchant locations. This again
is subject to the balance available in the account.
Advantages of Debit Card
 Debit Card is often easier to get than a credit card.
 Check approval or to show identification at store is not required.
 No need to carry cash, a check book or traveller’s checks.
 Debit cards are more readily accepted than checks, especially at the time
of traveling.
  No interest charges are to be paid by debit cardholders.
 Debit card processing fee for the merchant are generally lower than credit card fees.
Disadvantages of a debit card
 Enough money is required in bank account to have debit card.
 Once the amount is paid for purchase, if something goes wrong with the purchase..
Bank won't put money back into your account for items that are never delivered,
don't work or were misrepresented.
 Bank fees²such as monthly service charges, per-transaction costs or penalties² for
dropping below the required minimum balance are charged by debit cardholders.
 More chances of lose or misuse of debit card than a credit card.
Two types of debit cards:
There are currently two ways that debit card transactions are processed: online debit (also
known as PIN debit) and offline debit (also known as8signature debit). In some countries
including the United States and Australia, they are often referred to at point of sale as "debit"
and "credit" respectively, even though in either case the user's bank account is debited and
no credit is involved. In India there are basically three types of cards namely Visa, Master
Card and Amex. Participating banks like ANZ Grind lays, Bob then issue these cards to the
subscribers. Both Visa and Master Card have been popular in India and Amex a relatively
new player in India as it issues its cards only through American Express
ATM Cards
These cards are typically used at automatic teller machines (ATMs) to withdraw cash, make
deposits, or transfer funds between accounts. ATM card is used by inserting the card into an
automatic teller machine and enter a personal identification number, or PIN, for security.
The system checks the account for adequate funds before permitting any transaction.
Check Cards
These cards can be used to purchase products at any merchant that accepts VISA
or MasterCard credit cards. On the surface, they look exactly like ATM cards. However,
check cards cannot be used at automatic teller machines. When using a check card no PIN is
used. Instead, you will be asked to sign a transaction slip as would be done with a credit
card.
 
Debit Card Problems can be worse than Credit Card Problems
When an improper charge appears on the credit card it cannot automatically out the money
and simply need to work with the credit card issuer to have the charge removed from the
bill. When an improper charge occurs with a debit card, however, the funds are
automatically taken from the account and customer is burdened with attempting to get the
money back. Meanwhile, he may experience cash flow problems and the legitimate checks
could bounce.
Traveling with your Debit Cards
The reverse side of the debit card will display the names or symbols of the various ATM
systems that will accept the card. Debit card can be used at any ATM in the world as long as
the ATM displays one of the same system names or symbols that is on debit card. When
obtaining funds at an ATM in a foreign country the funds dispersed will be in the currency
of the country going to visit.

CREDIT CARDS
A credit card is a system of payment named after the small plastic card issued to users
of the system. A credit card is different from a debit card in that it does not remove money
from the user's account after every transaction. In the case of credit cards, the issuer lends
money to the consumer (or the user) to be paid to the merchant. It is also different from a
charge card (though this name is sometimes used by the public to describe credit cards),
which requires the balance to be paid in full each month. In contrast, a credit card allows the
consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards
are the same shape and size, as specified by the ISO 7810 standard. Credit cards in India is
gaining ground. A number of banks in India are encouraging people to use credit card. The
concept of credit card was used in 1950 with the launch of charge cards in USA by Diners
Club and American Express. Credit card however became more popular with use of
magnetic strip in 1970.Credit card in India became popular with the introduction of foreign
banks in the country. Credit cards are financial instruments, which can be used more than
once to borrow money or buy products and services on credit. Basically banks, retail stores
and other businesses issue these.
Major Banks issuing Credit Card in India
y
State Bank of India credit card (SBI credit card)
y
Bank of Baroda credit card or (BoB credit card)
y
ICICI credit card
y
HDFC credit card11
y
IDBI credit card
y
ABN AMRO credit card
y
Standard Chartered credit card
y
HSBC credit card
y
Citibank Credit Card
H
o
w
credit cards
w
orks
A user is issued credit after an account has been approved by the credit provider, and isgiven
a credit card, with which the user will be able to make purchases from merchantsaccepting
that credit card up to a pre-established credit limit. Often a general bank issuesthe credit, but
sometimes a captive bank created to issue a particular brand of credit card,such as Chase,
Wells Fargo or Bank of America, issues the credit.When a purchase is made, the credit card
user agrees to pay the card issuer. The

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cardholder indicates their consent to pay, by signing a receipt with a record of the carddetails
and indicating the amount to be paid or by entering a Personal identificationnumber (PIN).
Also, many merchants now accept verbal authorizations via telephone andelectronic
authorization using the Internet, known as a Card not present (CNP)transaction.The credit
card may simply serve as a form of revolving credit, or it may become acomplicated
financial instrument with multiple balance segments each at a differentinterest rate, possibly
with a single umbrella credit limit, or with separate credit limitsapplicable to the various
balance segments. Usually this compartmentalization is theresult of special incentive offers
from the issuing bank, either to encourage balancetransfers from cards of other issuers, or to
encourage more spending on the part of thecustomer. In the event that several interest rates
apply to various balance segments, payment allocation is generally at the discretion of the
issuing bank, and payments willtherefore usually be allocated towards the lowest rate
balances until paid in full beforeany money is paid towards higher rate balances. Interest
rates can vary considerably fromcard to card, and the interest rate on a particular card may
jump dramatically if the card12user is late with a payment on that card
o
r any 
ot 
her 
c 
redi 
t 
ins
t 
rumen
t 
, or even if theissuing bank decides to raise its revenue. As the rates and terms vary, services
have beenset up allowing users to calculate savings available by switching cards, which can
beconsiderable if there is a large outstanding balanceBecause of intense competition in the
credit card industry, credit providers often offer incentives such as frequent flyer points, gift
certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract
customers to their program.
Parties involved
:
y
Cardholder: The owner of the card used to make a purchase; the consumer.
y
Card-issuing bank: The financial institution or other organization that issued thecredit card
to the cardholder. This bank bills the consumer for repayment and bears the risk that the
card is used fraudulently. American Express and Discover were previously the only card-
issuing banks for their respective brands, but as of 2007, this is no longer the case.
y
Merchant: The individual or business accepting credit card payments for productsor services
sold to the cardholder 
y
Acquiring bank: The financial institution accepting payment for the products or services on
behalf of the merchant.
y
Independent sales organization: Resellers (to merchants) of the services of theacquiring
bank.
y
Merchant account: This could refer to the acquiring bank or the independent
salesorganization, but in general is the organization that the merchant deals with.
y
Credit Card association: An association of card-issuing banks such as
Visa,MasterCard, Discover, American Express, etc. that set transaction
terms for merchants, card-issuing banks, and acquiring banks.
y
Transaction network: The system that implements the mechanics of
the electronictransactions. May be operated by an independent company, and one
companymay operate multiple networks. Transaction processing networks
include:13Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova,
Vital, ConcordEFSnet, and VisaNet.
Benefits of 
A
ccepting Plastic
y
More Sales:
Studies show that credit card customers spend 2 1/2 times more than

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customers who only carry cash.
y
Impulse Buying:
Credit cards give customers freedom to spend for previouslyunplanned purchases.
y
More Expensive Merchandise:
Credit cards entice customers to purchase moreexpensive merchandise than they had
originally planned to buy.
y
Competitive
W
eapon:
Credit card customers are often less conscious of slight price differences and will seek out
businesses that offer credit card paymentoptions.
y
Enhanced
A
dvertising:
Since customers are more likely to shop at businesseswhere they have credit card
acceptance, they tend to look for and read those adsfirst.
y
Steadier Sales:
Credit smoothes out business peaks. Cash shoppers buy heavier on paydays and just before
holidays; credit card customers buy whenever the needarises
y
Customer Loyalty:
Research shows customers who spend more on credit tend toreturn to the same business
again.
Disadvantages
On the other hand, credit cards can1. Cost much more than other forms of credit, such as a
line of credit or a personal loan, if not paid on time.2. It damages the credit rating if
payments are late.3. Allow to build up more debt than actually handled by customer.4. It has
complicated terms and conditions.14
DIFFE
R
EN
T
 
TY
PES OF C
R
EDI
T
C
AR
DS
y
Charge card
A charge card carries all the features of credit cards. However, after using a charge cardyou
will have to pay off the entire amount billed, by the due date. If you fail to do so, youare
likely to be considered a defaulter and will usually have to pay up a steep late payment
charge.At the time of using the card he is not declared not as a defaulter even if misses due
date.A 2.95 per cent late payment fees (this differs from one bank to another) is levied in
thenext billing statement.
y
A
mex card
Amex stands for American Express and is one of the well-known charge cards. This
cardhas its own merchant establishment tie-ups and does not depend on the network
of MasterCard or Visa.
y
Smart card
15A smart card contains an electronic chip which is used to store cash. This is most
usefulwhen you have to pay for small purchases, for example bus fares and coffee.
Noidentification, signature or payment authorisation is required for using this card.The exact
amount of purchase is deducted from the smart card during payment and iscollected by
smart card reading machines. No change is given. Currently this product isavailable only in
very developed countries like the United States and is being used onlysporadically in India.
y
Diners Club card
Diners Club is a branded charge card. There are a wide variety of special privilegesoffered
to the Diners Club cardholder. For instance, as a cardholder you can set your ownspending
limit. Besides, the card has its own merchant establishment tie-ups and does not
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