A PROJECT ON "A STUDY ON CREDIT CARD" (THE PLASTIC MONEY) Submitted in partial fulfillment of the requirement of Bachelor Of International Business & Finance, Jamia Millia Islamia, University, New Delhi-110025 Submitted by: ZOFAIL HASSAN SESSION :- 2009-2011 Submitted to:
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A PROJECT ON
"A STUDY ON CREDIT CARD" (THE PLASTIC MONEY)
Submitted in partial fulfillment of the requirement of Bachelor Of International Business & Finance,
Jamia Millia Islamia, University,New Delhi-110025
Submitted by: ZOFAIL HASSAN
SESSION :- 2009-2011
Submitted to:
DEPARTMENT OF COMMERCE AND BUSINESS STUDIES
JAMIA MILLIA ISLIMIA UNIVERSITY NEW DELHI-110025
ACKNOWLEDGEMENT
A project gains a lot of relevance as it on time activity
serving a definite object. Practical experience in undertaking a
project teaches many things which would otherwise elude
observations.
I am very indebted and obliged to have Ms. VARDHA
SAGHIR (lecturer) project guide and whose scholarly guidance
and sustained interest in the progress of my project have been
the major contributing factor in preparation of this project
report.
I am also placed my sincere thanks to all respondents and
concerned people to this project.
CONTENTS
EXECUTIVE SUMMARY OF CREDIT CARD INDUSTRY
INTRODUCTION
TYPES OF CARDS
SALIENT FEATURES
OBJECTIVES & SCOPE OF THE STUDY
RESEARCH METHODOLOGY
INDIAN CREDIT CARD SCENARIO
DECIDING ON THE RIGHT CREDIT CARD
ANALYSIS
COMPARISON OF CREDIT CARDS
SUGGESTIONS OF THE STUDY
LIMITATIONS OF THE STUDY
CONCLUSION
RECOMMENDATION
BIBLIOGRAPHY
QUESTIONNAIRE
INTRODUCTION
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 cardholder.
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
member’s 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 cardholders could use their card 1966 offered to
license its successful blue, white and gold Bank America card to at
any 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.
What is a Credit Card?
“Credit Cards - It's credit to you!”
A Credit Card is referred to as 'plastic money'. Carrying a lot of
cash on you can be cumbersome, risky and sometimes, you run
short of it, just when you most need it. (Remember the SALE at
your favorite ready-mades store?). A Credit card is the smart
solution to these problems. It is a convenient and safe alternative for
cash.
Besides, it says things about you. Most people associate a credit
card with a prestige, which it most certainly bestows on you, but
more importantly, it says that you have taken the onus of being
responsible - to be extended credit! So, when you get yourself a
card, remember that, because your bank does!
Before i go any further, why not become familiar with the various
terms and jargons used by the credit card industry.
Credit Card – A credit card is a financial instrument, which can be
used more than once to borrow money or buy products and services
on credit. Banks, retail stores and other businesses generally issue
these.
Credit limit – The maximum amount of charges a cardholder may
apply to the account.
Annual fee – A bank charge for use of a credit card levied each
year, which ranges depending upon the type of card one possesses.
Banks usually take an initial fixed amount in the first year and then
a lower amount as yearly renewal fees.
Revolving Line Of Credit - An agreement to lend a specific
amount to a borrower and to allow that amount to be borrowed
again once it has been repaid. Most credit cards offer revolving
credit.
Personal Identification Number (PIN) - As a security measure,
some cards require a number to be punched into a keypad before a
transaction can be completed. The cardholder can usually change
the number.
Teaser Rate - Often called the introductory rate, it is the below-
market interest rate offered to entice customers to switch credit
cards.
Joint Credit - Issued to a couple based on both of their assets,
incomes and credit reports. It generally results in a higher credit
limit, but makes both parties responsible for repaying the debt.
TYPES OF CARDS
MasterCard – MasterCard is a product of MasterCard
International and along with VISA are distributed by financial
institutions around the world. Cardholders borrow money
against a line of credit and pay it back with interest if the
balance is carried over from month to month. 23,000 financial
institutions in 220 countries and territories issue its products.
In 1998, it had almost 700 million cards in circulation, whose
users spent $650 billion in more than 16.2 million locations.
VISA Card – VISA cards are financial institutions around
the world distribute a product of VISA USA and along with
MasterCard. A VISA cardholder borrows money against a
credit line and repays the money with interest if the balance is
carried over from month to month in a revolving line of
credit. Nearly 600 million cards carry one of the VISA brands
and more than 14 million locations accept VISA cards.
Affinity Cards - A card offered by two organizations, one a
lending institution, the other a non-financial group. Schools,
non-profit groups, pro wrestlers, popular singers and airlines
are among those featured on affinity cards. Usually, use of the
card entitles holders to special discounts or deals from the
non-financial group.
Standard Card – It is the most basic card (sans all frills)
offered by issuers.
Classic Card – Brand name for the standard card issued by
VISA.
Gold Card/Executive Card – A credit card that offers a
higher line of credit than a standard card. Income eligibility is
also higher. In addition, issuers provide extra perks or
incentives to cardholders.
Platinum Card – A credit card with a higher limit and
additional perks than a gold card.
Titanium Card – A card with an even higher limit than a
platinum card.
Secured Card – A credit card that a cardholder secures with
a savings deposit to ensure payment of the outstanding
balance if the cardholder defaults on payments. It is used by
people new to credit, or people trying to rebuild their poor
credit ratings.
Smart Card – Smart cards, sometimes called chip cards,
contain a computer chip embedded in the plastic. Where a
typical credit card's magnetic stripe can hold only a few dozen
characters, smart cards are now available with 16K of
memory. When read by a special terminal, the cards can
perform a number of functions or access data stored in the
chip. These cards can be used as cash cards or as credit cards
with a preset credit limit, or used as ID cards with stored-in
passwords.
Charge Card – fall between a debit and credit card. Works
like the latter and you don't have to be an accountholder. Just
pay up in full when the bill arrives with the mail. No
outstanding are allowed, in other words, no revolving credit
facility either. American Express and Diners are providers.
Rebate Card – This is a card that allows the customer to
accumulate cash, merchandise or services based on card
usage.
Co-Branded Card – This is a marriage of convenience
between two service providers who want a trade-off with the
other's strengths. Specific facilities are made to members
through these tie-ups. So, Times Bank and Citibank have a
co-branded card that allows concessional rates for add-on
cards or telephone banking. Stan chart and Hindustan Lever
Limited have a co-branded card to sell Aviance beauty
products. SBI-GE Capital has a co-branded card for retail
loans.
Cash Card – Cash cards, similar to pre-paid phone cards,
contain a set amount of value, which can be read by a special
cash card reader. Participating retailers will use the reader to
debit the card in increments until the value is gone. The cards
are like cash -- they have no built-in security, so if lost or
stolen, they can be used by anyone.
Travel Card – these works mostly as debit cards for the
limited purpose of travel. Citibank Dollar Card, American
Express, Bob card Global and Hong bank Thomas Cook
International Card are among the players in this section.
Debit Card – It is the accountholder's mobile ATM. Open an
account with a bank that offers a debit card, and payments for
purchases are deducted from your bank account. The retailer
swipes the card over an electronic terminal at his outlet, you
enter the personal identification number on a PIN pad and the
money is immediately debited at the bank. Citibank and a few
domestic banks like Times Bank offer this.
SALIENT FEATURES
Annual Fee:
All credit card issuers charge an annual fee which is payable at the
start of the year. The start of the year, of course, is your
membership year, and not the calendar year. So, if you got yourself
a card in March, you can expect to be billed the annual fee every
March until you cancel your card. As a privilege, this fee is
sometimes waived the first time. When the time comes for renewal
of your card, you can even use the reward points you have
accumulated from using the credit card over the year to settle your
annual fee.
Forwarding Balance (or Revolving):
The most attractive feature of a credit card is that you need not pay
off your dues in whole. You can opt to pay 5% of the total amount
on or before the due date, every month, the rest is carried forward.
But there's a price to pay for this extended credit - interest!
Normally, interest varies between 2.5% and 3% per month.
APR or Annual percentage Rate:
The interest rate that reflects the yearly cost of the interest the
outstanding on your card is called the annual percentage rate. This
rate is charged to the cardholder on the amounts carried forward
beyond the due date for the payment of balances. Most card issuers
will tell you their monthly rate of interest. It might sound low at
3%, but when you look at the interest rate over the year, it turns out
to be as high as 43%.
Cash Advance:
An important feature - lets you withdraw cash from designated
ATMs using your credit card. Use discretion when withdrawing
cash on your credit card because the charges for this facility are
high, around 2.5% to 3% per transaction!
BENEFITS:
Credit:
When you use a Credit card to pay for anything, you get an
interest-free period of 45 days. Billing cycles are structured in
such a way that you definitely get at least 30 days out of these as
clean credit time, which is especially beneficial to salaried
people. Better still, you can opt to pay your bill in full when you
receive it or you can carry forward your payments by paying as
little as 5% of the total amount on or before the due date, every
month. You can spend now , pay later.
Convenience:
With a credit card on you, you don't need to run the risk of
carrying a lot of cash.
Cash Advance:
Another advantage of a Credit card is that you can use it as an
ATM card too! But remember, there's a fee to it. It typically
starts with a flat fee going up to a percentage-based fee on the
amount of the withdrawal.
DRAWBACKS:
Greed!
Just because you have credit being extended to you doesn't mean
that you should go on a rampage! Use your card with discretion and
caution. Remember, it is an extremely expensive way to borrow
money! View it as a convenient and safe way to carry cash, a timely
help in an emergency or taking advantage of an opportunity that
you would have otherwise lost out on, like an investment!
Do's & Dont's
Do not leave your Credit Card lying around the house or on
your desk at work.
If your card is lost or stolen, or you suspect it is being used
fraudulently, report it immediately to your bank.
Hold on to receipts from your transactions. In fact, keep your
receipts filed or in one place - you'll find them easily, should
the need arise. And when you want to throw them away, don't
just thrash into the bin, shred or tear them before you do.
Never give your Credit Card number over the phone, unless
you've made the call, and it is to your bank or someone you
trust, and you really, really need to!
EXECUTIVE SUMMARY OF CREDIT CARD INDUSTRY
The credit card industry in India has registered an encouraging
growth in recent times, but the usage pattern of credit cards remains
a point of conc0ern, those in the industry say. There has been a
seven-fold increase, with the number of cardholders touching over
38 lakh. These figures point towards the fact that the credit card
industry in India is growing at a brisk annual rate of 30 per cent and
is expected to grow at a similar rate in the coming years.
While issuing the cards may seem to be easy, the challenge for the
banks lies in being able to manage their portfolios by keeping the
delinquency levels at the lowest and customer satisfaction levels at
the highest. Customer satisfaction is the key to success. You want
customers to be happy with the products and services you provide.
If they feel they have received good value for their money, your
business will prosper. Getting your customers to tell you what’s
good about your business, and where you need improvement, helps
you to be sure that your business measures up to their expectations.
Apart from attracting potential card users, customer retention is also
one of the most important factors influencing a card issuer’s
success. ----. With the influx of new financial institutions in the
card market, people have started using cards on a more regular
basis. The level of services provided by these organizations is
increasing day by day. In order to ensure that the existing customers
stay loyal, Organization has to ascertain whether its existing
customers are satisfied with its current service offerings.
This research has tried to study the satisfaction levels of a sample of
100 credit card holders. These respondents each hold credit cards,
which may be of different kinds.
INDIAN CREDIT CARD SCENARIO
The credit card industry in India has registered an encouraging
growth in recent times, but the usage pattern of credit cards remains
a point of concern, those in the industry say. Seven years back,
India had a base of around five lakh credit cards. There has been a
seven-fold increase, with the number of cardholders touching over
38 lakh. These figures point towards the fact that the credit card
industry in India is growing at a brisk annual rate of 30 per cent and
is expected to grow at a similar rate in the coming years. This
fortifies the view that conservative purchasing ideas are giving way
to the big in-thing. But it is the usability that raises doubts.
According to a survey by the Credit Card & Management
Consultancy (CCMC), 71 per cent of first time credit card
applicants in the country have expressed the need for advice on
appropriate card selection despite the plethora of cards available in
the market. Through this survey it has come to realize a long felt
need of potential and existing cardholders for advice on suitable
selection of a credit cards. The whole idea behind the introduction
of the credit cards was to increase the purchasing capacity of the
cardholder. With this in mind, the foreign banks launched a credit
card blitzkrieg on the Indian customer.
The innovations have already begun to show their effect. The
Standard Chartered Bank has seen its credit card base shoot up after
the launch of its Global Rupee Card in March last year.
It has seen the fresh issuance of global card increase by more than
one lakh, and the bank now has a base of more than half a billion.
But the real challenge for the banks is to make the holder spend
more on the card. Going by estimates, India has a long way to be
anywhere near the matured markets. The markets like the United
States and England have an average annual card spend of 1,300 and
3,600 dollars respectively.
The credit card players will have to think about simplifying the
foreign exchange transactions. When one uses the card, it is entirely
his responsibility to make sure that exchange controls have been
complied with. The banks that issue the cards have made it
abundantly clear that one has to look out for him. It is upon him to
find out the facts of regulatory life. The real point of worry is the
spending on the credit cards. According to estimates, the average
card spending in India is even less than that in Indonesia. Those in
the credit card business say that per capita credit card spending in
India is about five hundred dollars (Rs 21,500), whereas in
Indonesia, it is about 678 dollars (Rs 29,154). At present there are
over a dozen players in the credit card market in India, and the fact
is the foreign banks are clearly the leaders. The leaders will surely
be identified by the innovations for the card users.
But the alarm has been raised for the banks by the figures that show
that while the average usage in Malaysia is 27 times annually, in
India it is only 11 times. Some of the key factors impacting the
cards business in India are limited credit, wide geographical spread,
limited telecommunication infrastructure and emerging regulatory
controls. The other players feel that the card acceptance base in
India has to be widened. Suggestions include credit card usage at
petrol pumps and railway bookings.
They also point out that though the cards business has been in the
country for long, but even today the insurance premium cannot be
paid by card. Though LIC is talking about the introduction of this
facility to customers, but its turning into reality may take time.
There is talk of widening the card business with new features, but
the present scenario does not paint a positive picture, with many
loopholes remaining to be plugged.
Of the twenty million taxpayers in India, more than ten per cent of
them are cardholders. Those in the industry point out that this figure
is not bad, considering the fact that; the cards business is still in its
initial stages. However, the players feel that the business has not
reached an optimum level to say that they are making money. Even
the largest player in the Indian market does not still have the
economies to make the card business really profitable in India,
despite the fact that it has more than one million credit card holders.
Less than two per cent of private consumption spending in India is
done on cards.
While issuing the cards may seem to be easy, the challenge for the
banks lies in being able to manage their portfolios by keeping the
delinquency levels at the lowest. Huge investments in systems and
infrastructure are, therefore, a necessity. The increase is being
attributed to new ideas such as round-the-clock functioning of card
issuing banks and pulling out all stops even at a loss, to grab a
sizeable share of the expanding pie. Not to be left behind in this
race, even the big brother, the State Bank of India in association
with GE Capital entered the card business.
The spurt in the card business has gathered momentum during the
past couple of years. For instance, the Hong Kong & Shanghai
Banking Corporation (HSBC), was in the credit cards business
since seven years, but from 50,000 card holders in 1997, it has