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Introduction

Indian economy has flourished with the advent of Liberlisation, Privatisation


and Globalisation. Banking sector is not an exception too. These reforms
have presented a challenge before Indian banking sector to shake hands with
the pace of new technology. However, mere technology upgradation or
introduction of innovative products can not improve the state of affairs until
customers don't respond to it positively. Hence, it becomes very necessary
for the banks to offer the services or products while taking into consideration
the customers needs, preferences, perceptions and convenience. Also, the
banks' services are not just confined to their particular branch customers
only. Customer is now treated as customer of banks as a whole, which
means that he is now capable of enjoying facilities such as anywhere,
anytime banking (Kamesam, 2003). This concept has enabled the bankers to
establish long term connection with their customers.

Hence, Electronic banking is the new trend significantly adopted by banking


sector worldwide due to its wider scope for the customers as well as banks at
large. Various sophisticated products have been launched by the banks
which help them to meet the basic requirements of their customers. With the
entry of tech savvy private sector banks and foreign banks, the competitive
environment has started prevailing in banking sector too. No doubt, Public
sector banks have large network of traditional branches to approach their
customers as compared to the private and foreign players. However, with the
help of information technology, it has now become possible for banks to
deliver products and services efficiently and to improve customer base
without opening new branches. Hence, these new private and foreign players
are trying to compete with them on the basis of adoption of new
technological services like plastic cards, PC banking, Electronic Funds
Transfer (EFT), Internet banking etc. to approach the maximum customers
inspite of having less physical branches (Venkatesan and Kumar, 2007). Due
to this reason, public sector banks are also likely to move towards electronic
banking, which ultimately leads the entire banking sector to the remarkable
improvement with respect to its efficiency, customer services, productivity,
profitability etc. Thus, Banks are now reengineering the way in which their
services can be reached to their customers by bringing in flexibility in their
"distribution channels" (De Sarkar et. al. 2001).

Traditionally, banks were only concerned with acceptance of deposits from


customers and lending surplus money to the suitable customer who want to
borrow at some rate of interest. The most common products being offered by
banks were savings account, current account, term deposit account and
lending products being cash credit and term loans. Banker's main purpose
was to manage the savings of people through the mobilisation of funds
(Deva, 2005).

In the seventies, Banks in India started moving towards the social orientation
due to which nationalization took place in July 1969. The Indian
Government nationalized the 14 largest commercial banks and afterwards
nationalisation of 6 more commercial banks were followed in 1980. The
main reason for the nationalisation was to give the government more control
of credit delivery in order to discharge social obligations (Suneja, 1994).
Due to this effect of nationalization, Banks tried to uplift the neglected areas
like agriculture, small scale industries, tertiary sector, remote areas and
weaker section of the society by providing them with funds at reasonable
rates of interest. Thus, till nineties, the government was having direct control
on the 90% of the banking business in India (Suneja, 1994). While fulfilling
the social objective, the cost of banking operations increased and thus
profitability of banks declined drastically. To overcome these problems, it
became necessary for the banks to introduce new products and services
which are commercially viable and helped them to improve their
profitability and productivity (Deva, 2005). Hence, modern era has brought
progressive change in banking industry as a whole which is resulted from
disintermediation process and information technology. New entrants (private
and foreign banks) in the banking industry generally known as New
Generation tech-savvy banks tend to introduce various innovative services
while incurring minimum cost but also suit the customer preferences. This is
the period when automation of banking operations has gained much
importance (Thakur and Singh, 2005).
Hence, over last one and a half decades the banking environment has
changed progressively. After financial sector reforms during nineties, the
banking industry in India has witnessed remarkable changes due to
information technology and computer applications. The information
technology has replaced the brick or traditional banking with the wide range
of e-banking products and services like ATM (Automated Teller Machine),
Internet Banking, Credit Cards, PC banking, EFTs, Debit Cards, Smart
Cards etc. Indian banks have shifted their emphasis from traditional banking
to banking for customers as customer is always regarded as the key driver
for the success of any new product and services launched in the market and
the customer should be satisfied with the offerings of industry (Deva, 2005).
Therefore, to be successful in the long run, banking industry must adapt to
the changing needs of customers, their preferences and wants. However,
Electronic banking also makes it easier for customers to compare banks'
services and products with that of others competitors in the industry and
allows banks to penetrate new markets and thus expand their geographical
reach (Vohra, 2002). With the effect of this changing environment, Indian
banking has witnessed remarkable growth since 2006 as banking sector is
growing by 18% and it is 6 times more than the last decade growth
(Khandelwal, 2006). Development of banking in India has been discussed
well by Thakur and Singh (2005).

Plastic Cards: A Key Element of Electronic Banking


Money is always regarded as an important medium of exchange and
payment tool. Initially barter system was used as the significant mode of
payment. Over the years, money has changed its form from coins to paper
cash and today it is available in formless form as electronic money or plastic
card (Ramasamy et. al., 2006). Hence, the major change in banks which has
been brought in by technology is through introduction of products which are
alternative to cash or paper money. Plastic cards are one of those types of
innovations through which the customers can make use of banking services
just by owning the card issued by bank and that too without restricting
himself in the official banking hours. Plastic cards as the component of e
banking have been in use in the country for many years now. However, the
card-based usage has picked up only during the last five years. Payment by
cards is now becoming a much preferred mode for making retail payments in
the country (Report on trend and progress of banking in India 2006-07,
RBI). Thus, plastic cards are such payment tool which gives a customer an
opportunity of non cash payment of goods and services and are designed to
facilitate small value retail payments by offering a substitute for bank notes
and coins and thus to complement traditional payment instruments. The role
of various parties involved in plastic cards payment (Retail Payment System,
2004)
(i) Customers or Cardholder: The authorized person holding the card and can
use it for purchase of goods and services also.
(ii) Card issuing bank: The bank or institution which issues the card to its
eligible customers.
(iii) Merchants: Entities which sell the goods and services to the cardholder
and duly agree to accept the card for payment.
(iv) Bank Card Association: The associations (VISA, Master Card,
American Express) which act as an intermediate between card issuing bank
and merchant's bank and authorize the transaction.
[FIGURE 1 OMITTED]
Automated Teller Machine (ATM)

Automatic teller machines played a vital role in the development of plastic


cards. In India, there is a continuous rise in the usage of ATMs by the
customers. According to a survey conducted by Banknet India in 2006, 95%
people prefer using ATMs to traditional mode of banking (1). Since 2000,
sufficient number of ATMs have been installed by various banks in India
while taking into consideration its popularity and usage among the
customers. The ATMs installed by banks in year 2000 was just 1000 in
number which increased to 27088 in year 2007 signifying the tremendous
growth in 7 years (See Figure 2). The group wise share in the number of
ATMs is depicted in Figure 3, according to which the nationalized banks in
India has contributed maximum to the rise of on-site ATMs as well as total
number of ATMs. As far as the growth and number of offsite ATMs are
concerned new private sector banks have led over the other group of banks.
At the early stage, customers could only use ATMs of that respective bank
where they are having account. But currently, this constraint has been
weeded out for the convenience of customers as they can use ATMs of other
banks also where they don't have any account. It is known as interbank
networks and banks charge extra fee termed as "inter-change fee" for usage
of this service. Reserve Bank has encouraged the banks to join together in
small clusters so that their ATM networks can be shared. Currently, there are
various such ATM network clusters functioning in India (See Table 1). The
number of ATMs shared by these networks is also shown in the Figure 4
which indicates that National Financial Switch (NFS) is sharing the largest
number of ATM with its member banks while Mitr i(i) Customers or
Cardholder: The authorized person holding the card and can use it for
purchase of goods and services also.

Credit Cards

The term "credit card" generally refers to a plastic card issued to a


cardholder, with a credit limit, that can be used to purchase goods and
services on credit or obtain cash advances. It is issued by banks holding the
logo of one of the bank card association private and foreign banks, many
public sector banks have also entered the Debit card segment leading to the
increase in acceptance and the total base. Most banks now issue Debit cards
in place of ATM cards and have already converted all their ATM cards into
Debit cards. The reason banks are so eager to push debit cards is that it helps
them cut costs significantly (Choudhury S., 2007). Hence, these days, only a
few pure ATM cards can be seen prevailing in the market like Visa,
MasterCard, Dinners club etc. after proper verification of accountholders.
Unlike debit cards, credit cards also provide overdraft facility and customer
can purchase over and above the amount available in his account and thus
regarded as authentic payment tool (Mishra, 2007). Interest charges are
levied on the unpaid balance after the payment is due. Cardholders may pay
the entire amount due and save on the interest that would otherwise be
charged. Equated Monthly installments (EMI) scheme is also offered by
some banks to the customers who make huge purchases so that they can feel
convenient while paying back the outstanding amount (Vardhaman, 2008).

Clearing and settlement through credit card is a simple and reliable process
in which bank play a crucial role (See Figure 6).If a customer purchases
goods or services from merchant with credit card, merchant swipes a credit
card through a reader, the software at the point-of-sale (POS) terminal dials
a stored telephone number via a modem to call an acquirer (2). When an
acquirer company gets the credit-card authentication request, it credits the
merchant account and card holder accepts liability by signing the credit
receipt. The merchant acquirer forwards the transaction data to bankcard
association, who in turn forwards the data to card issuer bank. The card
issuing bank has to pay the bankcard association, who in turn pay the
outstanding amount to merchant acquirer. The card issuer then adds the
outstanding bill amount to the card holder's monthly statement and card
holder duly makes payment to the issuer afterwards. The credit card business
in India has been growing at a significant pace and that too at the rate of
almost 45% every year as depicted by Table 3. The value of transactions
conducted through credit cards has been almost more than double in last four
years i.e. it has recorded as 176.6 billion in 2003-04 and increases to 413.6
in 2006-07. Moreover, credit cards are more popular among the Indian
customers as compared to debit cards. The total volume and value of credit
card transactions is much higher as compared to the usage trends of debit
cards.The main reason for the growth of credit cards as compare to debit
cards is mainly due to provision of overdraft facility which facilitates the
customers to make purchases and payment even without having enough
money available in their account. The increase in the number of commercial
activities and the growing malls in smaller cities have also contributed
positively in the rise of credit card market.

Future Scenario of Plastic Cards Market in India

The use of plastic cards in India has no doubt in rise from last few years but
there is still a great potential left for the bankers to introduce more attractive
services in order to lure the customers on one side and increase their profits
on the other. Some aspects or facts (organized from various studies and
articles) which are contributing to the growth of plastic cards market and
also indicate its growth in the near future are discussed below:

* The credit card companies say that consumers spend Rs 50,000 crore
annually which is expected to grow at 50% over the next 4-5 years since
2007 (Economic Times, 19 September 2007).
* According to CLSA Report, the estimated credit card base in India till
2020 will be 127 million as compared to 23.1 million in 2007.

* The number of debit and credit card users in India is anticipated to reach
73.4 million and 406 million by the year 2010 and 2011. (4)

* According to an RBI announcement, by April 2009, bank customers will


able to use their ATM cards to withdraw cash from any automated teller
machine installed by various commercial banks across the count and too free
of cost. (5)

* According to a new RBR report on Global ATM Market and Forecasts Till
2011, India is likely to invest heavily in ATMs till 2011.

* Leading Indian banks are said to target a ratio of 1: 2.5 for bank branches
v/s ATMs by 2012. This means the number of ATMs will grow to around
1.75 lakh, assuming the number of branches remains at the same level (The
Hindu Business Line, 29 November 2007).

* Now a number of non-banks in collaboration with/without banks are


planning to issue both, limited or multipurpose prepaid cards. (6)

* In late 2007, most of the companies had announced plans to convert their
credit/debit cards to smart cards by replacing the magnetic stripes in them
with computer chips and incorporating latest encryption technologies. So it
would not be long before smart cards established themselves in India
(Arunachalam L. and Sivasubramanian M., 2007).

* A few non-banks have also entered the domain of providing various


services like provision of infrastructure e.g., shared ATM networks POS
terminals, cheque processing centres etc which will lead to enhance the
potential of plastic cards market (Arunachalam L. and Sivasubramanian M.,
2007).

* A joint venture between Life Insurance Corporation of India (LIC) and GE


Money is likely to launch its first credit card product in 2009 which will be
offered only to LIC customers and policy holders (Vardhaman, 2008).
* In another positive development, ABN AMRO with India's travel portal
MakeMyTrip.com launched a distinctive cobranded credit card, 'Go Card' in
2008. The card offers special reward benefits and good range of travel-
related promotions and packages (Vardhaman, 2008).

* Banks in India are looking at deploying biometric ATMs targeted to reach


the unbanked population in rural India. Using thumbprint and voice
guidance in ATMs reduces literacy requirements to a considerable extent.
Thus, establishing the identity of a rural depositor through biometrics makes
it possible for illiterate or barely literate people to become part of the
banking user community (Murali D. and Jaishankar P., 2007).

* There are already 1.6 million customers using smart cards banking
solution and that figure will go up to 4 million by the end of March 2009 and
will reach to 25 million in five years (Sen A., 2008).

Hence, the future prospects of plastic cards in India are bright enough to
bring paradigm change in its popularity among customers as well as banks.
Also, plastic money has immense opportunities in a growing economy like
India. All types of banks whether public, private or foreign are contributing
positively towards the development of plastic cards in India. Until now, the
growth and usage of plastic cards has been seen more in urban areas due to
existence of more literate people, better infrastructure facilities and proper
awareness as compared to rural areas. The rural people can only understand
their regional language and most of them are even illiterate who are least
aware about the usefulness of plastic cards. Moreover, there is lack of
adequate infrastructure to push the development of cards and induce more
innovation. Thus, most of the banks have now planned to expand
aggressively into rural India, where about 60% of the population lives, using
an innovative system based biometric cards through which customers will be
able to do anytime anywhere banking on their own (David R., 2007).

The rise in consumerism generated by economic reforms began in 1990's has


also sparked robust demand for plastic cards. The arrival of malls,
multiplexes, online shopping stores and shopping complexes encourage the
customers to make use of plastic cards. The modern day, Indian customers
find it easier to make physical payment (credit card or debit card payments)
rather than carrying too much cash contributing to the growth of plastic
money in the country. The prevalence of intensifying competition has further
fuelled the usage of plastic cards in the country like never-before. It benefits
the consumer through enhanced product offerings at a lower cost and that
too with lucrative deals delighted with rewards scheme, loyalty bonus
points, promotional campaigns etc. This has been a very welcome change
and the contribution of all the players is very important to continue the
momentum (Parul, 2008). However, operational risk involved with the usage
of plastic cards like chances of fraud, card damage etc. plays the negative
part too (Retail Payment System, 2004). Moreover, some customers are not
able to utilise cards effectively due to its complex nature and they don't
actually know how to operate it for specific purpose. Thus, the banks should
give them some training regarding its usage. The banks can also provide
them facility to use plastic cards on trail basis so that they can become more
confident while using their own cards. Cost has also remained an issue in
case of credit cards. The interest levied on outstanding amount is very high
which sometimes takes the customers in debt trap ultimately discouraging
the potential customers to make use of it. However, all these hurdles will
diminish over time and positively influencing trends are expected to
continue in the near and far-future. Also, the growth of plastic cards in future
would depend upon the capacity building of the banks to meet the challenges
and make use of the opportunities profitably. However, the kind of
technology used and the efficiency of operations would provide the much
needed competitive edge for success in plastic cards business. Furthermore,
in all these customers' interest is of paramount importance (Gopinath S.,
2005).

Conclusion

The plastic money in the form of cards has been actively introduced by
banks in India in 1990's. But it was not very popular among Indian consumer
at the time of its introduction. The change in demographic features of
consumers in terms of their income, marital status, education level etc. and
upgradation of technology and its awareness has brought the relevant
changes in consumers' preferences. These changing preferences have also
modified their outlook and decision regarding the acceptance and non-
acceptance of particular product and services in the market. Thus, the plastic
cards are gaining popularity among bankers as well as customers and getting
accepted in the market place. It can be well imagined from the discussion
that no doubt, the plastic cards market is growing at a large pace in India yet
it has long way to go as it lacks behind if compared to the usage trends of
other countries. Hence, it has become important that the payment system in
India has to be modernized enough to be at par with the systems prevalent in
other countries, since our domestic financial markets are increasingly getting
integrated with markets abroad (Country Survey-India, 2005). RBI is also
taking important steps in order to enhance its usage and popularity through
initiatives like regulating card market to maintain the security levels and to
build up confidence of bankers and customers. Despite the strong advances
in e-payments, an estimated 90 percent of personal consumption expenditure
in India is still made with cash (Country Survey-India, 2005), which
indicates the tremendous growth potential of this business. So this can be
considered as mere beginning which indicates the bright future prospects of
plastic card market in India. In nutshell, we can say that the Indian banking
sector is accepting the challenge of information technology as all the groups
of bankers have now recognized it as essential requirement for their survival
and growth in future.
List of Credit Card issuing Banks in India
Below is a list of the popular Credit Card issuing Banks in India
ICICI Bank, HDFC, American Express, ABN Amro, Axis Bank, Bank of Baroda, Canara
Bank, SBI, Citibank, HSBC, Deutsche Bank, Barclays Bank, Citibank, Standard
Chartered and Kotak Mahindra.

Types of credit cards in India


Gold Credit Cards, Silver Credit Cards, Premium Credit Cards, Business Credit Cards,
Cash Back Credit Cards, Airline Credit Cards, Low Interest Credit Cards, Balance
Transfer Credit Cards Lifetime Free Credit Cards, Auto and Fuel Credit Cards and Co-
branded Credit Cards

List of Best Credit Cards in India


• American Express Gold credit card
• Indian Overseas Bank Visa International Credit card
• Axis Platinum card
• Bank of India's India Card
• Gold International Card
• Citibank Dinners Club International card
• Union Bank of India Silver Card
• Syndicate Global Classic Credit Card
• Union Bank of India Gold Card
• ICICI Bank Online card
• Syndicate Global Gold Credit Card
• CorpBank Gold card
• Vijaya Bank Visa Gold Credit Card
• HSBC Platinum card
• Vijaya Bank MasterCard Global Card
• CorpBank Classic card
• Vijaya Bank VISA Classic International Card
• HDFC Silver credit card
• Vijaya Bank MasterCard Classic Credit Card
• HDFC Cooperate credit card

Intro-Credit cards or plastic money is slowly and steadily replacing the paper currency
in India these days. The young and dynamic workforce that is hugely responsible for
driving the Indian economy are the major credit card holders in the country. Call it style
statement or anything else the trend of carrying bundles of notes is no more in fashion.
People simply prefer a plastic card than physical money.
In the current scenario the major credit card providers in India are ICICI, Standard
Chartered HDFC and HSBC. Known for providing value added services along with
customer-favorable credit card deals these banks are said too have the highest number
of credit card users in the country. According to recent statistics the number of credit
card holders in India has exceeded 27 million.

Most of the banks and financial concerns in India offer different kinds of credit cards for
different segments of customers. However an ideal credit card is that which offers the
best services, suits all your needs and most importantly charges low interest.

India has came out of self-binding shackles to look "young" again and the
enthusiasm shared by the young work force of the country is driving the
economy like never-before. 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.

It will not be wrong to say that such a scenario in context of the Indian
market is not driven by style statement and is driven more by needs. The
benefits of plastic money have offered unmatched ways to create an
equilibrium and offer an amicable solution when it comes to purchases and
the inability to possess or carry cash. The modern day Indian customers find
it more easy to make physical payment (credit card payments) rather than
carrying too much cash. The introduction of credit card facilities to pay for
mobile, electricity, movie tickets and other related transactions have also
contributed to the growth of plastic money in the country.

Best credit cards (India):

In context of the Indian market, the leading credit card service providers are
ICICI, HDFC, HSBC and Standard Chartered to name a few. These financial
institutions have tried their hands on ensuring value-addition while offering
customer-friendly credit card deals. 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. Statistics have clearly revealed that the number of credit card holders
in India are close to 22 million as on January, 2007. It has been also
revealed that the increasing consumerism in the country has led to a two-fold
increase in the number of credit card transactions from FY 2003-04 to 2005-
06. The trends were as favourable as ever in the financial years, FY 2006-07
and 2007-08 and the same is likely to continue in the coming financial years.

Future of credit cards in India:

With high and industry-favourable figures as above, there is no doubt that


the rise in number of credit card providers and users have come of age. With
these positively-influencing trends expected to continue in the near and far-
future, the writing is on the wall. The credit card industry is likely to soar
more than any industry segment. To add to that, easy and continuous
payments' structures with each passing day and with every Bank poised to
expand its network, the Indian credit card user community is the biggest
beneficiary. The intensifying competition prevalent in the present day Indian
credit card market has further fuelled the usage of credit cards in the
country like never-before. In an aim to overpower the peers and to sustain
and prosper themselves, the Banks and financial institutions have started
cutting down the interest rates and offering lucrative deals.

Tips for prospective or existing credit card holders:

A prospective or existing credit card holder must observe carefulness while


applying or owning a credit card. The terms and conditions of the credit card
agreement must be carefully viewed and understood so that a clear insight
can be achieved. This will help a credit card holder to make the best use of
the plastic money. The credit card repayments must be made before the due
date to avoid attraction of late fee, penalty and surcharge. This can also be
done to maintain a smooth flow of business transactions and ensuring one's
credit stability and visibility in the plastic money market.

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