Project Report on Plastic Money in India

Winter Project Report SSCMR 2009-2011

PLASTIC MONEY

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TABLE OF CONTENT

CHAPTER NO. TOPIC PAGE NO.

1. OBJECTIVE OF STUDY 4

2. NEED &SCOPE OF THE STUDY 5

3. INTRODUCTION 6-8

PAYMENT OPTIONS

CONCEPT OF CREDIT CARDS

DEFINITION OF CREDIT CARDS

4 HISTORY OF CREDIT CARDS 8-10

5. PARTIES INVOLVED IN CREDIT

CARDS

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6. DIFFERENT TYPES OF CREDIT

CARDS

11-13

7. PROCESS OF CREDIT CARDS 14

8. FUNCTIONS OF CREDIT CARDS 15

9. FEATURE OF CREDIT CARDS 16-17

10. ADVANTAGES &

DISADVANTAGES OF CREDIT

CARDS

19-21

11. NEED OF CREDIT CARDS 22-24

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12. INTRODUCTION OF DEBIT CARDS 25

13. TYPES OF DEBIT CARD SYSTEMS 26

14. WORKING OF DEBIT CARDS 27

15. ADVANTAGES AND

DISADVANTAGES OF DEBIT

CARDS

29-31

16. DEBIT CARDS V/S CREDIT CARDS 32-33

17. TYPES OF DEBIT CARDS 34

18. RESEARCH 34-39

COMPARISION BETWEEN HDFC

BANK & ICICI BANK

19. FINDINGS &

RECOMMENDATION

40

20. CONCLUSION 41

21. BIBILOGRAPHY 42

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OBJECTIVES OF STUDY

Primary objectives

To know the perception of people towards plastic money.

Secondary objectives

To know the importance of plastic money in the daily life of consumers’ W.R.T credit and

debit cards.

To study the benefits of debit card and credit cards.

To find out the market leader among the various banks/companies issuing credit and debit

cards

To know the problems faced by respondents using plastic money.

To study the satisfaction level of consumers towards plastic money.

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NEED AND SCOPE OF THE STUDY

Need of the study

It is rightly said the plastic money is need of hour. People are using these cards on a vast

scale. But after considering the review of literature it is seen the whole payment process of

processing these cards is not safe and customer are facing many problems relating to plastic

money. That’s why study is focused on consumer perception regarding the plastic money.

Need of the study is to get to know about the comparative analysis of plastic money. There

are many ethical issues and challenges in the market of plastic money which is required to be

studied. This study is concerned with the Seven perks of plastic money Convenience,

Budgeting technology, Reputation boosting, Corporate might, Cops and robbers, The float,

Openness to negotiations.

Scope of study: the following are the areas covered by plastic money:

ATM cards are slowly being transformed into value-added debit cards. Bankers and analysts

see tremendous scope for growth in debit cards. "There is tremendous potential for debit

cards. It will soon be substituting cheques. Utility payments will soon be made through debit

cards, either at the ATMs or at the counters. The debit card can be used to withdraw cash

from ATMs of other banks depending on whether the debit card-maker has a Visa or a

Maestro tie-up. Visa and MasterCard both confirmed yesterday that they had been notified of

the breach and had in turn notified several banks and credit card companies of the potential

data compromise. They declined to say how many companies have been notified. Credit

cards As well as convenient, accessible credit; credit cards offer consumers an easy way to

track expenses, which is necessary for both monitoring personal expenditures and the

tracking of work-related expenses for taxation and reimbursement purposes.

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INTRODUCTION

Plastic money or polymer money, made out of plastic, is a new and easier way of paying for

goods and services. Plastic money was introduced in the 1950s and is now an essential form

of ready money which reduces the risk of handling a huge amount of cash. It includes debit

cards, ATMs, smart cards, etc. Credit cards, variants of plastic money, are used as substitutes

for currency Credit cards in India are 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. It was introduced around and has now become an essential form of ready money. One

of the main reasons for introducing plastic money, especially credit cards is to reduce the risk

of handling a huge amount of cash by individuals/merchants. The growth and popularity of

plastic money in India has been phenomenal in the last few years.

In the present day world, no one wants to be bothered by the presence of huge cash in his or

her wallet and the Indians are no exceptions. The unprecedented growth in the number

of credit card users has stimulated the Indian economy by a significant extent. The arrival of

malls, multiplexes, online shopping stores and shopping complexes have contributed to the

growth of the use of plastic cards.

The Best credit cards in India are usually meant for specific user group such as women,

students and small business owners. These cards are offered to the prospective customers

with appealing deals.

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

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tomorrow).But the situation is not actually that scary. And it is all about right timing. Credit

cards can 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.

Major Banks issuing Credit Card in India

State Bank of India credit card (SBI credit card)

Bank of Baroda credit card or BOB credit card

ICICI credit card

HDFC credit card

IDBI credit card

ABN AMRO credit card

Standard Chartered credit card

HSBC credit card

Citibank Credit Card

Global player in Credit card market are Master Card, VISA Card, American Express, Diners

Club International.

The first 6 digits of credit cards number are known as the issuer identification number

(IIN),previously known as bank identification number (BIN).These identify the institution

that issued the to the card holder

The IIN ranges used by the major card schemes are

VISA: Card number start with a 4.

Master Card: Card start with No.51 and 55

Diners Club: Card number beginning 36 or 38

Amex Ex: Card number beginning 34 or37

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PAYMENT OPTIONS

Concept of credit card

Progress in civilization in its turn has brought out radical changes in the manner of trading.

The need for something intrinsically useful and easily applicable in everyday dealing is

clearly felt. Cash in the form of currency notes and coins makes up just one form of the

payment system. Development in banking while also giving inputs to the further development

of cash brought about a second phase in payment namely paper instructions such as cheques

and credit transfers. The requirement for greater flexibility and convenience has led to

electronic payments, and this is where plastic cards have proved their worth. It allows the

card issuers to limit the sum of money the card-holders wish to spend. The spending of card-

holders who have defaulted on payments or who are over their credit limit can be restricted

until the balances are cleared.

Definition of credit card

A credit card is a credit-token within the meaning of section 14(1), Consumer Credit Act

1974 of the UK which defines a credit-token as a card, cheque, voucher, coupon, stamp, form 8


booklet or other document or thing given to an individual by a person carrying on a consumer

credit business, who undertakes:-

That on the production of it (whether or not some other action is also required), he

will supply, cash, goods and services (or any of them) on credit, or

That were, on the production of it to third party (whether or not any other action is

also required), the third party supplies cash, goods and services (whether or not

deducting any discount or commission), in return for payment to him by the

individual.

In very simple words credit card can be termed as an unsecured personal loan offered to

customers by the banks where the card-holder could purchase goods and services from

authorized merchant or merchant establishments (MEs) of the bank up to a fixed limit on

credit. Such credit is normally made available for a period of 30 to 45 days.

A credit card can also be used to secure airline tickets and car rentals. Having a credit card

can make purchases and reservations easier; however, a credit card should be used

responsibly so that the consumer does not over extend his finances.

Credit cards are usually issued by banks or other financial institutions. Some credit cards may

be available online.

HISTORY OF CREDIT CARDS

Our society was once upon a time functioning without money; it is again likely to become

moneyless. While ancient society was confronted with the problems of adjusting mutually

satisfactory rates and basis of exchange, future society, with the help of computers,

electronics and telecommunications, credit cards, telephone and other modern means of

communications, would settle financial transactions instantly. Money as a medium of

exchange will serve its function. The difference will be that in future coins, currency notes,

cheques, etc., will be dispensed with in favour of records. India has entered the stage of credit

card system and credit cards are gaining increasing relevance to facilitate industrial,

commercial and agricultural transactions.

Credit was first used in Assyria, Babylon and Egypt 3,000 years ago. The bill of exchange –

the forerunner of bank notes - was established in the 14th century. Debts settled by one-third 9

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cash and two-thirds bill of exchange paper money followed only in the 17th century. The first

advertisement for credit was placed in 1730 by Christopher Thornton who offered furniture

that could be paid off weekly.

From the 18th century until the early part of the 20th, tallymen sold clothes in return for small

weekly payments; they were called “tallymen” because they kept a record of tally of what

people had brought on a wooden stick. One side of the stick was marked with notches to

represent the amount of debt and the other side was a record of payments. In the 1920s

shopper’s plate – “buy now, pay later” system – was introduced in USA. It could only be

used in shops which issued it.

In 1950, Diners Club and American Express launched their charge cards in USA, the first

‘plastic money’. In 1951, Diners Club issued the first credit card to 200 customers who could

use it at 27 restaurants. With the magnetic strip in 1970, the credit card became a part of the

information age.

The origins of the bank credit card have been traced to John C. Biggins, a consumer credit

specialist at the Flatbush National Bank of Brooklyn, New York. In 1946, Biggins launched a

credit plan called Charge-It. The programme featured a form of scrip that was accepted by

local merchants for small purchases. After the sale was completed, the merchant deposited

the scrip in a bank account, and the bank billed the customer for the total scrip issued.

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.

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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 3.8 million 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 1.5 million cards so far. Stanchart

follows way behind with 0.67 million, while Hongkong 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.

Parties involved:

Cardholder: The owner of the card used to make a purchase; the consumer.

Card-issuing bank: The financial institution or other organization that issued the credit 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.

Merchant: The individual or business accepting credit card payments for products or services

sold to the cardholder

Acquiring bank: The financial institution accepting payment for the products or

services on behalf of the merchant.

Independent sales organization: Resellers (to merchants) of the services of the

acquiring bank.

Merchant account: This could refer to the acquiring bank or the independent sales

organization, but in general is the organization that the merchant deals with.

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.

Transaction network: The system that implements the mechanics of the electronic

transactions. May be operated by an independent company, and one company may operate

multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha,

Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.

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DIFFERENT TYPES OF CREDIT CARDS

Charge card

A charge card carries all the features of credit cards. However, after using a charge card you

will have to pay off the entire amount billed, by the due date. If you fail to do so, you are

likely to be considered a defaulter and will usually have to pay up a steep late payment

charge.

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 the next

billing statement.

Amex card

Amex stands for American Express and is one of the well-known charge cards. This card has

its own merchant establishment tie-ups and does not depend on the network of MasterCard or

Visa.

Smart card

A smart card contains an electronic chip which is used to store cash. This is most useful when

you have to pay for small purchases, for example bus fares and coffee. No identification,

signature or payment authorisation is required for using this card.

The exact amount of purchase is deducted from the smart card during payment and is

collected by smart card reading machines. No change is given. Currently this product is

available only in very developed countries like the United States and is being used only

sporadically in India.

Diners Club card

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Diners Club is a branded charge card. There are a wide variety of special privileges offered to

the Diners Club cardholder. For instance, as a cardholder you can set your own spending

limit. Besides, the card has its own merchant establishment tie-ups and does not depend on

the network of MasterCard or Visa.

However, since this card is typically meant for high-income group categories, it may not be

acceptable at many outlets. It would be a good idea to check whether a member establishment

does accept the card or not in advance.

Photo card

In this photograph is imprinted on a card, and then you have what is known as a photo card.

Doing this helps identify the user of the credit card and is therefore considered safer. Besides,

in many cases, your photo card can function as your identity card as well.

Global card

Global cards allow you the flexibility and convenience of using a credit card rather than cash

or travellers checks while travelling abroad for either business or personal reasons.

Co-branded card

Co-branded cards are credit cards issued by card companies that have tied up with a popular

brand for the purpose of offering certain exclusive benefits to the consumer. .

Affinity card

The card issuer ties up with popular organizations/ institutions which are often non-profit

organizations (Citi-WWF card or the stanch art-Cricket cards) to offer an affinity card. When

the card is used, a certain percentage is contributed to the organization /institution by the card

issue

MasterCard and Visa

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MasterCard and Visa are global non-profit organizations dedicated to promote the growth of

the card business across the world. They have built a vast network of merchant

establishments so that customer’s world-wide may use their respective credit cards to make

various purchases.

Visa card: Visa, Inc., commonly called VISA, is an economic joint venture of 21,000

financial institutions that issue and market Visa products including credit and debit cards. The

company was originally named Visa International Service Association. The name change

occurred in the fall of 2007 as a part of Visa’s restructuring and IPO plan. The company is

based in San Francisco, California, USA.

PROCESS OF CREDIT CARDS

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FUNCTIONS OF CREDIT CARDS

Today, credit cards have many functions and are very versatile. They can be

summarized into the following functions:

Credit

The holder may obtain extended credit up to an agreed limit at a published interest rate.

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Charge

The holder can repay the whole amount at the end of the month, without charge provided no

cash advance has been taken.

Cash

On presentation at the appropriate banks, subject to check, cash can be obtained. In most

cases can also be used in ATMs to obtain cash.

Cheque guarantee

A cheque drawn on a bank may be guaranteed up to a published limit provided it is

accompanied by a Cheque Guarantee Card (or in some cases a Visa or MasterCard card)

issued by the bank on which it is drawn.

Cheque encashment

Cheque guaranteed as above may be used to obtain cash from branches of most banks,

although a charge may be levied in certain circumstances.

International

If the card is a member of Visa International or MasterCard International, you can use your

card at many countries where there are a lot banks who are members of them.

Perhaps the most significant fact to emerge from the summary of card functions is that

strictly speaking, they are not debit cards. Although they can be used to obtain cash via ATM,

the debit will be made from the credit card account and not from the holder's bank account.

The credit cards discussed above are bank cards. Different bank cards have different card

functions. The functions of bank cards really depend on the individual bank itself. Some bank

card may have all of the above functions and some may not.

There other credit cards that are issued by retail stores such as Petrol Card, Quasi Card and

Private Label Card which may have some of the above functions mentioned above.

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FEATURES OF CREDIT CARDS

All credit cards offer a variety of features. Knowing and understanding these features will

help to decide which card is right for.

Fees

Most credit cards charge fees for various things, and it is important to know what these fees

are and how to avoid them.

The annual fee

Some credit card companies charge you an annual fee just for using their card. Because of

stiff competition, you can often negotiate this fee away if you call and speak to a customer

service representative.

Cash Advance Fee

Most credit card companies will charge you a fee for cash advances. These fees can vary but

are usually somewhat hefty. Not only will they charge you a one-time fee, but the interest rate

for this money will be at a considerably higher rate. Plus, unlike a regular purchase, where

interest begins accruing after some grace period passes, cash advances accrue interest charges

from day one.

Many card companies are competing for your business and are now offering an introductory

cash advance and balance transfer rates for a specific amount of time. This lower rate can be

applied to any balances you may wish to transfer from another card. Although it sounds good,

some companies will charge you a fee for the transfer. Know what the fee is before you

transfer any balances.

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Miscellaneous Fees

Things like late-payment fees, over-the-credit-limit fees, set-up fees, and return-item fees are

all quite common these days and can represent a serious amount of money out of your pocket

if you get whacked for any of these fees.

Incentives

Since there are so many credit card companies, competition is stiff. Adding incentives to their

offers is one of the more popular ways to tip the scales in their favor. Incentives like rebates

on purchases, frequent flyer miles on certain airlines, and extended warranties on purchases

are just a few of the bonuses that card companies will now offer.

For those of you who collect and use your frequent flyer miles, they also have added

incentives like travel insurance and car rental insurance for your convenience. Of course, they

are hoping that with all this traveling, you are using their card to foot at least some of the

bill.

Rewards

Many card companies are looking to keep your business and are therefore making it worth

your while to use their card. Just simply by using their card you can accumulate points that

will in turn earn you rewards. What kind of reward depends solely on the amount of points

you accumulate. Since you can't accumulate these points without charging things on your

card, this is a classic case of 'you have to spend money to save money.'

Bottom line is this: Know what you need and what you don't. No sense in paying for any

features that you won't use.

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APR

The annual percentage rate (APR) is the interest rate applied a balance carried beyond the

grace period. Credit cards can have different APRs for different types of balances, e.g.

balance transfers or purchases. Balance transfers and cash advances usually have higher

APRs than for purchases.

Your APR may increase when you're late on your payment to a particular creditor, and other

creditors if your card agreement includes a universal default clause.

APRs can be fixed or variable. A fixed APR can change, but the creditor must inform you in

writing before changing the rate. A variable APR changes from time to time.

Grace Period

The grace period is the amount of time you have to pay your balance in full before a finance

charge is applied to your purchase. If you carried a balance from the previous month, you

may not have a grace period for your new purchases. In addition, balance transfers and cash

advances typically do not have a grace period. When balances don't have an applicable grace

period, interest is applied right away.

To find out the length of the grace period refer to the credit card application or your credit

card agreement. Your monthly statements should also include the number of days in the grace

period.

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ADVANTAGES AND DISADVANTAGES OF CREDIT CARDS

ADVANTAGES OF CREDIT CARDS

Purchase Power and Ease of Purchase

Credit cards can make it easier to buy things. If you don't like to carry large amounts of

cash with you or if a company doesn't accept cash purchases (for example most airlines,

hotels, and car rental agencies), putting purchases on a credit card can make buying things

easier.

Protection of Purchases

Credit cards may also offer you additional protection if something you have bought is

lost, damaged, or stolen. Both your credit card statement (and the credit card company)

can vouch for the fact that you have made a purchase if the original receipt is lost or

stolen. In addition, some credit card companies offer insurance on large purchases.

Building a Credit Line

Having a good credit history is often important, not only when applying for credit cards,

but also when applying for things such as loans, rental applications, or even some jobs.

Having a credit card and using it wisely (making payments on time and in full each

month) will help you build a good credit history.

Emergencies

Credit cards can also be useful in times of emergency. While you should avoid spending

outside your budget (or money you don't have!), sometimes emergencies (such as your

car breaking down or flood or fire) may lead to a large purchase (like the need for a rental

car or a motel room for several nights.)

Credit Card Benefits

In addition to the benefits listed above, some credit cards offer additional benefits, such as

discounts from particular stores or companies, bonuses such as free airline miles or travel

discounts, and special insurances (like travel or life insurance.) While most of these

benefits are meant to encourage you to charge more money on your credit card

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(remember, credit card companies start making their money when you can't afford to pay

off your charges!) the benefits are real and can be helpful as long as you remember your

spending limits.

DISADVANTAGES OF CREDIT CARDS

Blowing Your Budget

The biggest disadvantage of credit cards is that they encourage people to spend money that

they don't have. Most credit cards do not require you to pay off your balance each month, so

even if you only have $100, you may be able to spend up to $500 or $1,000 on your credit

card. While this may seem like 'free money' at the time, you will have to pay it off -- and the

longer you wait, the more money you will owe since credit card companies charge you

interest each month on the money you have borrowed.

High Interest Rates and Increased Debt

Credit card companies charge you an enormous amount of interest on each balance that you

don't pay off at the end of each month. This is how they make their money and this is how

most people in the United States get into debt (and even bankruptcy.) Consider this: If you

have a $100 in savings, most banks will give you at the most 2.0 to 2.5% interests on your

money over the course of the year. This means you earn $2.00 - $2.50 a year on your $100

savings. Most credit cards charge you up to 10 times that amount of interest on balances. This

means that if you have $100 balance that you don't pay off, you will be charged 20-25%

interest on that $100. This means that you owe almost $30 interest (plus the original $100) at

the end of the year. A good way to look at this is in comparison to what you would earn in

interest from a bank or owe in interest to a bank loan: Savings accounts may pay you around

2% interest; if you have a loan from a bank you may pay them around 10% interest (5 times

as much as you earn off your savings); if you owe money to a credit card company, you may

pay them around 20% interest (10 times as much as you earn off your savings.)

Credit Card Fraud

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Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose

your wallet) or someone may steal your credit card number (from a receipt, over the phone,

or from a Web site) and use your card to rack up debts. The good news is that, unlike cash, if

you realize your credit card or number has been stolen and you report it to your credit card

company immediately, you will not be charged for any purchases that someone else has

made. Even if you don't realize your credit card number has been stolen (sometimes you

might not know until you receive your monthly statement), most credit card companies don't

charge you or only charge a small fee, like $25 or $50, even if the thief has charged

thousands of dollars to your card. There are several things you can do to prevent credit card

fraud:

If you lose your card or wallet, report it to your credit card company immediately.

Don't loan your credit card to anyone and only give out your credit card information

to trusted companies or Web sites.

Check your statement closely at the end of each month to make sure all charges are

yours.

You can find out more about protecting your personal information by visiting

our Personal Safety course.

Credit cards can make life easier and be a great tool, but if they aren't used wisely they can

become a huge financial burden. If you do decide to use credit cards, remember these simple

rules:

Keep track of all your purchases.

Don't spend outside your budget.

Pay off your balance on all of your credit cards at the end of each month.

Don't loan your credit or give out your credit card information to anyone but reliable

companies

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NEED OF CREDIT CARDS

There may be many people who suggest that you get a credit card, but before you do you

should carefully decide whether or not you really need a credit card. The answer is that you

can get by without a credit card. Although a credit card can be a useful tool, when used

properly (paid in full every month), it can be a bigger liability than an asset. Here are five

common misconceptions about needing a credit card.

1. Credit Card to Build Credit

You build credit by paying your bills on time. You can build enough credit to qualify for a

home loan by paying your rent on time for several years. You destroy your credit when you

do not pay your bills on time. The utility companies and other businesses can send you to a

collection agency if you do not pay on time. You do not need a credit card to build your

credit history. You may find it a little easier to do with a credit card, but you should be very

careful as you try to do so.

2. Credit Card to Shop Online or Rent a Car

Since debit cards have been introduced you no longer need a credit card to do these things. In

fact you can do everything with a debit card that you can with a credit card, except spend

money that you do not have. You should not be doing that anyway. Debit cards can be used

anywhere a credit card can. This completely debunks the statement that you need one to rent

a car.

3. Credit Card for Emergencies

If you plan well you should set up an emergency fund for emergencies. Your emergency fund

should have at least $1000.00 in it, but you should try to have three to six months of expenses

saved up. This much money should be able to handle any emergency that comes your way. If

you are stranded on the road and need to be towed you can use your debit card to pay for the

tow, and your emergency fund to cover those expenses.

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4. Credit Card to Save Money on Purchases

Many stores will offer discounts for having a store credit card. Stores do not offer cards to

give you discounts; they offer cards because they realize that while most people intend to pay

the card off every month, few actually do. They make more back on interest than they the

discount they offer to you.

5. Credit Card to Earn Rewards

This is a dangerous game to play. If you are responsible and pay off your balance in full each

month, you may consider having a rewards credit card. You should make sure that you have a

credit card with no annual fee. Additionally it is important to remember that the credit card

offers its rewards, because the company realizes that most people are not going to pay off

their credit cards in full each month. This means that they make more money off the

customers, then rewards they give out.

Fraud Question

What kinds of credit card frauds are more prevalent?

Counterfeit and CNP (card not present) continue to be the two main types. Physical

theft of cards is not such an issue. Since online transactions typically don't require the

card to be presented, the information sitting on the card and other customer

authentication details are sometimes compromised and used for transactions. This is

becoming a big problem. However, India has been pro-active in this regard and has

introduced the two-factor identification system, wherein a customer transacting online

must also have a T-Pin for transactions where the card is not present.

What is being done to prevent such fraud?

Visa is doing a number of things in partnership with issuers to introduce measures

which can easily prevent such frauds.24

http://moneyfor20s.about.com/od/creditcards/f/creditcardrewards.htm

http://moneyfor20s.about.com/od/creditcards/f/storecreditcards.htm


Since the prevention of theft is of utmost important, banks are offering customers the

option of opting for alerts whenever there is a transaction.

This measure is immediate in nature and can help the customer know about his or her

transactions in real time.Also, we are increasingly encouraging issuers to opt for chip

cards, which can go a long way in controlling fraud. We would like all banks to issue

chip cards to increase security.

Why is a chip card safer?

It is very difficult to copy, as a unique cryptogram or code is generated for each

transaction. So, even if a card is counterfeited, it will be declined.

In India, banks are selectively issuing chip cards to consumers, depending on their

usage pattern.

What are some of the most effective fraud detection tools that Visa has?

Some very sophisticated ones are in place. Some are rule-based tools, wherein a

customer can define a set of rules for transactions like a spending limit, places of

transactions, etc.If there is a deviation from these, and the transaction won't be

complete. In the USA, neural networks (artificial intelligence) are being deployed to

ensure the authentication sits on the back-end. These networks basically study the

pattern of usage by a customer and any deviation comes up for further verification.

So, a customer gets a call if there is a deviation from his or her set pattern.

What can a customer do to avert card-related frauds?

They should first opt for customer alerts each time there is a transaction. Second

would be dynamic authentication by using chip cards.

Also, they should be careful of hidden cameras in ATMs and should watch for fake

ATM fronts, where your card can be skimmed

25


INTRODUCTION OF DEBIT CARDS

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.

MEANING AND FUNCTIONS OF DEBIT CARDS

Two decades ago, the number of debit cards in circulation was approximately 19 million.

This figure is projected to cross 34.4 million by 2016.

A debit card (also known as a bank card or check card) is a plastic card that provides an

alternative payment method to cash when making purchases. Functionally, it can be called an

electronic check, as the funds are withdrawn directly from either the bank account, or from

the remaining balance on the card. In some cases, the cards are designed exclusively for use

on the Internet, and so there is no physical card.

In many countries the use of debit cards has become so widespread that their volume of use

has overtaken or entirely replaced the check and, in some instances, cash transactions.

Like credit cards, debit cards are used widely for telephone and Internet purchases and, unlike

credit cards, the funds are transferred immediately from the bearer's bank account instead of

having the bearer pay back the money at a later date.

Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for

withdrawing cash and as a check guarantee card. Merchants may also offer cash

back facilities to customers, where a customer can withdraw cash along with their purchase.

Debit cards can also allow for instant withdrawal of cash, acting as the ATM card for

withdrawing cash and as a cheque guarantee card. Merchants can also offer "cash back"/"cash

out" facilities to customers, where a customer can withdraw cash along with their purchase.

26

http://en.wikipedia.org/wiki/Debit_card_cashback

http://en.wikipedia.org/wiki/Debit_card_cashback

http://en.wikipedia.org/wiki/Check_guarantee_card

http://en.wikipedia.org/wiki/ATM_card

http://en.wikipedia.org/wiki/Credit_card

http://en.wikipedia.org/wiki/Cheque

http://en.wikipedia.org/wiki/Bank_account

http://en.wikipedia.org/wiki/Cash


Types of Debit Card systems

Online Debit Card

Offline Debit Card

Electronic Purse Card System

Prepaid debit cards

Debit card

An example of the front of a typical debit card:

27

http://en.wikipedia.org/wiki/File:Smartcard2.png

http://en.wikipedia.org/wiki/File:CCardFront.svg


1. Issuing bank logo

2. EMV chip

3. Hologram

4. Card number

5. Card brand logo

6. Expiration date

7. Cardholder's name

An example of the reverse side of a typical debit card:

1. Magnetic stripe

2. Signature strip

3. Card Security Code

There are currently three ways that debit card transactions are processed: online

debit (also known as PIN debit), offline debit (also known as signature debit) and

the Electronic Purse Card System. It should be noted that one physical card can

include the functions of an online debit card, an offline debit card and an electronic

purse card. Although many debit cards are of the Visa or MasterCard brand, there are

many other types of debit card, each accepted only within a particular country or

region.

28

http://en.wikipedia.org/wiki/MasterCard

http://en.wikipedia.org/wiki/Visa_(credit_card)

http://en.wikipedia.org/wiki/Card_Security_Code

http://en.wikipedia.org/wiki/Signature

http://en.wikipedia.org/wiki/Magnetic_stripe#Financial_cards

http://en.wikipedia.org/wiki/Credit_card_number

http://en.wikipedia.org/wiki/Hologram

http://en.wikipedia.org/wiki/EMV

http://en.wikipedia.org/wiki/File:CCardBack.svg


Online Debit System

Online debit cards require electronic authorization of every transaction and the debits

are reflected in the user’s account immediately. The transaction may be additionally

secured with the personal identification number (PIN) authentication system and some

online cards require such authentication for every transaction, essentially becoming

enhanced automatic teller machine (ATM) cards. One difficulty in using online debit

cards is the necessity of an electronic authorization device at the point of sale (POS)

and sometimes also a separate PIN pad to enter the PIN

Offline Debit System

Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or

major debit cards and are used at the point of sale like a credit card (with payer's

signature). This type of debit card may be subject to a daily limit, and/or a maximum

limit equal to the current/checking account balance from which it draws funds.

Transactions conducted with offline debit cards require 2–3 days to be reflected on

users’ account balances.

Electronic Purse Card System

Smart-card-based electronic purse systems in which value is stored on the card chip,

not in an externally recorded account, so that machines accepting the card need no

network connectivity are in use throughout Europe since the mid-1990s.

Prepaid debit cards

Prepaid debit cards, also called reloadable debit cards or reloadable prepaid cards, are

often used for recurring payments. The payer loads funds to the cardholder's card

account. Prepaid debit cards use either the offline debit system or the online debit 29

http://en.wikipedia.org/wiki/Prepaid_cards

http://en.wikipedia.org/wiki/Smart-card

http://en.wikipedia.org/wiki/Point_of_sale

http://en.wikipedia.org/wiki/MasterCard

http://en.wikipedia.org/wiki/VISA_(credit_card)

http://en.wikipedia.org/wiki/Logo

http://en.wikipedia.org/wiki/PINpad

http://en.wikipedia.org/wiki/Point_of_sale

http://en.wikipedia.org/wiki/ATM_card

http://en.wikipedia.org/wiki/Automatic_teller_machine

http://en.wikipedia.org/wiki/Authentication

http://en.wikipedia.org/wiki/Personal_identification_number


system to access these funds. Particularly for companies with a large number of

payment recipients abroad, prepaid debit cards allow the delivery of international

payments without the delays and fees associated with international checks and bank

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 customers 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 and equally strong

MasterCard 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 and Disadvantages of Debit Cards

The widespread use of debit and check cards have revealed numerous

advantages and disadvantages to the consumer and retailer alike.

Advantages of debit cards

A consumer who is not credit worthy and may find it difficult or impossible to obtain

a credit card can more easily obtain a debit card, allowing him/her to make plastic

transactions. For example, legislation often prevents minors from taking out debt,

which includes the use of a credit card, but not online debit card transactions.

30


For most transactions, a check card can be used to avoid check writing altogether.

Check cards debit funds from the user's account on the spot, thereby finalizing the

transaction at the time of purchase, and bypassing the requirement to pay a credit card

bill at a later date, or to write an insecure check containing the account holder's

personal information.

Like credit cards, debit cards are accepted by merchants with less identification and

scrutiny than personal checks, thereby making transactions quicker and less intrusive.

Unlike personal checks, merchants generally do not believe that a payment via a debit

card may be later dishonored.

Unlike a credit card, which charges higher fees and interest rates when a cash advance

is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based

transaction at no extra charge, other than a foreign ATM fee.

Disadvantages of debit cards

Use of a debit card is not usually limited to the existing funds in the account to which

it is linked, most banks allow a certain threshold over the available bank balance

which can cause overdraft fees if the users transaction does not reflect available

balance.

Many banks are now charging over-limit fees or non-sufficient funds fees based upon

pre-authorizations, and even attempted but refused transactions by the merchant

(some of which may be unknown until later discovery by account holder).

Many merchants mistakenly believe that amounts owed can be "taken" from a

customer's account after a debit card (or number) has been presented, without

agreement as to date, payee name, amount and currency, thus causing penalty fees for

overdrafts, over-the-limit, amounts not available causing further rejections or

overdrafts, and rejected transactions by some banks.

In some countries debit cards offer lower levels of security protection than credit

cards. Theft of the users PIN using skimming devices can be accomplished much 31

http://en.wikipedia.org/wiki/Overdraft


easier with a PIN input than with a signature-based credit transaction. However, theft

of users' PIN codes using skimming devices can be equally easily accomplished with

a debit transaction PIN input, as with a credit transaction PIN input, and theft using a

signature-based credit transaction is equally easy as theft using a signature-based

debit transaction.

In many places, laws protect the consumer from fraud much less than with a credit

card. While the holder of a credit card is legally responsible for only a minimal

amount of a fraudulent transaction made with a credit card, which is often waived by

the bank, the consumer may be held liable for hundreds of dollars, or even the entire

value of fraudulent debit transactions. The consumer also has a shorter time (usually

just two days) to report such fraud to the bank in order to be eligible for such a waiver

with a debit card, whereas with a credit card, this time may be up to 60 days. A thief

who obtains or clones a debit card along with its PIN may be able to clean out the

consumer's bank account, and the consumer will have no recourse

Debit Cards Benefits

Debit Cards offer the following benefits:

They help people to be disciplined financially, since one cannot splurge with the

limited amount of funds deposited for the card.

A person with poor credit can obtain a debit card too much trouble.

Debit cards can be used to make online purchases and payments.

They provide freedom from carrying cash checks while traveling, herby offering more

safety.

32


Debit Cards: Issuers

The banks issuing debit cards include:

Bank of America

Citibank

American Express

Standard Chartered

HSBC

Debit Cards vs. Credit Cards: Similarities and Differences

Similarities

The same financial institutions offer both debit cards and credit cards. Both cards

offer special rewards, such as points and cash back on purchases made through the

card.

Debit cards and credit cards can be used to make online payments with the help of the

pin number assigned to them.

They can be used to withdraw money from ATM’s depending on the cash limit

available on these cards.

Differences

In the case of a credit card, the issuer offers credit and overdraft facilities. This facility is

not available with a debit card, which will only debit payments from existing and

available funds within the cardholders account.

33


A credit cardholder therefore has a monthly bill to pay in every month that the card is

used. If they don’t pay that bill, high interest charges are applied. A debit card holder is

free from the hassle of paying those bills and from the risk of building up large debts to

credit card companies.

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.

TYPES OF DEBIT CARDS

DEBIT CARDS

Combining the wide acceptability of a credit card and the thoughtful prudence of an ATM

card, the ICICI Bank Debit Card is the most convenient accessory. No more fear of

34


overspending. No more searching for the nearest ATM. Only more comfort and convenience

in the debit cards provided by ICICI.

Various Products

The ICICI Bank Private Banking Debit Card

The ICICI Bank Gold Debit Card

The ICICI Bank HPCL Debit Card

The ICICI Bank Ncash Silver Card

The ICICI Bank Ncash Debit Card

DEBIT CARD

HDFC BANK Debit Cards give you complete and instant access to the money in accounts

without the risk or hassle of carrying cash.

TYPES OF DEBIT CARDS

Easy Shop International Debit Card

Easy Shop International Gold Debit Card

Easy Shop International Business Debit Card

Easy Shop Woman's Advantage Debit Card

Kisan card

35


RESEARCH

COMPARISION BETWEEN HDFC BANK AND ICICI BANK

About - HDFC Bank Limited, India

The Housing Development Finance Corporation Limited (HDFC) was

amongst the first to receive an 'in-principle' approval from the Reserve Bank

of India (RBI) to set up a bank in the private sector, as part of the RBI's

liberalization of the Indian Banking Industry in 1994. The bank was

incorporated in August 1994 in the name of 'HDFC Bank Limited', with its

registered office in Mumbai, India. HDFC Bank commenced operations as a

Scheduled Commercial Bank in January 1995.

Capital Structure

The Indian Private Equity Fund, Mauritius (IPEF) and Indocean Financial

Holdings Ltd., Mauritius (IFHL) (both funds advised by J P Morgan Partners,

36


formerly Chase Capital Partners) together hold about 5.5% of the bank's

equity. Roughly 27.5% of the equity is held by FIIs, NRIs/OCBs while the

balance is widely held by about 214,000 shareholders. The shares are listed on

The Stock Exchange, Mumbai and the National Stock Exchange. The bank's

American Depository Shares are listed on the New York Stock Exchange

(NYSE) under the symbol "HDB"

BOARD OF DIRECTORS

Managing Director Aditya Puri

Executive Director Paresh Sukhthankar

Executive Director Harish Engineer

Chairman C.M. Vasudev

Assets and Credit Cards Pralay Mondal

About – ICICI Bank Limited,

In 1955, The Industrial Credit and Investment Corporation of India Limited

(ICICI) was incorporated at the initiative of World Bank, the Government of

India and representatives of Indian industry, with the objective of creating a

development financial institution for providing medium-term and long-term

37


project financing to Indian businesses. In 1994, ICICI established Banking

Corporation as a banking subsidiary. Formerly known as Industrial Credit and

Investment Corporation of India, ICICI Banking Corporation was later

renamed as 'ICICI Bank Limited'

Capital structure

ICICI Bank is India's second-largest bank with total assets billion (US$ 108.7

billion) at March 31, 2010.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and

the National Stock Exchange of India Limited and its American Depositary

Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

BOARD OF DIRECTORS

Managing Director and

Chief executive Officer

Chanda Kochhar

DeputyManaging Director Sandeep Bakhshi

Executive Director N.S.Kannan

CREDIT CARDS OF HDFC BANK

CREDIT CARD: HDFC bank credit cards provide a facility of easy availability of cash and

convenience to the cardholder.

TYPES OF CREDIT CARDS OF HDFC BANK

CLASSIC CARDS

38


Silver Credit Card

Value plus Credit Card

Health plus Credit Card

Gold Credit Card

Titanium Credit Card

CREDIT CARDS OF ICICI BANK

CREDIT CARDS

ICICI Bank Credit Cards give you the facility of cash, convenience and a range of benefits,

anywhere in the world. These benefits range from life time free cards, Insurance benefits,

global emergency assistance service, discounts, utility payments, travel discounts and much

more.

TYPES OF CARDS

Premium Cards

Classic Cards

Value for Money Cards

Co Branded Cards

Affinity Cards

EMI Card

Who's the banking king? ICICI or HDFC?

Their offices reflect their attitudes. ICICI Bank's headquarters in suburban Mumbai is

a huge, imposing edifice in glass and granite. HDFC Bank's office in central Mumbai

39


is comparatively smaller and more sedately furnished.The two banks have carried

forward their style statement in their approach to business. ICICI Bank thinks big, is

all for growth and hungry for market share.HDFC Bank is more conservative and

cautious, grows at a measured pace, without taking any undue risks.ICICI Bank began

its retail banking venture in mid-1999. By January 2000, it had moved on to

introducing home loans, car loans, personal loans and credit cards.Realising the need

for a bigger retail deposit base, the bank started building a branch and an ATM

network. The acquisition of Bank of Madura in March 2001 added 263 branches,

many of them in cities where ICICI Bank did not have a presence.The merger of the

erstwhile financial institution ICICI Limited with the bank in April 2002, gave it a

ready-made corporate clientele. The flip side was that ICICI Bank had Rs 10,000

crore (Rs 100 billion) of restructured assets for which it had to make provisions.

On the other hand, HDFC Bank kick started its operations in 1995 with a focus on

corporate banking, targeting the top-end of the market. Reminisces Paresh

Sukthankar, head, credit and market risk, HDFC Bank, "Although the asset yields

may have been lower, we were able to cross-sell products so that the overall returns

were better. We may have grown slower than our peers, but the risks were lower."

HDFC Bank ventured into retail lending in 1998, a year before ICICI Bank. But in

products like credit cards, it was slow to get off the mark. For instance, its credit cards

were launched only two years ago.

By then ICICI Bank had been present in the credit card business for nearly three

years. According to some industry experts, growth for ICICI Bank may have come at

the cost of quality.

BETTER PICK UP

The number tell story

Share of the wallet

Mar-10 HDFC ICICI

40


Bank Bank

Branches 1725 2016

ATMs 4232 5219

Cities 789 932

Total assets

(USD)39.723 108.7

Revenue(Rs

crore)20,666 59,599

Credit cards

(Mn)2.6 5.14

customers

(Mn)12 24

Profit

(crore)3,032 4,843

ICICI Bank has issued 5.14 million credit cards -- that is more than twice the number of

HDFC Bank's credit card users. However, industry observers point out that ICICI Bank's

effective users for credit cards may not be high.

However, consultants believe that HDFC Bank could have leveraged its parent's customers

far more effectively to cross-sell products and grow faster.

Says a banking consultant, "While HDFC Bank has about two years to get ready for the

future, ICICI Bank probably has three years." Should HDFC Bank and its parent be merged,

it could catapult them to a new league.

But round one of the banking sweepstakes has clearly gone to ICICI Bank.

41


Calling the customer

Both players targeted the same customer -- the upper-middle class. The marketing

channels used by both, including direct sales agents (DSAs), were the same.

Yet, there was a difference. While ICICI settled for nothing less than film star

Amitabh Bachchan as an ambassador, HDFC Bank chose to rely on the trusted

lineage of its housing finance parent, Housing Development Finance Corporation

(HDFC).

"While HDFC was no doubt a great brand, it was a single-product brand. Hence, it

was a challenge to make it work with other products."

In the past two years, the bank has spent less than Rs 100 crore (Rs 1 billion) on

advertising and publicity (In comparison, ICICI has spent Rs 185 crore).

HDFC Bank says that its spends have always focused on other channels such as direct

sales and phone banking rather than mainstream advertising. It made sense to get the

direct communication right rather than focus on the masses. Meeting the customer

face-to-face is important."

Is the brand visible enough? The ICICI brand does have greater visibility, though that

HDFC Bank is well-known even in smaller towns.

.

FINDINGS AND RECOMMENDATION

ICICI Bank and HDFC bank has to improve its brand image, i.e. it

has to position itself in the minds of prospects in a better way in

comparisons to others.

42


It should provide better career opportunities for the retention of its

potential advisors.

People who deal with customers should have complete knowledge

about the different products and their features.

It should more emphasize in advertising, as it is the most powerful

tool to position ant brand in the mindsets of customers.

It should provide online training and for those who are in jobs and

want to become advisors ICICI should provide evening training

classes, so that they can join the training after doing there jobs.

CONCLUSION

In the last two years, spending pattern through plastic money has changed drastically.

Travelling, dining and jewellery are the top three purchases that Indians make through

credit cards. Two years ago, it was jewellery and apparel purchases that formed the

largest chunk of purchases through plastic money. Fuel accounts for a very small

portion of credit card purchases as these are largely paid through debit cards.

43


Consumers were not only more open to the possibility of owning a financial card, but were

also more than willing to use their cards to settle dues. The status symbol aspect of owning

and using cards, too, played its part in bringing about such robust growth over the space of a

single year. Debit cards, in particular, proved immensely popular.

According to projections for the 2003-2008 period, the number of financial cards in

circulation will register a compounded annual growth rate of nearly 51 per cent so the

satisfaction of consumers has also increased. There are many ethical issues and

challenges for plastic money issuing banks/companies. Security relating to card

should be first priority for each bank/company.

Consumers are preferring these cards mostly for shopping online E-commerce has

given a better way to use the plastic money. At last it is concluded that plastic money

has a very bright future in the coming years because of the increasing trend of e-

commerce.

After doing a research and studying the materials available on internet, newspapers,

and journals. I want to conclude that people prefers ICICI Bank more than HDFC

BIBLIOGRAPHY

Books

Marketing Management (10 Edition), Philip Kotler

Research Methodology (2nd Edition), C.R. Kothari

Websites

www.hdfcbank.com

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www.google.com

www.icicibank.com

45

http://www.google.com/

Project Report on Plastic Money in India

Documents