Credit Cardt-plstic Money

7/29/2019 Credit Cardt-plstic Money

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Plastic Money - Current Market & Future Potential

INTRODUCTION

The topic which I intend to do for my thesis is an overall study of the

Plastic Money (Credit Cards), the pros and cons of it, the existing

companies and the market scenario.

The concept of ‘Buy Now, Pay Later’ dates back the to late 1960s &

70s with the introduction of plastic money in the western nations. It

originated because the people wanted a convenient and rapid means of

accessing their bank accounts. Also, the exorbitant price of money

changing hands between the consumer, merchants and the banks led to

the diffusion of this concept in the banking system.

For spendthrifts and habitual borrowers plastic money induces

spontaneous and on-the-spur spending. But its advantages in terms of

convenience, flexibility and safety far outweigh its pitfalls. Provision for

easy repayment give the card the liquidity of cash along with the

accountability of credit card.

In the past 20 years these cards have proliferated the world market so

successfully that they have altered the face of retail banking. With the

power of plastic ruling the world, India cannot remain behind. With a

slow and steady move towards scruples trading the country is moving

towards cashless transactions.

The plastic money market is bubbling with activity with both Indian and

foreign banks vying to expand their market presence. While the foreign

banks have been hogging the limelight Indian banks are the slumbering

giants. The latter have the advantage of a large customer base, branch

network along with low service charges. These advantages need to be

tapped to realize the full potential of these banks.

There are about 1.4 million people with plastic-money cards in their

pockets which is over four times the 1990 figure of 3 lacs. Amazingly,

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nearly 40% of them are holding more than one credit card, perhaps to

stretch their outstanding permissible limit per card.

Seeing the growth rate and sensing the potential, many companies and

business establishment are jumping into the fray by joining hand with

the banks that are issuing cards - thereby nurturing the so called Co-

branded Cards.

The adage, ‘consumer is the king’ is at last becoming a reality with nifty

banks making efforts to upgrade and differentiate their services to widen

their client base.

Although any bank can issue its own credit card, its ability to establish a

merchant network that accepts those cards will always be limited by

the geographical reach. Today both Master and Visa through their

‘association of banks’ offer their acceptance networks and brand

names to almost any bank that wants to make use of them. Huge cost of

building infrastructure has let to the hegemony of these two players in

the market today.

Although the role of plastic is still in the infancy as it is restricted to less

than 1% of population in India, the average spending through cards

which was around Rs. 15,000 in 1996 is moving up steadily at the

annual rate of 12%.

The factors inhibiting the growth of plastic money could range from

poor infrastructure, lack of bureau for checking credit worthiness of people, the guilt associated with credit purchases, to the homongous

amount floating in the parallel economy which cannot be tapped through

the plastic cards.

This study provides an insight into the current scenario of the plastic

money market and looks into the potential for the growth of the same in

the coming years.

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ORIGIN

The credit card had its beginning in an embarrassing incident that took

place in the early 1950’s in America. The story goes that Mr.

McNamara, a New York businessman took his friends out to dinner. At

the end of meal he discovered that he had forgotten his wallet at home,

the proprietor was kind enough to allow him a later settlement of bill.

As McNamara stepped out of the restaurant he had the brainwave for

the introduction of credit cards - system of availing instant credit upon

confirming the identity of card holder. Thus was born the Diners Club

Cards, the pioneer of today’s multibillion dollar plastic money

business.

Diners Club adopted a promising approach by recruiting various hotels

and restaurants to act as member establishments for accepting the cards.

Not only did these establishments pay a commission on members

purchases but the members also paid an annual subscription fee. Diners

Club vetted its members for credit worthiness and guaranteed payment

to participating establishment. Thus was born the first ‘Travel and

Entertainment Card’. It was followed by American Express which is

now a dominant force in the Travel and Entertainment cards industry,

and by 1959 by Carte Blanche, after many vicissitudes is now a part of

Citi Bank empire together with Diners Club. In the present time

American Express leads the travel and entertainment (T&E) card

industry.

The next great leap-forward came from Bank of America, which in

other banks. Such card holders could use their card 1966 offered to

license its successful blue, white and gold Bank America card to at any

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accepting merchant establishments around the globe. Later in 1977 all

the national and international Bank America licenses were pulled

together under the single name of Visa.

Not to be outdone, a rival group of American Banks came together in

1966 under the name of Interbank, later renamed Master Charge and

later still Master Card. Ever since Master Card and Visa and their

affiliates have carved the world credit card market.

In the 1980s credit card concept was launched in India through the

Diners Club card, and soon, within a couple of months both Visa and

Master card entered into the Indian market.

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TYPES OF CARDS ON OFFER

CREDIT CARDS

A credit card is an instrument that identifies the holder as possessing a

credit account and entitles him, upon presentation to obtain goods or

services from a merchant establishment on the basis that payment for

them will be made by the issuer of the card. The retailer/merchant

establishment pays some commission to the issuing bank, because ithelps the retailer to gain greater access to customer. Thus a credit card

provides card holder with both payment mechanism and an automatic

loan.

Credit card offers great flexibility. The cardholder has the option to treat

it as a charge card by paying monthly bill in full with no interest, or

paying only 5-10 % of the bill and roll over the rest as long the balanceis under the pre-determined limit set on each card. Interest charged on

unpaid amount is around 2.5% and their are no black marks here as is

the case with charge card in case of late payments. Period of repayment

is entirely upto the card holder. If he is disciplined and pays off the

outstanding amount quickly it might even turnout to be cheaper than

conventional consumer loan.

CHARGE CARD

Charge card is similar to the credit card with exception that in a charge

card the cardholder has to settle the entire amount on the due date

indicated on his card statement (i.e. normally 15 days). In this, no

extended credit can be obtained and there is no option to revolve credit.

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Any default attracts an interest penalty of 2.3% to 4% and black mark

against the cardholders credit worthiness.

DEBIT CARD

Credit card provides two services bundled together in one product - (i) a

payment mechanism and (ii) an automatic loan i.e. simple way of

borrowing money for retail purchases. Separation of these services has

led to the development of Debit Card.

Debit card has a microprocessor and a memory integrated circuit chip.

Valid for a fixed prepaid amount, the card gets debited after every

transaction and can be reloaded after the value is exhausted. For a

prepaid amount the user gets a card with a Personal Identification

Number (PIN) and has to pay an initial fee for using the card. The

cardholder has to insert the card into a Merchant Location Terminal

(MLT) to formalize the transaction. Corresponding to the amount, the

value on the card gets deducted. The bank sends the cardholder a

monthly statement of his transactions. Lack of funds in the account is

treated as an overdraft leading to the interest payment and black marks.

Thus, there is no revolving credit facility provided, and the card holder

is accessing his own money.

SMART CARD

Smart Card is a plastic card embedded with a microchip that can store

far more information on it other than loading of credit spent by the

cardholder. This memory chip acts as a miniature accountant, carrying

users passbook and allowing him to deposit/withdraw cash. It is a

multipurpose card and can be used as an information library and for

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identification too.Thus Smart Card provides easy accountability of

credit and debit cards along with liquidity of cash.

The user of Smart Card guarantees the value loaded into the card so the

customer knows that only ‘good money’ will be transferred to his/her

own card. Likewise, any recipient of the value from a customer knows

that the money is good.

PRODUCT DIFFERENTIATION

Since Credit-Card per se is perceived as a near commodity

choice. The purchase decision is largely based on price and

service. This results in intense price and service competition.

However, with the acquiring of new customers becoming more

and more difficult, there have been numerous introduction in

the marketplace For e.g.

Affinity Cards

These are actually meant to attract the potential card members

by incorporating an emotional appeal i.e. affinity towards a

particular association. Citibank was the first to introduce the

affinity cards for the members of the alumni association of

modern school, Barakhamba road. Thereafter, Standard

Chartered has also introduced affinity cards for premier

institutions such as IIT Delhi, Doon School, Sanawar. We shall

discuss these in detail in the introduction on Co-branding.

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Product Innovation

However it is Standard Chartered Bank, an ambitious player in

consumer lending that has been most innovative in terms of

introducing a more personalised and customised card. It was

the first to introduce:

Photo-Card

It carries a photograph of the cardholder, thereby ensuring thesecurity of the card and eliminating the lost card liablity.

Picture-Card

It is a lifestyle product. It enables one to actually customise one’s

credit card thus providing the distinguishing factor. The

cardholder can place any picture on the card, which can range

from being a photograph of his child or his automobile or some

other exciting moment in his life.

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TRANSACTING PROCEDURE

Banks issue the card to individuals, businessmen as well as corporate.

The basic procedure for obtaining the card remains the same with

certain alterations for people asking for add on card.

PROCEDURE FOR OBTAINING THE CARDS

For establishing confidence in client, banks require a standard

application form to be filled. Along with this application potential

customers have to submit

• Income/salary statements.

• Photocopies of income tax return (IT) filed for the last financial year

and acknowledge by an income tax officer.

• Income Tax Officer’s assessment order / photocopy of form 16 TDB

/ promotion letter (with salary details) / appointment letter (with

salary details) / monthly pay slips / annual salary certificate on

comapny’s letterhead certified by an authorized signatory under

official seal.

• For self employed - photocopy of ITR acknowledged by an income

tax officer (ITO), for the last financial year or ITO assessment order

or advance tax paid challans (minimum 2 quarters)

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TERMINOLOGY

Issuer : An issuer is an affiliate (usually a bank or financial

institution) which has entered into an agreement with Visa/Master Card

and can issue cards in their name.

Acquirer : An acquirer is an affiliate who has an agreement with

Visa/Master card to acquire credits card charge slips from merchants

and reimburse. Some banks are both Issuers and Acquirers, while some

are only Acquirers.

Credit Limit : There is a ceiling limit on the amount that a person can

use for purchase or can borrow on his credit card. This credit limit is

approved at the time when the credit card is issued to the holder by the

credit issuing bank. Available credit limit is the approved limit less

outstanding transactions, if any.

Credit Acceptance : A merchant tied up by a Master Card/Visa -

issuing bank will need to display the Master Card/Visa logo at his

outlet. Any other Master Card/Visa issued by other banks also becomes

acceptable at the same outlet.

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CARDHOLDER - MERCHANT TRANSACTIONS PROCEDURE

When the cardholder presents his card to the merchant........

• Checks for the expiry date, validity of the card in India, whether it

(the merchant) has a tie up with the agency (Visa / Mastercard /

Amex).

• The merchant compares the cards embossed number with the number

in the Hot Card Bulletin - to ensure whether the card is valid for use.

• If the number is not on the bulletin, and the charged amount is within

the floor limit, the merchants obtains the card impression on the sale

slip, by using imprinter. He also fills amount and the date of the

transactions.

• If the charged amount exceeds the “floor limit” on the establishment,

the merchant phones the nearest authorization centre. The centre

assess and ascertains the holders account and other details. Then the

centres gives the merchant the go-ahead and approval number, if

authorization is possible within the limit available on the holders

account.

• The floor limit varies from Rs. 0 - 27,000 depending on the merchant

type. However the banks are free to decide on a floor limit lower

than the maximum given by Visa/Master card for each merchant

category.

• Three copies are made (for the bank / member establishment /and the

customer).The sales slip is presented to the cardholder who signs it.

This signature is than compared with the one on the card’s reverse,

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and the copy of the sales slip is given to the card holder. By this

procedure the merchant has also confirmed the identity of the

presenter, and the steps in the transactions between the merchant and

the cardholder are complete.

MAINBANK - MERCHANT TRANSACTION PROCEDURE

Agreement : Merchants enter into an agreement with the banks, to

become merchant establishments for honouring cards presented at their

outlets. The bank reimburses the establishment after deducting

commission within a specified period. The payment terms varying from

bank to bank are incorporated in the agreement between the merchant

and the bank.

Merchant Service Fee : Bank’s charges are deducted from the

merchant establishments claims submitted against credit card sale. The

Merchant Service Fee varies between 2%-4% and is fixed through

negotiations between the merchants and the banks.

Floor Limit : It is the maximum amount of merchandise /service which

the merchant is authorized to sell to a cardholder on any loan occasion,

without getting authorization. The limit is as per transaction (per card,

per day). Each outlet has a separate limit depending on the merchant

type.

Authorization Centre : It is a centre established by the bank to enable

merchants to get authorization in case the cardholder’s transaction

exceeds the floor limit amount or to do a double check on transactions.

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MARKETING AND PROMOTIONAL

SCHEMES

The issuer banks generate their revenues from three sources. These are:

• The initial entry fee as well as the annual subscription fee that a card

holder pays.

•

Interest that the bank earns on all outstanding amounts - in case of credit cards with roll-over facility.

• A percentage return on all transactions done by member

establishments.

All these funds enable the banks to widen their customer base and

increase their business and revenue opportunities. This also gives the

banks a competitive edge over their rivals in the market. Banks who

manage their own retailer network incur prohibitive expenses in terms

of technology and back up services as compared to other card issuers

who piggyback on Visa and Mastercard network. Though these issuers

have to share their incomes with Visa and Mastercard, they earn in

terms of volumes through their wide network. Thus, wider acceptance

with the merchant establishments and better marketing tie ups are

essential to enable users to get the best possible benefits.

There are a handful of banks that have seized the opportunities of the

last five years to respond to the new competitive environment in a

manner that has put their competitors at a disadvantage. These banks

and member establishment are using different schemes to augment their

services. Other than the conventional incentives and discounts on

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purchases, the following are some of the promotional offers given by

them.

CITIBANK

Citibank cards continue to grow at a heady pace of 40% without it’s

system going haywire, much in contrast with it’s competitors who are

groping in the dark. The two most important levers that it figured to pry

open the market were - a strong technological backup and an effective

sales and distribution strategy.

Citibank had the foresight to invest in new technology to deal with huge

volume of transactions that a huge credit card base usually throws up.

Today the system is geared to process 15mn charge slips, post 8mn

credit card payments, authorize 5mn card transactions and 6mn

telephone calls. Citibank has a service standard in the industry of

settling payments for a member establishment within 24 hours.

On the promotion side the manner in which Citibank executed it’s

strategy was classic. In keeping with it’s retail product orientation

Ctibank relied on advertising to fuel aspirations and then used it’s direct

sales network to scoop the fence sitters.

On the basis of the lesson that Citibank learned from the experience of

the Indian banks (which were saddled with a large subscriber base but

low usage levels) it concentrated on systematically creating an

expanded bundle of services that would prompt the card holder to use

the card. To begin with Citibank credit cards were accepted at a large

number of establishments, then, to expand the scope of card usage it

tied up with other product marketers. The latest in line with this strategy

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of tie-ups is the launch of the Times Card in association with the Times

of India (Bennett, Coleman & Co.) and Mastercard.

Citibank’s association with British Airways enables it’s Diners Club

card members to avail special privileges and become member of British

Airways Executive Club i.e. Frequent Flyer Program (FFP)

Citibank has also got special offers in terms of affinity cards for the

alumini of Modern School, people serving in the Indian Army and the

Indian Air Force. It has also linked up with Classic Golf Resort, Philips

India, Indian Oil Corporation, World Wildlife Fund and the Vysya Bank

to provide better services to it’s card holders and broaden it’s client

base.

The bank has also found alternative means of promotion in places where

it has not been able to make a headway in tying-up with other

marketers. Dial-a-draft facility allows the card holder to get demand

draft on phone so that the user can use this demand draft to pay off for

the goods in places where the cards are yet to be accepted.

A fervent bid to push card volumes and card spends has led many banks

to change their marketing strategies to keep up in this dynamic business.

One such bank is the American Express.

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AMERICAN EXPRESS

AMEX had carefully shielded itself from the battle by nurturing a small

niche at the top end of the market - the brand perception of their card

was - ‘a status symbol for a select few’. But today, when the

consumerist wave is hitting the country, and credit card usage is

expanding in the burgeoning middle class, AMEX is quitely junking

most of the essential of this niche strategy. It’s distinctly upscale

positioning is gradually being made more mass market. Instead of it’s

policy of inviting select members to join up, it is appointing sales

agents. In addition, it has launched its member-get-member scheme.

But to prevent the AMEX brand from being completely robbed of it’s

exclusive status, it is slowing down the pace of change. More

specifically the advertising today has shifted emphasis - the

premimumness of the brand is not being touted now. Instead AMEX is

talking more about the tangible benefits that the card offers.

OTHERS

In this gigantic market, banks are restoring to innovative marketing

schemes to expand their reach in specific niches. Many banks are opting

for co-branded cards. These cards sport the name of the company the bank has tied up with. The benefit : servicing and promotion costs can

be mutually shared and each can piggyback on the customer base.

While Bank of India has tied up with the Taj group of hotels for it’s

Mastercard, Travel agent Thomas Cook has joined hands with

HongKong Bank. Bank of Baroda has also joined hands with Bharat

Petroleum Corporation Ltd. to launch the Bharat BOB Card Premium

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a co-branded multipurpose fuel card. Mastercard has also clinched a

deal with Indian Railways under which Mastercard will be accepted at

all reservation counters, irrespective of the bank.

Seeing the boom in the credit card market Bank of America is

strengthening it’s acquiring business and is also planning to enter the

card business as an issuer, in the near future.

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OVERVIEW OF VARIOUS CARD ISSUERS

ISSUER BANK CLASSIFICATION OF CARDS

1 ANZ GRINDLAYS SILVER - MASTERCARD

GOLD- MASTERCARD

VISA INTERNATIONAL

2 AMERICAN EXPRESS AMERICAN EXPRESS CARD CHARGE CARD

CORPORATE CARD

3 CITI BANK CLASSIC - VISA / MASTER CARDPREFERRED - VISA / MASTERCARD

DINERS CLUB CARD CHARGE CARD

US $ VISA CARD

4 STANDARD CHARTERED BANK CLASSIC - VISA / MASTER CARD

EXECUTIVE - VISA / MASTER CARD

GOLD - VISA / MASTER CARD

5 HONGKONG & SHANGHAI BANK CLASSIC VISA / MASTER CARD

GOLD VISA / MASTER CARD

US $ MASTER CARD

6 BANK OF BARODA BOB CARD CHARGE CARD

BOB SILVER

BOB EXCLUSIVEBHARAT BOB CARD PREMIUMBOB CARD GLOBAL

7 CENTRAL BANK OF INDIA CENTRAL MASTER CARD

8 BANK OF INDIA INDIA MASTER CARD

TAJ CARD CHARGE CARD

9 CANARA BANK CANCARD VISA / MASTER CHARGE CARDCANCARD PROPRIETOR CHARGE CARD

10 VIJAYA BANK VIJAYA GOLD CHARGE CARDVIJAYA CLASSIC CHARGE CARD

11 ANDHRA BANK ANDHRA GOLD CHARGE CARD

ANDHRA CLASSIC CHARGE CARD

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MARKET SHARE

WORLD MARKET INDIAN MARKETMASTER CARD 300 MILLION 9,15,000

VISA 442 MILLION 6,00,000

MULTINATIONAL BANKS NO. OF CARDS TODAY

CITI BANK 10,00,000STANCHART BANK 2,50,000

ANZ GRINDLAYS 62,000 >1,00,000

AMERICAN EXPRESS 80,000

HONGKONG BANK 40,000 80,000

INDIAN BANKS NO. OF CARDS TODAY

CANARA BANK 250,000BANK OF BARODA 200,000

ANDHRA BANK 160,000

CENTRAL BANK 100,000

BANK OF INDIA 75,000

VISA / MASTER CARD 90,000 105,000

AMERICAN EXPRESS 17,000

DINERS CLUB CARD 29,000 40,000

AVERAGE CARD SPEND

ANNUAL GROWTH IN

THE ECONOMICS TIMES

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COMPARISON : PREFERRED EXECUTIVE CARD

BOB CARD CITI BANK STANCHART ANZEXCLUSIVE PREFERRED EXECUTIVE SILVER CARD

ELIGIBILITY (Rs) 100,000 96,000 90,000 84,000

(post tax annual income)

ADD ON CARDS

Entry Fee N.C. 1,000 400 500 Annual Fee 1,000 2,000 1,100 500Renewal Fee 1,000 2,000 1,100 500 Add on Card Fee 1,000 1,000 500 200

BILLING

Cycle Monthly Monthly 50 days 2 weeks

Charge Pattern +2 weeks +3 weeks +3 weeks +0 days

CREDIT LIMIT 45,000 70,000 20,000 100,000

Minimum amount due 10% 5% 5% 10%

CASH ADVANCE

Primary Card Limit 10,000 39,000 8,000 100,000 Add on card limit 10,000 combined combined combinedService Fee 3% 2.50% 1.50% 2.50% ATM cash limit n.a. 39,000 8,000 n.o

FACILITIES

Card on Phone N Y Y NDraft on Phone N Y Y N

Rewards Plan N Y N NDiscounts at Hotels Y Y Y NDiscounts at Hospitals N N Y NDiscounts on car rental N Y Y YCommission free T.C. N Y N N

TRAVEL SERVICES

Air Booking Y Y Y YRail Booking Y Y Y YCar Hire Y Y Y YTravel Packages Y Y Y YTravel Agent Cox & Kings Travel House TCI Sita Travels

INSURANCE

Air Insurance 10 10 8 4Non Air Insurance 5 2 4 2Enhanced Insurance N.O. N.O. N.O. N.O.Spouse Insurance N.O. N.O. 2.50% N.O. Add on card insurance Y (same as

primary card)Y (same as primary

card)N.O. Y

On purchases N.O. 40,000 N.O. N.O.

REPLACEMENT 72 Hrs 24 Hrs 72 Hrs 72 Hrs

LOSS LIABILITY 1000 0 200 1000

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COMPARISON : CHARGE CARDSINCOME SLAB : Rs 36,000 - Rs 75,000

AMEX CARD ANDHRA BOB CARD CANCARD CANCARD INDIA CARD VIJAYA

CLASSIC PROP. VISA CLASSIC

ELIGIBILITY 75,000 60,000 75,000 60,000 60,000 50,000 36,000

(post tax annual income)

ADD ON CARDS NO LIMIT 2 NO LIMIT 3 2 2 3

FEE

Entry Fee 1,200 600 N.C. 200 250 200 300

Annual Fee 2,100 300 100 200 400 250 100

Renewal Fee 1,800 300 100 200 400 250 N.C.

Add on card Fee 950 450 100 150 300 125 100

BILLING

Cycle 3 weeks Monthly 3 weeks monthly monthly monthly monthly

Charge Pattern + 3 weeks + 2 weeks + 3 weeks + 2 weeks + 2 weeks + 3 weeks + 10 days(Bank starts levying

CREDIT LIMIT

Interest on outstanding 2.50% 2.50% ~ 2.50% 2.50% 2.50% 2%Primary card limit 2500 per

week5000 25,000 25,000 5,000 2,500 per

mth. Add on card limit 2500 per N.O. 5000 5000 2500 N.O.

Service Fee 0% 3% 3% 3% 3% 2.50% 3%

ATM cash limit N.A. N.A. N.A. 5000 5000 5000 2000 per day

FACILITIES

Card on Phone No No No No No No NoDraft on Phone No No No No No No No

Rewards Plan Yes No No No No No No

Discounts at Hotels Yes No No Yes Yes No NoDiscounts at Hospitals No No No Yes Yes No No

Discounts on car rental Yes No No No No No No

Commission free T.C. No No No No No No No

TRAVEL SERVICES

Air Booking Yes Yes Yes Yes Yes Yes YesRail Booking Yes Yes Yes Yes Yes Yes Yes

Car Hire Yes Yes Yes Yes Yes Yes Yes

Travel Packages Yes Yes Yes Yes Yes Yes Yes

Travel Agent AmEx No No No No No No

INSURANCE

Air Insurance 1 None 1 4 2Non Air Insurance 1 None 1 2 1

Enhanced Insurance N.O. N.O. N.O. N.O. 5

Spouse Insurance N.O. N.O. N.O. N.O. N.O.

Add on card insurance Yes^ Yes ^ N.O. Yes^ Yes^ N.O.

On purchases Yes N.O. N.O. N.O. N.O.

REPLACEMENT 48 Hrs. 48 Hrs 48 Hrs 240 Hrs 240 Hrs 24-48 Hrs 48 Hrs

LOSS LIABILITY 1000 1000 1000 1000 1000 1000 1000

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COMPARISON : GOLD CHARGE CARDSINCOME SLAB : Rs 60,000 to Rs 120,000

ANDHRA

GOLD

CITIBANK

DINERS

TAJ PREMIUM VIJAYA GOLD

ELIGIBILITY (Rs) 1,20,000 96,000 1,00,000 60,000

(post tax annual inc)

ADD ON CARDS 2 3 2 3

FEES

Entry fees 1500 Not charged Not charged 1500

Annual fees 500 3500 400 500

Renewal fees 500 2500 400 Not charged

Add-on fees 1000 1500 200 500

BILLING

Cycle Monthly Monthly Monthly Monthly

Charge pattern* + 2 weeks + '3 weeks +'3 weeks +10 daysCREDIT LIMIT 50,000 None 20% of GAI 1,00,000

Int.on outstanding 2.50% 2.5-4.5% 2.50% 2%

CASH ADVANCE

Primary card limit 10,000 10,000 5000 10,000 p. m.

Add-on card limit 10,000 5000 2500 Not offered

Service fees 3% 3% 2.50% 3%

ATM cash limit N.A. 10,000 5000# 2000 per day

FACILITIES

Card on phone No Yes No No

Darft on phone No Yes No No

Rewards plan No Yes No NoDiscount at hotels No Yes No No

Discount at hospl No No No No

Dis. on car rental No Yes No No

Comm. free T.C's No Yes No No

TRAVEL SERVICES

Air booking Yes Yes Yes Yes

Rail booking Yes Yes Yes Yes

Car hire Yes Yes Yes Yes

Travel Packages Yes Yes Yes No

Travel partner No Travel House No No

INSURANCE

Air insurance 3 15 4 4Non-Air 1(air & non air ins.) 2 2 2

Add-on card Yes Yes Not offered Not offered

Spouse Not offered Not offered Not offered Not offered

On purchases Not offered 50,000 Not offered Not offered

REPLACEMENT 48 hrs 24 hrs 24-48 hrs 24 hrs

LOSS LIABILITY 1000 0 1000 1000* : card company starts levying sevice charge after these many days/ weeks of dispatching the bill

# : a seprate card is needed to access cash from ATM's ^ : same amount as primary card

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COMPARISONS OF GOLD CARDSIncome slab : 120,000 to 240,000 p.a.

ANZ CARD HONGKONG STAN CHARTELIGIBILITY (Rs) 240,000 175,000 120,000

(post tax annual inc)

ADD-ON CARDS 2 2 2

FEES

Entry fees 1000 500 1000

Annual fees 1500 1500 2000

Renewal fees 1500 1500 2000

Add-on fees 750 500 1000

BILLING

Cycle 2 weeks monthly 52 daysCharge pattern* 0days 3weeks 3weeks

CREDIT LIMIT 100,000 40000 30000

REVOLVING CR

Mini. amt due 10% 5% 5%Int.on outstanding 2.50% 2.50% 2.95%

CASH ADVANCE

Primary card limit 100,000 40000 12000 Add-on card limit combined # combined combined

Service fees 2.50% 2.25% 1.50%

ATM cash limit 100,000 32000 12000

FACILITIES

Card on phone No No Yes

Darft on phone No No YesRewards plan No No No

Discount at hotels No Yes Yes

Discount at hospl Yes No Yes

Dis. on car rental No Yes YesComm. free T.C's No Yes Yes

TRAVEL SERVICES

Air booking Yes Yes YesRail booking Yes Yes Yes

Car hire Yes Yes Yes

Travel Packages Yes Yes Yes

Travel partner Sita Travels Thomas Cook TCI

INSURANCE

Air insurance 10 10 10Non-Air 5 3 5

Add-on card Yes Yes 10

Spouse Not offered Not offered Not offered

On purchases Not offered Not offered 20000

REPLACEMENT 72 hrs 72 hrs 72 hrs

LOSS LIABILITY 1000 0 200# shared by primary and add-on cards* : card company starts levying sevice charge after these many days/ weeks of dispatching the bill

COMPARISONS OF CLASSIC CARDSINCOME SLAB : Rs 50,000 to 60,000CITIBANK STANCHART HONGKONG CANCARD

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ELIGIBILITY (Rs) 50000 60000 72000 60000

(post tax annual inc

ADD-ON CA RDS 2 1 2 2

FEES

Entry fees 200 100 300 250

Annual fees 750 700 500 400

Renewal fees 750 700 500 400

Add-on fees 350 350 200 300

BILLING

Cycle monthly 50 days monthly monthly

Charge pattern* + 3 weeks + 3 weeks + 3 weeks + 2 weeks

CREDIT LIMIT 30000 12000 14000 10000

REVOLVING CR

Mini. amt due 5% 5% 5% 10%

Int.on outstanding 2.95% 2.95% 2.75% 2.50%CASH ADVANCE

Primary card limit 18000 4800 6000 25000

Add-on card limit Combined Combined Combined Not offered

Service fees 2.50% 1.50% 2.50% 3%

ATM cash limit 18000 4800 20000 3000

FACILITIES

Card on phone Yes Yes No No

Darft on phone Yes Yes No No

Rewards plan Yes No No No

Discount at hotels Yes Yes Yes Yes

Discount at hospl No Yes No Yes

Dis. on car rental Yes Yes Yes NoComm. free T.C's Yes No No No

TRAVEL SERVICES

Air booking Yes Yes Yes Yes

Rail booking Yes Yes Yes Yes

Car hire Yes Yes Yes Yes

Travel Packages Yes Yes Yes Yes

Travel partner Travel House TCI Sita Travels No

INSURANCE

Air insurance 5 4 6 4

Non-Air 1 2 2 2

Add-on card Yes Not offered Yes Yes

Spouse Not offered 2.50% Notoffered 2%

On purchases 15000 Not offered Not offered 25000

REPLACEMENT 24 hrs 72 hrs 48 - 72 hrs 240 hrs

LOSS LIABILITY 0 200 1000 1000

RISKS IN THE BUSINESS

TO THE BANKS :

24




Banks excited at the projected 40% growth rate1 in the plastic money

industry are apprehensive about the potential corresponding increase in

fraud cases . Some banks register upto 7% fraudulent case in a year.

1. Default in payments - Currently banks have huge amounts of

funds blocked with willful defaulters. Lack of reliable data /

infrastructure to check the credit worthiness of individuals has led to the

situation where people without sufficient resources have become

eligible for availing credit facilities. The marketers in India find it morecost effective to just right-off the unpaid amount in their balance sheets,

after trying to recover it for six months, than to pursue it throughout the

litigational labyrinths.

2. Multiple Imprints or Record of Charge (ROC) Pumping - It

refers to the expedient system by which merchants make multiple

charge slips instead of the relevant number when a cardholder gives in

his plastic card.

3. Lost/Stolen Cards - These account for 60% of fraud in India. In

case of loss all multinational banks and some Indian banks limit the

liability of the cardholder upto Rs. 0 (for Gold card) and Rs. 1000 (for

Classic card) if card is used after lost / stolen card has been reported.

These banks transfer their risks to insurance companies and generally

replace the lost card within three days. Some banks carry the risk

themselves and investigate the loss before determining the liability of

cardholders. These banks take about a month to replace the missing

card.

1 Singh Prasana,‘The Changing Brand Battle’, A & M.

25




To combat this, banks have started the Photocard Option which

provides the photograph of the cardholder on the card. They are also

providing information about the lost/stolen cards through the Hot Card

Bulletin which is continuously upgraded and sent to merchant

establishments to provide them with the current status. But the success

of this measure is debatable.

A majority of the credit card losses are skewed towards the issuer as the

risk on the cards is carried by the issuer. Visa and Mastercard have aformal set of guidelines known as charge back rules. Once a card

holder has informed the bank of the loss of the card, he is subject only

to a minimum liability, which most banks fix at Rs.1000 regardless of

how much the card is used fraudulently. Before the hot card date, the

fraud loss is the issuer’s responsibility. However, if a merchant accepts

a hot listed card, the issuer is entitled to ‘charge back’ the transaction

to the merchants, through the acquirer. If a merchant is found guilty of

willful fraud, his bank is liable.

Visa offers its members a national merchant alert service which

acquiring banks can refer to in order to check on the credentials of the

merchants whose business they woo. It also has its risk identification

service which monitors every single transaction through Visa Net. This

enormous database helps zero in on cardholders and locations prone to

fraudulent activity.

Master Cards security and risk management team organizes regular

training programs for banks and member establishments on fraud

prevention.

26




Delivering new cards to members by courier has drastically cut fraud

arising from non-receipt of cards.

TO CARD HOLDERS :

The main problem with credit card is that it is easy to get in over the

head. A majority of card users utilize their maximum limit . Credit cards

charge higher interest than some of the other forms of borrowing. While

a credit card offers convenience, that convenience can be expensive if

the card holder is slow in paying off his outstanding dues. In terms of

the annual percentage rate that an individual is charged towards paying

off his debt, the figure ranges from anywhere between 22% to 34% p.a.

depending upon the roll over period ( 30 / 45 days ).

To combat these problems potential card owners decide upon the mode

of payment before selecting a card. In India, for the majority of people

who believe in paying off their balances in full , the prerequisites

would include a card with a low or no annual fee and a long grace

period (i.e. the amount of time between the purchase and when the bank

begins charging the interest on the purchase).

For the individuals who believe in utilizing the revolving credit

facility, the prime concern is the cost of using the services offered along

with the card. This is in fact the annual percentage rate or the interest

paid on outstanding balances. It is the cost of borrowing money and it

takes into account all the finance charges.

Many credit cards come with extras like travel rebates. Usually an

individual is better off worrying about the APR’s. When it comes to

gold or platinum cards some frequent travelers like and use the extraservices that they give, and since they are offered to better credit risks

27




( as in the case of American Express Cards ) they usually come with

higher credit limits.

Unsolicited offers for special discounts, giving out the credit card

number over the phone, putting addresses on credit card receipts - all

these can be very risky. Plastic money is money, after all.

28




ANALYSIS : OBSERVATIONS &

INFERENCE

The Indian credit card market which is growing at a rapid pace next

only to USA and Taiwan, is projected to reach 10mn. cards by the year

2000. More pessimistic estimates put this figure at 5mn. Although the

credit card business is still nascent, restricted to about 2% of the total

population the average card spending is increasing every year. The

fastest growing segment is the salaried class and the self employed

professionals, which is growing at an annual rate of 30%.

From the survey conducted it was revealed that majority of people

(56%) owned a single credit card and barely (10%) of the people had

more than two cards. About 62% of the respondents showed an

inclination towards shifting more of their spending from cash to cards,

38% of the respondents were either unsure or negative in their response

to shifting their spending pattern. Another fact revealed through the

survey was that 60% of the respondents had an inclination for paying

their monthly bills in full. Only 10% of the respondents utilized the

revolving credit facility.

Banks issuing cards feel that they have to fight the Indian mindset about

settling bills in cash. A corollary to this averseness to using cards could

be the existence of the parallel economy which inhibits people from

paying their bills through their cards (which require accounted money).

Another reason for this behaviour could be the high interest rates that

the banks charge on outstanding balances. Calculated at the rate of

2.5% - 2.9% for a cycle of 30 / 45 days, the annual rates range from a

minimum of 22.5% to a maximum of 34.8% , much higher than what is

29




available against normal borrowings or borrowings against fixed

deposits. In such a scenario, charge cards (currently offered by limited

banks viz. American Express and Citibank) which do not have a

revolving credit option would be more suitable to the Indian market.

In the survey conducted, Citibank topped the list as the most prefered

issuer of cards followed by Standard Chartered Bank, AMEX and

Hongkong Bank. In comparison the nationalized banks account for a

miniscule percentage of the cards issued. However, in terms of

preference for banks where people prefer to do their daily transactions,

nationalized banks topped the list. This could be due to their larger

presence and lower service costs.

So far the nationalized banks have treated their card business as their

auxillary and not their prime business. In the future , however there may

be a change in this scenario as large Indian banks are likely to spin off

their credit card division as subsidaries. BoB card division has started

functioning as a separate entity which gives it operational freedom to

develop it’s own marketing tie-ups.

Among the factors that were identified as important in selection of a

card , most respondents rated wide acceptability of the cards at the top,

followed by ease of getting the card, interest rates, flexibility of

repayment, credit limit, additional benefits and cash withdrawal facility.

In terms of the respondents experience with different cards, Cancard

featured at the top w.r.t. acceptability and AMEX came at the bottom of

the list. AMEX limited acceptability may be due to it’s limited network

and exclusive status. Mastercard, AMEX and Citibank’s Diners Club

card enjoy a high credit limit. Cancard on the other hand has very low

limit.

30




Diner’s card offers good cash withdrawal facility through Citibank’s

voluminous network. Mastercard which is issued by almost all issuer

banks has widespread ATM. All cards rate low on respondents

experience with interest rates. People want the banks to charge low

interest rates on outstanding balances.

Mastercard and Visa have ratings close to good in terms of flexibility of

repayment while Cancard features at the bottom. Almost all cards have

a good rating in terms of ease of procuring a card. AMEX rates at the

top w.r.t. additional offerings.

However, when comparing expectations with the overall experience of

respondents, Mastercard tops the list followed closely by Visa. AMEX

retains it’s position as an exclusive card providing special benefits to

it’s niche clientele.

When comparing the services offered by different cards respondentsopted for joint cards as an important expectation. Next in the line of

preference for services were merchandise offerings, insurance policies,

incentives and discounts and billing in hotels and restaurants.

In order of importance of merchandise offerings by different cards,

Cancard featured on the top of the list followed by Diners, Master and

AMEX. Lowest on the list was Visa. In terms of joint cards Stancharttopped while AMEX was at the bottom. Cancard also topped in

providing incentives and discounts, as well as insurance policies

followed by Diners. AMEX featured low w.r.t. travel related services.

This could be because of intense competition from Hongkong Bank and

Citibank. Cash withdrawal facilities are high for both Matercard and

Visa. While all cards rate very low w.r.t. experience of billings in

hotels and restaurants.

31




Overall Cancard enjoys a good rating for the services offered followed

by Mastercard and Diners. AMEX inspite of it’s exclusivity is rated low

for the services offered. Mastercard enjoys the maximum popularity for

both it’s cards as well as the services offered followed closely by visa.

Both AMEX and Diner’s occupy a separate niche and are rated almost

at par.

Maximum number (60%) of the respondents fall within the 21-30 years

age group. They are either young executives working for big business

houses or high value / frequent spenders with add-on card facilities.

Their incomes range from Rs. 150, 000 - Rs. 200,000.

From the information gathered through the survey and the feedback

received from bank officials it was revealed that this group holds the

potential as future card users. To increase their volume and value

spending through cards, banks can place greater emphasis on the

services utilizes by this section such as discounts-on food and beverages

at leading restaurants and discotheques, gifts and complementary offers.

Another recommendation would be, for the banks to hike their

advertising spending to build their brand image and create higher brand

recall like that of Citibank.

In addition, the survey also reveals that the frequency of use of cards is

between 3-5 for 32% of the users, followed by 6-8 times for 22% of the

users. Fewer percentage (12%) of the respondents use cards for greater

occasions i.e. between 9-11 times. In terms of billing, the maximum

amount spent in a month falls in the range of Rs.200,000 - Rs.300,000

by the maximum number of respondents (32%).

TECHNOLOGICAL INVESTMENT

32




There are three phases of evolution of an electronic payment system and

it is essential for any institution seeking to deploy the payment system in

question to be aware of exactly which evolutionary phase the system

occupies at any one time.

• The inception phase i.e. the initial development of the technology

and the ironing out of the problems.

• The growth phase i.e. the period during which the effectiveness of

the technology is proven.

• The maturity phase i.e. the period during which the technology is

duly accepted and widely used. In this phase, to remain competitive

all competitors have to deploy the technology to remain at par with

their competitors.

Today in the Indian market plastic cards equipped with magnetic tape

such as credit cards are already well entrenched in the payment system.Other micro-chip card technology such as the one used in smart cards

have made an indent in the Indian market and are poised to have

perhaps an even greater impact on the payment and banking system.

Substantial investments would be necessary to expand the existing and

potential customer base. It would be beneficial if the bank went in for

the latest technology even though it is expensive, as the cost of obsolence may be higher later on.

Electronic authorization terminals (EAT) or electronic draft capture

terminals (EDC) have to be launched across merchant establishments.

VSAT connections, through Visa or Mastercard would have to be

accessed to provide on-line validation through these terminals.

The EAT / EDC terminal allows the merchant to validate a credit cardwithin 20 seconds of swiping it on the machine. These terminals go a

33




long way in making card utilization easier and safer for card holders and

the merchants. It saves data entry costs besides hastening the pace of

the transaction, thus reducing the cost of the bank.

In February 1997 Master Card launched its Very Small Aperture

Terminals (VSAT) network, connecting it to its 22 issuer banks. Even

Visa has linked all its 21 issuer banks to its National Net Settlement

System (NNSS) for faster clearance and processing leading to faster

flow of funds.

These electronic payment options confer a number of benefits to the

retail banking industry of which winning new business is only one but

by far the most important one. By making the winning of new customers

the principal aim, the bank is more likely to deploy other effective and

workable systems.

34




CARDS TOMORROW

SECURITY2

Today’s cards are not foolproof !

With the advent of plastic money, frauds involving credit cards have

seen a phenomenal rise across all national frontiers. It’s easy to use

someone else’s card and get away with it. Credit card frauds have been

a worldwide problem, as, many people use passwords or PIN numbers

to get access to their computers, to their ATM machines and to secure

buildings. The problem is that passwords and PIN numbers can easily

be lost or stolen. Mastercard alone suffers an annual credit card fraud

loss of 415 million dollars.

In Washington D.C., many companies have gathered to showcase new

ways to personalize card holder’s security using biometrix technology -

a means of identification that no one can steal or copy. Biometrix is a

set of technologies that can identify a person on the basis of his / her

physiological or behavioral characteristics. No one can copy a finger

print, filiment of an eye or the composition of the face. So scientists are

working on ways to capture and digitize unique characteristics to give

very personal security codes to the card holders. ‘As our society

becomes larger and more complex, there is an increasing need to verify

your identity to reduce fraud, to protect you and your assets, and to

ensure that no one robs you of your identity.” Says Paul Collier of

Indeticator.

Iris Scan uses the iris of the eye to create a kind of eye print. No two

irises are the same, not even those of identical twins. So the eye, with

2 Internet.

35




it’s unique imprint, becomes a sort of natural security code. “The

IrisScan is an

The next step in biometrix identification is to integrate physiological

characteristics with the credit card. For example, an individual’s

fingerprint is scanned in a numerical code that’s assigned to it. The

code is loaded onto a computer chip that is then embedded into a smart

card. Merchant establishment uses fingerprint recognition software to

check a person’s identification. This card contains data information as

well as personal identification of an individual. If someone picks this

credit card there is no way one could create the same fingerprint.

Biometrix is not a replacement but an adjunct to the card

technology.

36




Phenomena Abroad today, in India Tomorrow

INTERNET MONEY :

Sellers and shoppers both want the freedom to buy and sell on-line

using credit cards as easily as in the physical world. Credit card usage

will explode once a safe, secure and easy to use system is standardized.

According to the experts, SET is the light which will guide payment

safely over the Internet.

Secure Encryption Technology (SET) is a secure and easy to use

system that will allow Internet users to pay for Internet-based purchases

with their credit cards (Roger Clark Web Page). SET which is based on

encryption, protects credit card details but it cannot be used for detailed

messaging and so can be easily exported. It was developed by Visa,

Mastercard, Netscape, IBM and Microsoft.

The merchant will not see the credit card number in unencrypted form.

Only the bank or financial institution that verifies the credit card number

and the money to back up the transaction will have access to the

decrypted number. (Roger Clark Web Page).

However, credit card transactions are not worthwhile below a certain

amount, such as a couple of pence for an on-line newspaper. This has

led to the concept of electronic cash, which cannot be traced to a

particular buyer. Security is fundamental too electronic cash.

37




ELECTRONIC CASH :

E-cash is designed for secure payments over the Internet. E-cash has the

privacy of the paper cash, while achieving the high security for safe

trading on the Internet. With E-cash the possibilities are unlimited. A

consumer can buy software or newsletter by E-mail, receive $ 5 owed

by a friend or just order a pizza.

Magdelera Yesil, CyberCash Vice President for marketing, believes that

ability to spend small amounts of cash at electronic news stands is “the

key to unleashing the projected explosion in entrepreneurial electronic

information publishing and commerce.” Electronic magazines,

newspapers and news services are prime products for the new money.

E-cash can provide security in the following ways :

• Finality ~ there is no chance for the users to renege on a transaction

as they might if they stopped payment on a cheque.

• Anonymity of payer and payee.

• Peer to peer transactions.

• Refundability if lost or stolen.

However, ubiquity is needed for E-money to work worldwide. This

means that various forms of E-money have to be made easy to use,

secure and routinised so that usage will spread. The rise and growth of

Internet and commercialization of the w.w.w. have provided strong

motivational circumstances for E-money to grow, expand and flourish.

38




OBSERVATIONS: Consumers will have their doubts about how

secure E-cash is initially but they will become accustomed to it with

time as they need to adjust to the new technologies. Consumers are used

to having physical cash in their hand when purchasing. Primary research

conducted shows that the majority of respondents think that a trial

period is necessary for the consumers to get a feel of the new money

and for them to build up confidence. An old Chinese proverb says, “tell

me I may forget, show me , I may remember, but involve and I will

understand.”

With the E-cash client software, a customer withdraws E-cash from a

bank and stores it on his local computer. The user can spend this digital

money at any shop accepting E-cash without the trouble of having to

transmit credit card details over the net.

When using E-cash, the cash flows to it’s destination over the net. Thelack of structure and open architecture of the Internet requires security

measures to be taken against attempts by third parties to intercept the

digital money. E-cash provides high security by applying public key

digital signature techniques. Additional security features of E-cash

include the protection of E-cash withdrawals from the account with the

password that is known only to the user. Limits placed on the maximum

balances of E-money devices and the duration of validity of balances or

devices also serve to deter fraud as well as to contain any resulting

losses.

One of the unique features of E- cash is payer anonymity. When paying

with E-cash, the identity of the payer is not revealed automatically. This

way the payer stays in control of information about himself. ( E-cash

39




home page). Smart cards can be used to store your E- cash allowing you

to carry your E-cash with you.

“In many ways E-cash, which can be backed by any currency or other

asset, represents the biggest revolution in currency since gold. It’s

diversity and pluralism is perfectly suited to the Internet. It could change

consumers financial lives and shake the foundations of financial

systems”. (Business Week, June’95)

In a new report ‘Internet Payments’ (from Jupiter), it is predicted that

smart cards, E-cash and E-cheques will be used to pay for almost half of

the dollar 7.3 bn in on-line commerce expected by the year 2000.( Nua

Newsletter, Feb.’97).

The primary research conducted shows that 32% of the companies

thought that the introduction of E-cash will contribute to consumers

feeling more secure while trading on the Internet. 20% of the

respondents believed that the E-money will still have an element of risk

involved, too much to transfer value through the Internet.

The general consensus is that security is a perception not a reality.

BENEFITS vs RISKS

Given that security is imperative to companies and consumers, why

are they willing to risk doing business on the net when it seems clear

that security problems prevail ? The primary research conducted

shows that 80% of the respondents feel that the benefits of doing

business on the net outweigh the risks involved. 32.5% of these were

large scale companies with 50 or more employees and 46% were small

companies with 10 or more employees.

40




Consumer Perception

Do Not Know

11%

Yes

33%

Too Risky

19%

Perception

4%

Confidence

11%

No

Comments

22%

These companies stated that the instant international communication,

the easily accessible upto date information and relatively low cost far

out weighed the risks involved when going on-line. However, the

predominant view was that security is exaggerated and it is onlyconsumers perceptions that stop them using the net for transactions and

stop the net from realizing it’s true potential. If companies do not utilize

the applications of the net they will be left behind in the fiercely

competitive business environment.

Earlier the target was the corporate man and then the entertainment

traveler. In addition to targeting the untapped portion of this segment,

new issuers can also target women and first time credits. A first time

41




credit could be a student or a married woman who never before had

credit in her name.

42




CONSTRAINTS TO INTERNET MONEY IN

INDIA

• High cost of setting up infrastructure.

• Limited subscriber base to internet.

• Presence of parallel economy.

NEW CARDS / SERVICES3

• Test launch of Maestro - Citibank’s debit card in Bangalore in

Jan.’98.

• Model Finance Corporation in a technological tie-up with Verifone

launched a debitcard by the name Money Card in mid ‘97.

• Nanz supermarket in collaboration with Escorts finance have

introduced E-cash, to be used for payments at their outlets.

• Singh Motors, a petrol pump in Nehru place, Delhi, has installed a

smart card based system for running a prepaid card.

• Defence Servicers Officers Institute (DSOI) in Delhi is replacing

their existing liquor cards with Smart Cards.

• Maruti Udyog Ltd. Has issued smart cards to a selection of it’s

employees as identification cards (ID) for accessing selected areas.

• Unicef is in the process of using Smart cards for maintaining records

of village level water resources.

3 Times of India, Supplement.

43




SUGGESTIONS

The banks battle today is more with cash than with other banks.

Considering the huge potential of the Indian market, it is in the interest

of the issuers to educate the consumers about the benefits of holding

credit card. The campaigns must also be convincing enough to clear the

myth that credit cards increase spending. Focus should be on changing

non-card related spending to card related spending. The issuers must

focus on service and pricing and must recognize the importance of the

billing and payment process to retain credit card holders.

The credit cards schemes would be successful only if they meet the

customers requirement of wider acceptability rather than fringe benefits

like non-crisis credit or prestige proposition. Emphasis should be on

offering a wider basket of services through credit cards enabling

purchases for a wide variety of products along with ATM usage, backed

by much more comprehensive merchant establishment network. The

banks must also increase the number of card holders by reducing the

initial-one time subscription fee.

The banks should step up advertising that will help to build a brand

image and create a higher brand recall like that of Citibank. With moreand more people willing to adopt to credit cards, banks should

undertake innovative strategies to increase card spends. Simultaneously,

to cater to high net worth customers and those with niche needs, banks

should provide more of premium plastic and CO-cards that piggyback

on the existing infrastructure, but provide holders with exclusive add-

ons.

44




Future promotions could include : Telemarketing, direct sales, direct

mail, promotional advertising through media, common ATM services

between banks (to reduce cost of operations), schemes like card

carnival and sales executives contests and a plethora of augmented

services should be introduced to induce greater number of people to

adopt to plastic money.

LIMITATIONS

• The study is confined to Delhi only.

• Most of the information is subjective data collected through personal

interaction with people transacting in the plastic money market. As a

result the personal biases of individuals could affect the study.

However, to counter this the data has been verified from a number of

different sources to give it a measure of authenticity.

• Study was constrained by limited availability of data. Not all banks

could reveal their confidential marketing strategies and statistical

information.

45




BIBLIOGRAPHY

• Singh Prasana, ‘The Changing Brand Battle’, A & M (1-15

May’97),Pg. 33 to 35.

• ‘Splurging on Plastic’Gentleman (Sept. 97), Pg. 82 to 85.

• K.Suresh, ‘Money Card : Wired for Money’, A & M (16-31

Oct.’97), Pg. 15.

• Edwin Sudhir R,‘Pick A Card, Any Card - And Relax’ The Sunday

Time of India (19th Nov.’97),19.

• Savitha G L,‘Playing the Cards Wrong’ The Sunday Times of India

(19th Nov.’97),19.

• Chandran Ramesh,‘It’s a Plastic Paradise’ The Sunday Times of

India (19th Nov.’97),19.

• Internet

• ‘The New Way to Pay’ The Times of India,(7th May’98).

Supplement.

46




ANNEXURE

47




A STUDY OF THE EXISTING MARKET IN PLASTIC

MONEY IN INDIA AND IT’S POTENTIAL IN 2001 A.D.

Dear Respondent,

We would be grateful if you could spare some of your time to

respond to the following questions. Needless to say, your response

would be treated as confidential and would be used only for the

purpose of the study.

Thank you for your time.

YEAR : 1997-98.

QUESTIONNAIRE

1. How many cards do you own ? (tick)

1___

2___

3___

4___

More than four (specify)___

2. Name the cards owned by you, according to the frequency of use.

1._____________

2._____________

3._____________

4._____________

5._____________

3. How did you get to possess your card(s) ? (tick)

a) Given by employer _____

48




b) Bought it _____

c) Joint card (gifted) _____

d) Any other _____

4. Name the bank through which your card was issued.

Card Bank

_______________________________________________

_______________________________________________

5. Name the bank where you normally bank and do your transactions.

________________________________________________

6. Rank the card possessed by you on the basis of experience with

respect to the listed parameters.

5 Very Good

4 Good3 Fair

2 Bad

1 Very Bad

a) Acceptability at places you frequent the most ______

b) Credit limit ______

c) Cash withdrawal facility ______

d) Interest rates / charges paid ______

e) Flexibility of repayment ______

f) Ease of getting the card ______

g) Additional benifits,discounts,incentives ______

49




7. Rank the card using the above scale in order of their importance

towards your selection of a card

a) Acceptability at places you frequent the most ______

b) Interest rate / charges paid ______

c) Cash withdrawal facility ______

d) Credit limit ______

e) Flexibility of repayment ______

f) Ease of getting the card ______

g) Additional discounts, incentives, insurance

coverage, other benefits. ______

8. Which of the following services offered along with the cards have

been utilized by you ? (Evaluate according to frequency of use )

Very often 1

Often 2

Sometimes 3

Rarely 4

Never 5

a) Joint cards ______

b) Merchandise offerings

through mailers ______

c) Incentive & discount schemes ______

d) Insurance policies ______

e) Travel related services ______

f) Cash withdrawal facility ______

g) Billing in hotels / restaurants ______

9. Rank the following services with respect to your preferences for them

in selecting a card (using the following scale). Very Imp. 1

50




Important 2

Uncertain 3

Not Imp 4

Irrelevant 5

a) Joint cards ______

b) Merchandise offerings

through mailers ______

c) Incentive & discount schemes ______

d) Insurance policies ______ e) Travel related services ______

f) Cash withdrawal facility ______

g) Billing in hotels / restaurants ______

10. How often do you use your card(s) in a month ? (please tick)

a) 0 - 2 _____

b) 3 - 5 _____

c) 6 - 8 _____

d) 9 -11 _____

e) 12 & more _____

11. What is the average amount spent by you during a month through

your card ? (please tick)a) less than 1000 _____

b) 1001 - 2000 _____

c) 2001 - 3000 _____

d) 3001 - 4000 _____

e) 4001 & above _____

12. Normally you-

51




a) utilize revolving credit facility and pay

interest on outstanding _____

b) keep outstanding amount as low as possible _____

c) pay monthly bills in full _____

13. Are you familiar with the concept of (please tick)

a) Credit Card _____

b) Charge Card _____

c) Debit Card _____ d) Smart Card _____

14. Are you likely to switch more of your spending from cash to cards ?

(please tick)

a) Yes _____

b) Not sure _____

c) No _____

15. If yes, which card would you go in for ? ____________________

16. Please provide the following details about yourself :

a) Name ________________

b) Age ________________

c) Occupation (please tick)

i) Business _____________

ii) Service _____________

iii) Student _____________

If in service, please give following details

a) Private sector __________ b) Govt. service __________

52




d) Annual Income

i) 50,000 - 100,000 _________

ii) 100,001 - 150,000 _________

iii) 150,001 - 200,000 _________

iv) 200,001 - 250,000 _________

v) 250,001 - 300,000 _________

vi) 300,001 & above. _________

17. What other services would you want from your card in the future ?

___________________________________________________

___________________________________________________

___________________________________________________

53




ANALYSIS

This study was designed to provide an insight into the existing market

for plastic money and it’s future potential.

METHODOLOGY : Confining our study to the geographical limits of

Delhi, we chose a sample of 100 people - 50 card holders and 50 non-

card users, using the probability sampling technique where every

individual fulfilling the above criteria had an equal chance of beingselected for the survey. Following are some of the facts that were

revealed through the survey :

54




COMPARISON OF CARDS

Acceptability Credit Cash Interest Flexibility of Ease of Additional

Limit Withdrawl Rates repayment getting card benefits

CANCARD MASTER DINERS VISA VISA AMEX AMEX

5 4 4 3.08 3.8 4.2 4.2

MASTER DINERS MASTER AMEX MASTER MASTER DINERS

4.65 4 3.5 2.8 3.7 4.08 3.2

VISA AMEX VISA MASTER

AMEX VISA MASTER

4.42 4 3.31 2.77 3.2 4 2.8

DINERS VISA AMEX DINERS DINERS DINERS VISA

4.2 3.58 2.8 2.2 2.8 4 2.5

AMEX CANCARD

CANCARD CANCARD

CANCARD CANCARD CANCARD

3.8 1.5 1.5 2 1.5 4 1.5

COMPARISON OF SERVICES

Merchandise Joint Incentive Insurance Travel Cash Billing in

offerings Cards & disc Policy Services Withdrawal Hotels/Rest

CANCARD CANCARD

CANCARD CANCARD

VISA MASTER MASTER

5 5 5 5 3.8 4.08 2.8

DINERS MASTER DINERS DINERS DINERS VISA VISA

4.4 4.65 4 4.2 3.8 4 2.5

MASTER VISA VISA AMEX MASTER AMEX DINERS

4 4.42 3.5 4.2 3.7 4 2

AMEX DINERS MASTER VISA AMEX CANCARD CANCARD4 3 3.31 3.08 1.8 3 1

VISA AMEX AMEX MASTER CANCARD DINERS AMEX

3.58 3 2.6 2.77 1.5 2.6 1

ACKNOWLEDGEMENT

55




We would like thank Dr. Chawla for his invaluable help in providing us

direction for pursuing our research study. Also, we would like to thank

Prof. Rajat Kathuria for his continued guidance throughout the project.

We would also like to extend our gratitude to Prof. K.K.Jindal for his

advice and support from time to time.

We wish to express our appreciation to all those with whom we

interacted and who’s thoughts and insights helped us in furthering our

knowledge and understanding of the subject.

For the same, our gratitude goes out to Mr. Sanjay Chaudhri (Manager

Sales - HKB), Mr. R. Bhaskaran (Hongkong Bank - Credit Card Sales

Officer), Mr. Shailesh (Master Card International - Manager Sales), Mr.

Manoj Verma (Citi Bank - Sr. Manager Credit Card Division), Mr.

Praveen Singh (Bank of Baroda - Manager Credit Card Division), Mr.

Milan Mehra (American Express Bank), Mr. Neeraj Swaroop ( Bank of America ) and Ms. Savita Chawla (Standard Chartered Bank - AM Card

Services).

Finally we would also like to record our thanks to all the respondents

who spared their valuable time to answer the questionnaire for our

survey.

56




CONTENTS

Page No.

ACKNOWLEDGEMENT

1. INTR0DUCTION 1

2. ORIGIN 3

3. TYPES OF CARDS ON OFFER 5

4. TRANSACTING PROCEDURE 8

5. TERMINOLOGY 9

6. MARKETING AND PROMOTIONAL SCHEMES 12

7. COMPARISONS 17

8. RISKS IN THE BUSINESS 24

9. ANALYSIS - OBSERVATIONS AND INFERENCES 28

10. CARDS TOMORROW - SECURITY 34

11. PHENOMENA ABROAD 36

12. CONSTRAINTS TO INTERNET MONEY IN INDIA 41

13. NEW CARDS/SERVICES 41

14. SUGGESTIONS 42

15. LIMITATIONS 43

BIBLIOGRAPHY 44

ANNEXURE

Credit Cardt-plstic Money

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