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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).
Credit Cards
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.
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 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).
* 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).
* 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).
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.
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.
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.