Types of Plastic Money

Types Of Plastic Money

A credit card is a method of payment and it can make payments on behalf of cash. And you can use your credit card in any time for to buy a product or a service and it’ll be the standard payment method to your merchant or service provider. But it should be an acceptable credit card for that merchant or service provider. And you can get cash withdrawals using your credit card and normally we called it a Cash Advance.

So a credit card is a legal payment method and it’s designed on a standard to accept by the merchants and other banks like a check or a paper money or a coin. You can see cardholder’s name, credit card number and expire date in face side of a credit card and the signature on its backside.

There are three kinds of payment cards based on their payment method. Those are credit card, Debit card and the Charge card.

1. Credit Card

When you do a transaction using a credit card, you don’t need to pay your hard money to merchant or to Credit Card Company instantly. That transaction amount will paid by credit card company to merchant and then you can pay it to credit card company in next month or during your billing period. And credit card company offer the facility of paying your payments during given period and in installments.

To the installments Credit Card Company adds there monthly interests and then you have to pay your balance with their interest monthly. The previous month bill including the interest was the subject of the loan in the following month.

A credit card has the provisions of the limit that applied to all the member depended on the card type (Silver, Gold and Platinum), minimum amount to pay from the total balance of the bill (like 5%, 10%) and if not paid that amount then fall due that was determined. And if not paid during the billing due date bill amount would subjected to the late payment fee as big as certain percentage from minimum amount and some times it will be a fixed amount for a month.

2. Debit Card

To use a debit card you may have a bank account with the credit card company or the bank, because this transaction proceed as like the cash transaction, because of this only if this card holder had the enough available balance to cover the transaction amount can transaction could be only carried out, after the transaction, transaction amount directly credited from the card holders account and debited to merchant’s account in the very same time.

If you use a debit card you can do card transactions if have the balance in your account for the transaction and when you did a sale transaction using the card it is a cash transaction by not using cash but the paying off or payment was carried out by means of reduce (debiting) from the balance of the account of the credit card holder and then increase (Crediting) the account of the merchant as much as the transaction to the manager of the bank.

3. Charge Card

When use a charge card, it could be used as the payment implement of a trade transaction of product or the service. Then the cardholder has to set off the entire outstanding amount fully at the end of that month or in the following month with or without the additional chargers and fees.

Normally, the charge card don’t have the provisions of the credit limit and card holder has to do full payment of all the transactions before the next statement and without used percentage the interest, but card holder not paid full outstanding amount then he has to pay a additional charge called delay fine for his next statement

BENEFITS OF   ACCEPTING DEBIT CARDS

Most businesses that are pondering the decision to accept credit cards and most companies that already do accept credit cards do not fully understand what different types of advantages they hold over the rest of their competitors. Credit card processing is a great tool that should be used to increase sales and in turn increase profits.The information below is very important for making your decision to accept credit cards or to clarify why it is essential to any business to accept multiple forms of payment.

Businesses with a Merchant Account Can Accept Plastic Cards in One of Two Ways:

Off-line Debit Card Transaction

The most popular way to accept debit cards is in a retail environment. The cardholder makes a purchase and presents their debit card for a face to face

transaction. The card is swiped through the credit card terminal and the machine calls the processor to ask for an approval. Within seconds a receipt will print or a decline message will show up on the terminal’s display. Merchants will be able to accept all types of debit cards just to make sure that they have a Visa or MasterCard logo on them. American Express is working with some large US banks to create their own debit card also. All types of cards are able to be processed with a Power Pay Services merchant account.

Online Debit Card Transaction

The online pin setup is the latest feature that has been added to retail merchant accounts. Card holders have added protection and merchants get charged a much lower fee. The card is swiped directly through the machine similar to a regular offline debit transaction. The cardholder however does not sign a receipt but enters their PIN on the PIN Pad that is connected to the terminal. The information will then be encrypted and sent through the credit card machine to the processing company and then to the bank for approval. The business has money deposited into their bank account just as it is with regular sales.

BENEFITS OF ACCEPTING DEBIT CARDS:

1. Transactions can not "downgrade." When accepting debit cards with Pin numbers, the merchant will never have to worry about a higher rate for the transaction that might occur when accepting certain credit/debit cards. Just make sure the customer uses the Pin pad to complete the sale. The bank’s “see” a lower risk with debit cards and that is why it costs less to the merchant.

2. Faster check out time. Debit cards transactions are fast however debit card transactions a very fast. There is no need for the merchant to wait for a receipt to print, then hand it over to the customer, wait for the customer to sign and then hand it back to the merchant. Just swipe the card, enter your pin and you are done. This will speed up your checkout line for any size purchase while also saving you money.

3. Increased customer loyalty. Each customer has their own preferences when it comes to purchasing items. Most customers enjoy entering their PIN compared to signing since it is more secure and they also are aware that it will take less time. Majority of cards that are used today are debit cards since people want to make sure they are not over spending. Make sure you make the choice to accept debit cards when you setup your credit card processing.

European Journal of Scientific Research ISSN 1450-216X Vol.62 No.1 (2011), pp. 123-127 © EuroJournals Publishing, Inc. 2011 http://www.eurojournals.com/ejsr.htm Plastic Money/Credit Cards Charisma for Now and Then (A Thin Line between Easy Money and Risky Money) Muhammad Imtiaz Subhani Iqra University Research Centre-IURC, Iqra University- IU, Defence View Shaheed-e-Millat Road (Ext.) Karachi-75500, Pakistan E-mail: [email protected] Tel: (92-21) 111-264-264 (Ext. 2010); Fax: (92-21) 35894806 Syed Akif Hasan Iqra University- IU, Defence View, Shaheed-e-Millat Road (Ext) Karachi-75500, Pakistan E-mail: [email protected] Tel: (92-21) 111-264-264 (Ext. 1504); Fax: (92-21) 35894806 Amber Osman Iqra University Research Centre-IURC, Iqra University- IU, Defence View Shaheed-e-Millat Road (Ext.) Karachi-75500, Pakistan E-mail: [email protected] Tel: (92-21) 111-264-264 (Ext. 2010); Fax: (92-21) 35894806 Muhammad Nayaz Iqra University Research Centre-IURC, Iqra University- IU, Defence View Shaheed-e-Millat Road (Ext.) Karachi-75500, Pakistan E-mail: [email protected] Tel: (92-21) 111-264-264 (Ext. 2010); Fax: (92-21) 35894806 Abstract The monetary rattle between consumption and affordability slammed the household severely for every now and then in all spheres of life from one pole to another. This research is an encomium on the charisma of plastic money, its usability and affordability while they are impacting on its preference to use. Friends and Family have an influence on the use of plastic money which is taken as a proxy of plastic money charisma while convenient use of plastic money along with spending adjustment and use of plastic money along with prediction of future income are the proxies of its usability and affordability. The findings reveal that the Plastic money has a charismatic appeal as it has an influential effect which is often endorsed by the family and friend. While, it is also investigated and concluded that plastic money also has its usability and affordability for the consumers. Keywords: Plastic Money, Charisma, Usability, Affordability, Preference to use. Plastic Money/Credit Cards Charisma for Now and Then (A Thin Line between Easy Money and Risky Money) 124

1. Introduction Banking Industry of Pakistan has seen huge success and growth in yester years. The industry has expanded itself in terms of variety of services. The privatization and support of new banks, the number of private and commercial banks have been increased considerably. The banking industry which is government monitored, has become more diversified and profitable due to the reforms of 90s, and that same epoch was the entry of plastic money in many majoreconomies including South Asian Economies. This paper is an illuminating attempt to investigate the charismatic essence of plastic money/ credit card while keeping an eye on its usability and affordability among the consumers of major SouthAsian economies which includes Pakistan, India, Bangladesh and Srilanka. The special focus in this paper, which is given on the consumer decision to borrow from their future income has not been addressed in the preceding behavioral research, where they were unable to appropriately value present and future resources which require the cognitive capacity to solve the problem required by the lifecycle hypothesis. Moreover, consumer debt has been recorded a significant factor for a consumer to face financial crisis and it has never been interrogated that even after this issues why people prefer to use credit options. This study is an endeavor to find the answers of lifted queries in connection with the use ofplastic money i.e. credit card. 2. Literature Review Modigliani and Brumberg (1954) investigated that plastic money i.e. credit cards are a flexible and enthusiastically accessible source of funds; as a convenient payment vehicle for purchases and as a way to provisionally maintain standards of living even during an income shortfall. Hirschman (1979) and Feinberg (1986) investigated the actual consumer transactions while comparing the spending of consumers who paid through plastic money/ credit cards with those who used cash or checks, and found that the former spends more in otherwise identical purchasing situations since a person has a plastic money/ credit card and cannot avoid unnecessary spending Soman and Cheema (2002) explained that the propensity to spend increases as a function of the

credit limit, specifically as the credit limit increases, subjects using a credit card report a higherlikelihood of making a purchase ceteris paribus. When a consumer once has a credit card and with credit line available, sometimes unnecessary spending gets unavoidable. Unnecessary spending gets increased because consumers have a pool of money available, though he/she has to return that money in future. Garcia (1988) ideally point outs that the lender should utilize all available information to determine the future earnings potential of the consumer, and speculate that in the presence of all contrary evidence; consumers do expect the credit limit to represent the future well. Credit card holders avoid unnecessary spending once the credit limit was available to allocate the budget. Purchasing behavior in line with the plastic money/credit card is addressed by Sporleder and Wilson (1974) that purchasing typically is contingent on the availability of funds. The line of inquiry is clearly important in developing a more comprehensive understanding of consumer decision making. When the consumer has proper budget allocation, decision of spending changed. Consumers of credit card can maintain the budget and necessary consumption items through credit card. The consumers having the experience with using credit card as analyzed by Shefrin and Thaler (1988) puts forward the study that consumers want to control spending out of future wealth by using rules like the matching rule i.e. when consumers are aware about their earning at low level then they try to maintain the budget by defining their own limits of spending, the reason being that if consumers spend more and future earning capacity is less then consumers are not be able to return that the said amount and interest increases with the passage of time, which gradually gets extremely unaffordable. It 125 Muhammad Imtiaz Subhani, Syed Akif Hasan, Amber Osman and Muhammad Nayaz has also been recorded that many consumers are listed in the excessive spending than their credit limit, which has accounted for increased amount charged via interest charge on the said amount by the bank/issuer and as result they fail to pay back the handsome amount (Yang, 2003). The tendency of young adults to seek fulfillment through hedonic activities (such as shopping. hanging out).Young adults were more devoted towards high lifestyles and latest trends in

fashion/technological gadgets etc, for the purpose they do unnecessary shopping to be up-to-date (Hausman, 2000). Young adult consumers are spendthrifts and this is related to their emotional behavior. They are brand conscious and spend more on luxury or dispensable goods the plastic money/credit card gives them the option of having easy money if they have the credit limit more than their spending (Yang, 2007). Gross and Souleles (2001) also confirmed that an increase in credit limitbrings an increase in spending. Howells (1995) outlined that an increase in credit spending is resulted due to an increase in income as most of the credit card spending goes for income spending transactions (i.e. the purchase ofnew goods and services). When there is an increase in income purchasing power then willingness to purchase also increases. On the contrary, Carlson and Grossbart (1988) mentioned that students financially responsible for debts are more reluctant to use credit cards as they found plastic money/ credit card riskier. Wertenbroch (1998) also contends that college students have a clear sense of financial responsibility and cautions when using credit cards. Feinberg’s (1986) found an interesting observation that when consumers use plastic money, they tend to tip more than when consumers use cash at restaurants. As when a person has cash on hand, they spend more wisely and according to the limit at hand but when they have the plastic money/credit card, then plastic money owners spend unnecessarily without even estimating the actual budget. The recent studies depict the essence of plastic money/credit card usage to be the most important factor followed by expenditure on fashion goods and routine buying behavior. It has made life easier to a certain extent for compulsive buying, which gives the rise to unnecessary spending (Hogarth, Hilgert, & Kolodinsky, 2004). Demographic and financial variables have major influence altogether in the usability and affordability of plastic money (Lown & Ju ,1992). While it is also noticed that probability of using plastic money/credit cards is very high in developed countries on the influence of friends and family (Kaynak & Harcar, 2001). 3. Hypotheses

H1: There is an impact of Plastic Money/ Credit Card charisma on its preference to use. H2: There is an impact of Usability (convenient use) of Plastic Money/ Credit Card on its preference to use. H3: There is an impact of Affordability (affordable use) of Plastic Money/ Credit Card on its preference to use. 4. Research Methods 4.1. Description of Data, Sample Technique and Sample Size To investigate the Plastic Money/ Credit Card charisma, its usability and affordability and their impact on its preference to use, the friend and family influence to use plastic money/ credit card, convenient use of plastic money/ credit card with spending adjustments, and use of plastic money/ credit card along with prediction of increase in future income are taken as the proxies of plastic money charisma,its usability and affordability respectively. A sample of 2000 respondents from major south Asian countries i.e. Pakistan, India, Bangladesh, and Srilanka (500 from each outlined nation) are selected to investigate the outlined hypotheses. While the stated respondents are selected from all socioeconomic backgrounds and different geographical locations of these nations. Plastic Money/Credit Cards Charisma for Now and Then (A Thin Line between Easy Money and Risky Money) 126 4.2. Description of Econometrical Technique The average scores of all outlined variables are measured for each nation and then the preference to use plastic money/ credit card is regressed by the plastic money/ credit card charisma, its usability and affordability through using multiple linear regressions via split technique. 5. Findings and Results The elementary focus of this paper is to investigate the charisma of plastic money along with its usability and affordability and as well as the impact of these outlined variable on preference to use plastic money/ credit card. The results portray some interesting points to ponder, table 1 reveals that the average scores of preference to use plastic money/ credit card, Charisma of plastic money, Usability of plastic money and the affordability of plastic money are highest for Pakistan in outlinednations from south Asian region. Table 1: Average Scores of Preference, Charisma, Usability and Affordability (Credit Cards) Countries

Preference to use Plastic Money (Avg. Scores) Charisma of Plastic Money (Avg. Scores) Usability of Plastic Money (Avg. Scores) Affordability of Plastic Money (Avg. Scores) Pakistan 3.563 3.508 3.345 3.124 India 3.011 3.006 2.994 2.105 Bangladesh 2.071 2.008 1.200 1.265 Srilanka 2.087 2.162 1.833 1.792 Table 2: Prediction on impacts of Charisma, Usability and Affordability of Plastic Money (Credit Card) on their preference Countries Adj.R Square F Constant Charisma of Plastic Money Usability of Plastic Money Affordability of Plastic Money Pakistan 0.399 33.107 Beta 97.023 1.818 0.771 1.921 p 0.001 0.003 0.010 0.000 India 0.317 27.911 Beta 89.833 1.741 0.631 1.510 p 0.000 0.000 0.009 0.039 Bangladesh 0.254 22.283 Beta 77.819 0972 1.010 1.126 p 0.011 0.040 0.000 0.006 Srilanka 0.278 23.727 Beta 60.238 1.931 0.427 0.456 p 0.006 0.000 0.000 0.000 DV= Preference to use Plastic Money/ Credit Card The further finding of this paper concludes that the model which is comprised upon the predictors i.e. Constant, Charisma of Plastic Money, usability of Plastic Money, and affordability of

Plastic Money predicts and explains the preference to use plastic money significantly for all outlinedsouth Asian nations but best for Pakistan, as it shown in the given table 2, where for all models F >3.84 which implies the models significance. The results also reveal that the charisma of plastic money/ credit cards matters the most for affecting preference to use plastic money/ credit card for all of the nations of the study while it usability to adjust spending and its affordability also play a pivot role for effecting the preference to use the plastic money/ credit card in all major south Asian nations. 6. Conclusion and Discussions It has been revealed that the preference to use of plastic money/ credit card has its pros and cons with its usability and affordability. According to the consumer behavior, in this subject it has been analyzed about plastic money that it’s a form of conditioning and acts as a stimuli which qualifies a consumer to spend. The tests identifies that the preference to go for plastic money/ credit card spending has a positive association with the easy use of plastic money in connection with adjustment of the spending with the budget i.e. its usability, because the precept of credit card usability is linked with a psychological phenomena that people are likely to spend less with credit card and spend more with the same amount of cash on hand in the same budget and this precept also linked with the consumer selfconcept i.e. convenience and easy use which delves into spending. While, the preference to use plasticmoney/ credit card is also effected by its affordability which is its use in connection with the prediction for future income which has already been confirmed by Howells (1995) where they found that the preference to go for credit spending is resulted due to an increase in income. Another arousing facet besides the usability and affordability of plastic money is influence of the people around who has the same mode of payment utility. In the developing country like Pakistan, where there is a mad race to be better than the other and to be dominant and having a flaunting appearance, plastic money is used. It comes in the part of status-quo in a given environment. Credit card is a form a routine activity to buy diverse products and services even online. With this notion in mind, some consumers are laid-back and do not pay their credit card bills on time, which causes a charge of interest on the due payment. In this way, the consumers tend to acquire a self-risk

due to slackness which often turns this easy money into risky money. References [1] Carlson, L. & Grossbart. (1988). Parental style and consumer’s socialization of children. Journal of Consumer Research, 15(1), 77-94. [2] Feinberg, R., A. (1986). Credit Cards as Spending Facilitating Stimuli. The Journal of Consumer Research, 13, 348-356. [3] Garcia, A. (1988). Debt Renegotiation and adjustment in Latin America, Cultura Economica, 9 (9), 119-129. [4] Hausman, A. (2000). A multi-method investigation of consumer motivations in impulse buying behavior, Journal of Consumer Marketing, 17(5), 403 - 426 [5] Hirschman, E.,C. (1979). Differences in Consumer Purchase Behavior by Credit Card Payment System. The Journal of Consumer Research, 6, 58-66. [6] Hogarth, J., M., Marianne, H., A., & Kolodinsky, J., M. (2004). Consumers' resolution of credit card problems & exit behaviors. The Journal of Services Marketing, 18, 19-34. [7] Howells, G., A. (1995). The Demand for Endogenous Money. Journal of Post Keynesian Economics, 18 (1), 89-106.[8] Lown, J.,M. & Ju, I. (1992). A model of credit use and financial satisfaction. Financial Counseling and Planning,3, 105-122. [9] Modigliani, Franco, & Richard, H., B. (1954). Utility analysis and the consumption function: an interpretation of cross-section data, in Kenneth K. Kurihara, ed., Post Keynesian Economics, New Brunswick, NJ. Rutgers University Press. 388–436. [10] Shefrin, H., M. & Thaler, R., H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry 26 (4), 609-43. [11] Soman, D. & Cheema, A. (2002). The Effect of Credit on Spending Decisions: The Role of the Credit Limit & Credibility. The Journal of Marketing Science, 21, 32-53. [12] Sporleder, T., L. & Wilson, R., R. (1974). Credit card purchasing & Static Consumer Behavior Theory. American Journal of Agricultural Economics, 56, 129-134. [13] Wertenbroch, K. (1998). Consumption Self Control by Rationing Purchase Quantities. Journal of Marketing Science, 17, 317-337. [14] Yang, S. (2007). Unrealistic optimism in consumer credit card adoption. Journal of Economic Psychology, 28, 170–185.

[15] Yang, S. (2003). Forecasting consumer credit card adoption. International journal of forecasting 19, 71-85.

MUMBAI: Credit card spend fell to a 4-month low in January as customers got into a rush to park money in tax-saving instruments before the fiscal year comes to a close. 

In January, the total number of transactions through credit cards dipped to 2.6 crore with transactions worth Rs 8,149 crore, according to data released by the Reserve Bank of India. 

"There is a seasonality in consumer spending through credit cards. Normally, Diwali to New Year is a high- spend season and subsequently spends taper off," said Shamal Saxena, head of retail banking products (India and South Asia) at Standard Chartered Bank. 

"Also, retail chains preponed their end of season sales from January to December this time. That is why the January figures show a sharper dip than in the past," he said.  

Also, the total number of credit cards in circulation fell by nearly 20 lakh to 1.55 crore compared with the previous month, as several lenders cancelled inactive cards in the system. This is the sharpest fall in any month. 

"This is the steepest fall in recent times. Banks are not aggressively issuing cards and a lot of them have pulled back after the 2008 crisis," said Sumit Bali, head-business cards, Kotak Mahindra Bank. He said there is more confidence to issue cards now because of credit bureaus. 

Consumers tend to have multiple cards and end up using only a few. A bank categorises a credit card inactive if it has not been in use for three months in a row. 

"A lot of banks continue to clean up their portfolio of inactive cards. Besides, the number of new cards is limited," said Saxena. 

It may be recalled that banks had turned cautious after the financial crisis of 2008 during which credit card dues were seen mounting. 

Many banks had also seen huge delinquencies then which forced them to cancel cards of defaulting customers. However, the credit quality of this segment started improving.

Indian credit card industry - On an upswing

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(1) Do you have a credit card? (2) How many credit cards do you have? Yes, the question has shifted from (1) to (2) in recent years as the credit card penetration is increasing at a good pace. Today, India has close to 50 million credit card users.As per recent industry estimates there are about 20 million credit and debit card users in India. The number of credit and debit cards in active use in 2008 has been in the range of 25 and 40 million. And the number continues to multiply.

On Cards & Commencement

In 1951, the first bank credit card appeared in New York's Franklin National Bank for loan customers. The idea, though, had already been experimented with in various forms much before. In India, Andhra Bank was the first to introduce credit cards in 1981.

However, the idea of keeping multiple cards is a relatively new trend. For good or for bad, the trend is catching up and the Indian credit card industry is witnessing this shift from one to multiple.

On Cards & Changes

At the ‘mass’ level, the credit card as well as the loyalty card boom started early this decade. That’s the time when the telemarketers swamped just about everyone with offers for new credit cards. Hard to believe, today it is not tough to find a person with four credit cards and another 20 plastics, including club membership, airline and hotel membership and dining discount cards. Barely a decade ago, it was a common fear in India to lose money through

misuse of credit card. There was also a mental block against owing money to someone. That psyche has definitely altered.

On Cards & Co-brands

If we talk of the categories, there are regular credit cards, co-branded credit cards and debit cards. Many of these cards land up for free without request. Then, there are the loyalty cards in different avatars at petrol pumps, airlines, hotels, restaurants, golf clubs, movieplexes and retail stores. And to add, even DVD rental shops offer special ATM cards.

If we point out an example, within two years of its launch in July 2006, Deutsche Bank has over 450,000 credit card users in India.

Loyalty cards have become an integral part of corporate strategies to ensure fidelity to the brand. For example, Air India has a frequent flyer base of nearly 5,50,000 members. Every member has been issued a frequent flyer card. Similarly, Indian Oil sells Rs 12,000 crore worth of oil every year through plastic cards. This includes 11 lakh co-branded cards with Citibank and another 12 lakh pre-loaded debit cards.

On Cards & Craze

If you dig deeper you will find that there’s a method behind the card madness. Actually having more credit cards increases the customer’s overall credit limit. Some people get a sense of security in carrying more than one card, just in case one of them doesn’t work.

The craze of cards originates from the rising requirements and comfort seeking attitude. Suppose a person owns five credit cards, there’s a clear division of labour between all of them.

Say- Standard Chartered card to shop, the ABN card to pay for petrol, the SBI card for balance transfer and the ICCI card for net shopping. And may be the Barclays card to pay the insurance EMI.

Co-branded cards have added to the complexity of the market. Such cards, where a bank ties up with another organization such as an airline, gives an opportunity to the customer to earn bonus points that may accrue some additional monetary benefit.

Bookstores offer discounts to loyalty cardholders. So do petrol pumps. Airlines compete with each other to attract the customers through frequent flyer cards; mileage points can be exchanged for free flights. Apart from this, in-flight privileges include increased check-in baggage allowance and priority for confirmation on waitlist.

On Cards & Criticalities

However, there’s also a flip side to the card rush as well. Multiple cards lead to some problems for customers like losing track of the different bills each month and hence falling behind on payments; sometimes the temptation of high credit limits entice customers to overspend.

With so many cards to juggle around, timely payment is a critical issue. Nearly 7-9 percent of the credit card industry turnover is changing to bad debt. Banks are indiscriminately issuing cards without looking into the affordability of the customer. They are also indiscriminately increasing the credit limit of customers. This adds to the criticality.

On Cards & Crime

Crime too has kept pace with the plastic rush. There has been an unprecedented rise in credit card frauds. Users are advised to protect their classified information while using the card at public places.

However at the end, it is all about being careful and wise.

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Indian Credit Card Market Set to Grow at 13% CAGRMar 29, 2011

More Sharing Services Share |Share on facebook Share on myspace Share on google Share on twitter  The number of credit cards issued by Indian banks has increased phenomenally during the last few years. The provision of paying for an expensive commodity in easy installments is the basic advantage of using a credit card. Moreover, among the affluent population, credit card ownership in India is the lowest in the world. Industry sources estimate that just over 20% of the affluent people have credit cards in India compared to over 80% in the countries, such as the US, the UK and, even Hong Kong. With such low penetration levels, Indian credit card industry offers plethora of opportunities, realizing which numerous companies are planning to launch their credit card operations in India. Consequently, the number of credit cards issued by banks is forecasted to grow at a CAGR of nearly 13.2% during FY 2011-FY 2013, says our new research report “Indian Payment Card Market Forecast to 2012”. Furthermore, recovering economy coupled with the availability of affluent consumers remains the most enticing characteristic of the Indian credit card market. Besides, the Reserve Bank of India has imposed several restrictions on the foreign banks regarding launching their Indian operations, whereas there are no such restrictions on credit card companies. Along with this, various other factors, which have played an important role in boosting credit card market, have also been described in the report. Our report has covered various segments of the payment card market in India, such as debit card, credit card, prepaid card, ATM networks, and POS terminals. For each of the segment, detail description and related statistics have also been included in the report. “Indian Payment Card Market Forecast to 2012” also provides information of the key competitors in the market along with their business information and areas of expertise. The report shows a highly concentrated structure of the market, with the top players dominating the market. It provides segment level analysis of the industry along with emerging trends that may shape up with the betterment of economic conditions. The research will help consultants, industry analysts, and vendors to get in-depth knowledge of the current, past, and future performance of the industry.

Major Credit Card Providers in India

Here are the top 10 major credit card providers in India:

ABN Amro HDFC American Express ICICI Bank Axis Bank SBI Bank of Baroda Canara Bank Citibank Visa HSBC MasterCard Deutsche Bank Amex Barclays Bank Diners Club Standard Chartered Kotak Mahindra

Credit card - Advantages and disadvantagesPublished: 02nd March 2006

Views: 78031

Credit Card

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A credit card can be an asset to your lifestyle, but if not handled carefully it can become a liability, especially if you find it so convenient and easy to use that you lose control of your spending.

This short guide will help you understand how you can use your credit card so it works to your advantage, not against you.

AdvantagesA credit card can:

1. Offer free use of funds, provided you always pay your balance in full, on time.2. Be more convenient to carry than cash.3. Help you establish a good credit history. 4. Provide a convenient payment method for purchases made on the Internet and over the telephone.5. Give you incentives, such as reward points, that you can redeem.

DisadvantagesOn the other hand, credit cards can:

1. Cost much more than other forms of credit, such as a line of credit or a personal loan, if you don't pay on time.2. Damage your credit rating if your payments are late;3. Allow you to build up more debt than you can handle; 4. Have complicated terms and conditions;

What is a credit card?A credit card is more then a simple piece of plastic, it is first and foremost a flexible payment tool accepted at 30 million locations worldwide, and if the card balance is paid off every month, then no interest is charged on purchases made so, essentially, short-term credit is granted without the consumer paying any interest. 

Among its many features it provides:1. Access to unsecured credit (no collateral required against amounts charged) 2. Interest-free payment from time of purchase to the end of the billing period 3. Instant payment of purchases, allowing for instant receipt of goods and services 4. 24/7 access 5. Fraud protection 

However before you decide to use your credit card, carefully consider all of the factors and weigh them against your personal needs and values.

What about credit card control?Handling money and credit cards wisely is a talent few of us are born with. But it is a skill that can easily be learned. The place to start is with budgeting. 

What is a Budget?It's simply an organized way of managing your finances, basically, it gives you an overall picture of where your money is coming from, when it's coming in and how it's being spent. A budget should be flexible, changing according to your circumstances. 

Why Budget?Budgeting helps us achieve short-term goals like paying the monthly bills on time; it's also for longer-term financial goals like buying a home, a car, paying for an education, a wedding or a holiday. When you take control of your financial affairs, you're more confident about the future. 

A budget is key to financial control. It gives you a "Polaroid picture" of where you stand financially and where you're heading. 

Credit card control tipsUse a low or no-fee credit card and save on the annual fee that some companies charge.

Only charge to your credit cards what you can pay off in full when the bill comes.

You might not use your credit card as much if you start believing that you have to pay off your entire balance at the end of each month.

A good way to help to reduce what you pay on your credit card is to search for a card with a lower interest rate. Many financial institutions now offer at least one of these types of cards. 

Remember that when you take a cash advance on your credit card, the interest starts accumulating immediately and not on the due date of your credit card bill. 

Also keep in mind that if you make only the minimum monthly repayment you may never get out of debt.

Conclusion

The main advantage of having a credit card is convenience but if you're not good at budgeting and managing your finances, the over-use of credit cards can leave you with a debt that's very difficult to pay back

Advantages of credit cards:

Credit card reduces need to carry cash or checks. A credit card means you don't need to carry huge amounts of cash around and risk losing it.

If you make an unforeseen, large purchase, credit allows you to buy it at once and settle up later. Besides it gives you the opportunity to spread the cost of a large payment over several months.

As well as convenient, accessible credit, credit companies offer consumers flexible rewards schemesin which points earned by purchasing goods with the card can be redeemed for further goods and services.

A credit card means you can make purchases abroad without having to worry about local currency. They have now spread worldwide.

Using credit cards can help you build a positive credit history. Having a good credit history is also very important, when the credit card owner is applying for loans, rental or even jobs.

Many credit cards offer some type of insurance if your purchase is stolen. Some credit companies provide extended warrantees on certain types of purchases.

In general, credit cards enhance our personal responsibility and independence.

Many of these advantages are found in the fine print of your statement that came with the credit card. Make sure you understand how everything works because the benefits differ from card to card.

Of course this only works because many people do not pay their balance at the end of the month. If nobody carried a balance, the banks would be out of money and they unquestionably would not offer any of those reward schemes that give you free miles or hotel rewards.

Disadvantages of credit cards:

The biggest disadvantage is that they are inviting cardholders to spend more money that they don’t yet have. It is far too easy to spend more than you can afford using a credit card. Most credit cards do not ask you to pay off your balance each month.  While this may feel like “free money" at the time, you will absolutely must to pay it off.  The longer you wait, the more money you will lose with interest which accrues every day until you pay the balance.

Credit cards can be stolen, as can cash. They may be physically stolen or someone may steal your credit card number from a website, over the phone etc. The good news is that, unlike cash, if you find your card has been stolen and you inform your credit company instantly, you will not pay for purchases that somebody else has made.

Credit cards issue a monthly spending limit. While they are mostly high, if you exceed it, you may face even bigger charges.

So if a credit card is not used wisely , people can get into debt or even bankruptcy.

Think carefully before applying for a credit card.  There are many benefits you can obtain by using a credit card-all for free as long as you pay off your balance at the end of each month. Other people aren't going to pay off the balance and they are paying for you to get free service.

RBI issues fresh guidelines on credit cardsPTI Jul 9, 2010, 09.07pm IST

MUMBAI: The RBI on Friday warned banks and financial institutions to strictly follow its guidelines on credit cards regarding transparency in charging interest rates and levying other fees on customers or face penal action.

"All banks are once again advised to strictly adhere to the guidelines... both in letter and spirit," an RBI circular said, adding that the violation would invite penal action.

The RBI has issued fresh directives in view of the numerous complaints from credit card holders, especially with regard to excessive finance charges and issuance of unsolicited cards, it said.Besides, complaints like charging annual fee on what were being offered as free cards, issuance of loans over phone, disputes over wrong billing, difficulty in accessing the credit card issuers and poor response from the call centres, it said.

Giving detailed guidelines for credit card operations, the RBI had earlier asked the banks to declare upfront the interest rate, various charges and the methodology of calculation of finance charges with illustrative examples.

As per an RBI circular issued in 2007, card companies should prescribe a ceiling rate of interest, including processing and other charges in case of small value personal loans and loans similar in nature.

There should be transparency in levying differential interest rates, it had said, adding, the banks should publicise through their website and other means, the interest rates charged to various categories of customers.

The circular also advised banks to indicate to the credit card holder upfront, the methodology of calculation of finance charges with illustrative examples, particularly in situations where only a part of the amount outstanding is paid by the customer.

RBI had also asked banks to ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank should provide explanation and, if necessary, documentary evidence to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances, the circular had said.

There are host of banks, which issue credit cards, including ICICI Bank, HDFC Bank, SBI Cards, Punjab National Bank. Besides, many foreign banks like Standard Chartered, HSBC, Citibank also offer them.There are about 1.9 crore credit card users in India.

The introduction and widespread use of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacrifice the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gains. The monetary authority might then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is unwilling to cut efficiency below pre-credit card levels. This could be a source of stagflation.

The Future of Credit Cards in Indiaby MANSHU  on AUGUST 15, 2010

in CREDIT

The following is a guest post by Michael from CreditCardForum.com. He has conducted hundreds of credit card reviews for his site (his favorite being cash back credit cards) and has been analyzing the credit industry for years. Today, he will be discussing the international growth of credit cards and where he believes India will fit into the picture.One of the most lucrative investments ever made by Warren Buffett was in the Coca-Cola company. In 1988, he began gobbling up their stock. At the time, Wall Street thought he was insane; the consensus was that Coca-Cola had already

saturated America and other Western countries, so there was no room left to grow. It was considered to be a fully mature company.

Buffett saw things differently. Even though the Western markets were already saturated, he realized that many international markets were largely untapped… that is where the future growth would be. So he bought $1.02 billion of their stock, which worked out to be 7% of the company at the time.

Well as it turns out, Buffett was right. Over the next twenty years growth flourished overseas. Today, Buffett’s stake in the company is valued at around $11 billion and pays nearly a quarter-billion a year in dividends alone!What does Coca-Cola have to do with credit cards?It’s astonishing just how quickly debit and credit cards have become of the payment method of choice in America. Nowadays, people pay for just about everything using them. Personally speaking, I probably only use cash five or six times per year, and credit cards the rest of the time. In today’s fast-paced, technologically driven world, we are seeing plastic replace paper currency at a rapid rate.I see this situation as being similar to Coca-Cola in 1988. Today, Visa, MasterCard, American Express, and Discover have already conquered America… but what about internationally? In the

majority of the world, debit cards and credit cards are still a rarity, but that’s quickly changing. The aforementioned companies are seeing double-digit annual growth rates overseas. Not surprisingly, it is the technologically-savvy, growing countries – like India – where credit card usage is increasing the most.

What will the future hold for credit cards in India?China and India are the two most populous countries, with 1.34 and 1.18 billion people, respectively. Although the populations are similar in size, last year the Chinese spent nearly $24 billion on credit cards, which is 12 times more than the $2 billion spent in India. However this difference is rather insignificant at such an early stage, since both figures still only represent a trivial fraction of each country’s economy.In order to gauge where India is heading we must consider the following factors:

Past Growth Rate: According to the Indian research firm RNCOS, the country saw a CAGR of around 40% between FY 2006 and FY 2009 for credit cards.Short Term Future Growth: The aforementioned firm predicts a CAGR of 20% between FY 2011 and FY 2013. According to their press release “…the payment card market is highly untapped and is still at its nascent stage

due to a very low level of penetration in terms of payment card usage.”Long Term Future Growth: The biggest obstacle facing long term growth will be infrastructure. According to the RBI, approximately 40% of citizens still do not have a bank account. Increased adaption of banking will be a key component in how quickly card usage is adapted. Furthermore, businesses will need to have greater ability and the willingness to incorporate debit/credit card processing. Lastly – and most importantly – society must also be willing to adapt the transition from paper to plastic.Government Participation: One factor we can be relatively confident in is that the government has and will continue to be supportive of the card industry. The RBI has proposed launching domestic payment card and a POS network for card payments.

How I believe credit cards will be different from those in the United StatesNowadays, just about every credit card in the U.S. offers cash back, points, or some other form of rewards on purchases… but it wasn’t always that way. During the 60’s, 70’s, and 80’s, rewards were almost non-existent and most credit cards even charged an annual fee. It wasn’t until the American market started approaching full saturation that we saw cash back credit cards, travel rewards credit cards, and other

“gimmicks” offered by banks to try and stand out from the competition. In summary, these extra perks would probably not be offered if the market wasn’t so competitive. For that reason, I do not believe we will see Indian credit cards offering widespread rewards for many years (the market first must become much more saturated).There is also the possibility that we may never see such lucrative credit card rewards programs in India. Why? Because there are only two reasons it’s possible for banks to give 1% to 5% cash back on American credit cards:

(1) Credit card companies charge merchants processing fees, which average 2% and higher. These fees help cover the costs of the rewards. Many countries crack down on these fees and limit the amount merchants can be charged. For example, the Royal Bank of Australia capped these fees at only 0.5% in 2003. If India were to also drastically cut the fees, rewards would be far less likely.(2) In the United States, the savings rate is very low. Since the recession it is historically “high” at 6%, but usually it is even less than that. Compare this to a country like India, where the savings rate is around 30%. Because Americans have so little money saved, many do not pay their credit account in full each month or they use credit cards for balance transfers… both of these forms of borrowing involve paying interest payments and/or transfer fees. That, in turn, also helps to

offset the banks expense of offering rewards. However in a country like India where savings is high, I expect the population will generally be less likely to use this expensive type of borrowing. Therefore, it may not be profitable for banks to offer cash back credit cards and the like.ConclusionIn my personal opinion, I believe the credit card business today is very similar to where Coca-Cola’s business stood in 1988 – there are massive untapped growth opportunities. Although India’s current infrastructure may not be considered the most ideal for the adaption of card payments at this time, I believe they are well poised. As a country that highly values science and technology, I am confident their usage of card payments will become widespread. It’s not a question of if, but when.

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