Sr. concept Page. no

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History

Introduction

Types of plastic money

Credit card

Introduction

Advantage & Disadvantages

Steps in credit card transaction

Different types of credit cards

Credit card data

Debit card

Introduction

Types of debit card systems

Benefits & Features of debit cards

Process debit card transactions

Plastic fraud

Advantages & Disadvantage

Technology & Infrastructure

Merits & Demerits

Case study

Conclusion

Bibliography

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CHAPTER1

CREDIT CARD

INTRODUCTION:-

A credit card is a small plastic card issued to users as a system of

payment. It allows its holder to buy goods and services based on the holder's

promise to pay for these goods and services. The issuer of the card grants a

line of credit to the consumer or the user) from which the user can borrow

money for payment to a merchant or as a cash advance to the user. Usage of

the term "credit card" to imply a credit card account is a metonym.

When a purchase is made the user would indicate consent to pay by

signing a receipt with a record of the card details and indicating the amount

to be paid. Issuer agrees to pay the merchant and the credit card user agrees

to pay the card issuer.

DEFINITION:-

The credit card can be defined as “A small plastic card that allows its

holder to buy goods and services on credit and to pay at fixed intervals

through the card issuing agency

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MEANING:-

A credit card is a card or mechanism which enables card holder to

purchase goods, travels and dine in a hotel without making immediate

payments. The holders can use the cards to get credit from banks up to 45

days.

The credit card relieves the consumers from the botheration of

carrying cash and ensures safety. It is a convenience of extended credit

without formality. Thus credit card is a passport to, “safety, convenience,

prestige and credit.

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FIRST CREDIT CARD INTRODUCE

4

ADVANTAGES & DISADVANTAGES OF

CREDIT CARD

ADVANTAGES OF CREDIT CARD

The benefits of credit card can be grouped as follows:

A) BENEFITS TO THE BANK

B) BENEFITS TO THE CUSTOMERS

(CARD HOLDER)

C) BENEFITS TO THE RETAILER

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(A) BENEFITS TO THE BANK

a) A credit card is an integral part of banks major services these days. The

credit card provides the following advantages to the bank: the system

provides an opportunity to the bank to attract new potential costumers.

b) To get new customers the bank has to employee special trained staff. This

gives the bank an opportunity to find the latent talent from among existing

staff that would have been otherwise wasted.

c) The more important function of a credit card, however, is simply to yield

direct profit for the bank. There is a scope and a potential for a better

profitability out of income / commission earned from the traders turn over.

d) This also provides additional customer services to the existing clients. It

enhances the customer satisfaction.

e) More use by the car holder and consequently the growth of banking habits

in general.

f) Better network of card holders and increased use of cards means higher

popularity and image of the bank

g) Savings of expense on cash holdings, i.e. stationery, printing and man

power to handle clearing transactions while considerably is reduced. It

increases

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(B) BENEFITS TO CARD HOLDER

The principal benefits to a card holder are:

a) He can purchase goods and services at a large number of outlets without

cash or cheque.The card is useful in emergency, and can save

embarrassment.

b) The risk factor of carrying and storing cash is avoided. It is convenient for

him to carry credit card and he has trouble free travel and may purchase his

without carrying cash or cheque.

c) Months purchases can be settled with a single remittance, thus, tending to

reduce bank and handling charges.

d) The card holder has the period of free credit usually between 30-50 days

of purchase

e) Cash can usually be obtained with the card, either on card account or by

using it as identification when encasings a cheque at the bank.

f) Availing credit with minimum formality.

g) The credit card saves trouble and paper work to traveling business man.

(C) BENEFITS TO THE MERCHANT ESTABLISHMENT

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The principal benefits offer credit card to the retailer is

a) This will carry prestigious weight to the outlets.

b) Increases in sale because of increased purchasing power of the cardholder

due to unbilled credit available to the card holder.

c) The retailers gain from the impulse buying and trading up the tendency to

buy the bigger or better article

d) Credit card ensures timely and certainly of payments.

e) Suppliers/sellers no longer have to send reminders of outstanding debits.

f) Systematic accounting since sales receipts are routed through banking

channels.

g) Advertising and promotional support on national scale.

h) Development of prestigious clientele base.

DISADVANTAGES OF CREDIT CARD:-

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The following are the common disadvantages of the credit card:

a) Some credit card transactions take longer time than cash transactions

because of various formalities.

b) The customer tends to overspend out of immerse happiness.

c) Discounts and rebates can rarely be obtained.

d) The cardholder is responsible for charges due to loss or theft of the card

and the bank may not be party for loss due to fraud or collusion of staff, etc

e) Customers may be denied cash discount for payment through card.

f) It might lead to spending habits and cardholders may end up in big debts

i) Avoid the entire cost and security problem involved in handling cash.

j) Losses to bad debts and reduced an additional liquidity is

k) It also allows him to delegate spending power to add on members

l) Credit card is considered as a status symbol.

MARKETING STRATEGIES

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American companies spend billions of dollars each year on marketing.

As a matter of fact, in 2001, U.S. advertising expenditures alone topped

$230 billion, more than doubling the $105.97 billion spent in 1980.

(Source: "Advertising: Exposure and Statistics“

November 2003 newsletter of the Media Education Foundation)

Now, these figures may seem staggering to the independent

professional on a budget, but don’t panic; there are lots of effective

strategies you can utilize that will help you grow your business fast. Here are

some of my favorites:

Identify your niche.

One of the easiest ways to attract customers is to figure out which

group of prospective customers you get your very best results for and go

after them exclusively. Many professionals are afraid to do this claiming that

they’ll be leaving someone out, but many marketing experts agree that niche

marketing as the easiest and

fastest way to get business.

Position yourself as an expert.

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Why? Experts make more money and get more media attention and

that’s free advertising! Let’s face it; it’s easier to trust a specialist than a

generalist who’s trying to be everything to everyone. Once you’ve identified

your niche, let the world know about how you can help. Provide free

information products, write articles and white papers about the problems

your clients face and how they can solve them.

Conduct workshops, seminars and tele-classes specifically geared

towards helping your prospective customers and before long you’ll be

regarded as an expert in your field. And, while you’re at it don’t forget to,

collect names, emails and addresses of prospects to keep filling your

pipeline.

Develop ongoing relationships with complementary

professionals and build your referral team.

These are other professionals who sell non-competing services or

products to the same niche customers you are targeting. For instance, my

clients often need the services of bookkeepers, accountants and business

attorneys. Likewise, they refer business to me. Here are a couple of other

examples:

• Residential realtor, mortgage broker, real estate attorney, home

improvement contractor, architect and interior designer.

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• Commercial printer, copywriter, graphic designer.

Institute a system to keep track of all of the people who are

interested in your product or services, and find creative ways

of keeping in touch with them on a regular basis.

To start, go through your notes. Put together a list of all of the people

you’ve spoken to in the last 6-9 months who’ve showed interest in you but

haven’t become paying customers. Follow up with them in a variety of

ways: call them to touch base, use email, ask them to subscribe to a

newsletter, send them interesting articles, or invite them to join you at

events. It takes numerous impressions to make the sale; that’s why you see

commercials on TV over and over again for the same products.

By Keeping track of all of the people who’ve showed interest and

keeping your business on their radar screen you’ll turn more of them into

paying customers.

Let your satisfied customers help you sell your products or

services.

Here are a couple of ways to do this:

• Ask them for referrals - right away (if you were a car salesman you

wouldn’t wait for the new car to get dirty and dented!)

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• Ask them to write testimonials for you, (also right away) and compile a list

of testimonials to use in your all of your marketing collateral.

Create a marketing calendar and keep to it consistently.

Scheduling marketing activities that take place weekly, bi monthly,

monthly and quarterly will help you to avoid the feast or famine syndrome

that most independent professionals fall prey to. And, by doing so,

marketing will become easier since it becomes a regular part of your

business life.

Identify innovative ways to get more business from existing customers.

It’s much easier to get business from customers who are already

happy with your services or products. So develop additional services or

products to keep customers coming back for more.

THE MECHANICS OF

CREDIT CARD TRANSACTION

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Card transactions are processed through a chain of connected parties. The

five primary parties involved in processing a Visa or MasterCard credit card

transaction are:

1. THE CARD HOLDER

2. THE CARD ISSUER

3. THE MERCHANT

4. THE ACQUIRE

5. THE CARD ASSOCIATION

The card issuer is the bank that issues the credit card to the cardholder. 

The merchant acquirer, often a bank, processes transactions on behalf of the

merchant.  "Card Association" is another term used to describe Visa and

MasterCard.

The use of a card involves an exchange of value between a consumer and

a business.  The card represents an offer for payment in exchange for the

merchant’s goods or services.  The sales draft itself is the cardholder’s

promise to pay. When an acquirer accepts a draft from merchants, the bank

is buying the value represented by the draft and paying the merchant the face

value of that sales draft.  Collecting payment through the interchange

systems is a two-part process

1. Clearing:

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During the clearing process the acquirer provides the appropriate

issuer with information on the sale.  No money is exchange during clearing. 

Clearing involves the exchange of data only.  The acquirer provides data

required to identify the cardholder’s account and provide the dollar amount

of the sales.  When the issuing bank gets this data, the bank posts the amount

of the sale as a draw against the cardholder’s available credit and prepares to

send payment to the acquirer.

2. Settlement:

The second step is the actual exchange of funds.  The issuer sends a

record of money that is being transferred from its account to that of the

acquirer.  From this account the acquirer pays the merchant.  Funds are

settled between issuers and acquirers through accounts with large banks that

are members of the Federal Reserve System and have been selected for that

purpose.  Payments to merchants are made usually through the Federal

Reserve’s Automated Clearing House (the “ACH”) which is an electronic

funds transfer system.

3. Transaction Processing

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Transaction processing involves front-end processing and back-end

processing: Front-end processing involves authorization and data capture

services and message connections via various communication networks to

pint of sale devices.

Back-end processing provides financial accounting for acquirers and issuers

and prepares and submits clearing and settlement data into the Visa and

MasterCard interchange networks.

1. Front End Processing

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Authorization is the acknowledgement by the issuer that a

particular account may be charged for the amount of the sale.  The preferred

method to obtain an authorization and the one that will receive the lower

interchange rate is to swipe a card’s magnetic strip through the point of sale

terminal’s card reader.  If the card cannot be electronically read by the

terminal for any reason, the information may be keyed into the terminal in

order to get an electronic response. The request is then routed through the

processor’s VAP or MIP to the issuer’s authorization center.  The response

is returned to the merchant’s terminal.  The terminal records the response

code which becomes part of the transaction and is included in the clearing

data sent through interchange to the issuer

Authorization may also be obtain through other methods such as voice

authorization.  The merchant can call an 800 number to verbally provide

cardholder information and receive an operator’s response.  Other methods

such as electronically generated audio responses (ARU) that permit the

merchant to use the telephone like a key pad to enter sale information can

also be used.  If for any reason the issuer or its authorization center cannot

be reached, the card Associations will act as stand-in processors to provide

authorizations.

Electronic Draft Capture

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Draft capture is the process of transferring sales draft data into

electronic format so that it may be sent through the interchange networks for

clearing and settlement. Data identifying the cardholder account and

expiration date is put into the point of sales terminal, either by swiping the

card thorough a card reader or manually keying the information into the

terminal’s keypad.  The amount of the sales is then entered and an

authorization requested.  Once an authorization code has been received, the

terminal is prompted to store data on the completed sale in its memory.

.

2. Back-End Processing

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Back-end processing involves the various accounting functions that

enable transactions to be recorded to the proper merchant or cardholder

account.  During back-end processing reports are created for distribution to

the acquirers that include:

1) Settlement data

2) Security/fraud data

3) Retrieval/chargeback data

4) Funds disbursements data

Transactions for internet and other card not present environments

work similarly but can have additional processing steps.  Both Visa and

MasterCard have Internet authentication programs (not to be confused with

authorization) named Verified by Visa (By) and MasterCard Secure Code

(MCSC) that do alter the transaction process somewhat.  If the cardholder is

registered with one of these programs, they must provide a pre-registered

password at the time of purchase.  This password is then passed along as part

of the information flow of the transaction (these programs and other

techniques for controlling fraud are discussed in more detail later in this

section).

Visa and MasterCard offer both signature debit and credit cards to

consumers.  The primary difference between signature debit transactions and

credit transactions are that debit cards are linked to a bank account. 

Rather than offering the cardholder 30 days of float and the option to finance

ongoing balances, debit cards simply debit the cardholder’s bank account for

authorized purchases. Signature debit transactions (which are sometimes

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also referred to as offline debit, a misleading reference and not to be

confused with an offline EFT debit transaction) are different from PIN debit

transactions in that the transaction does not involve use of a PIN number at

the time of purchase.  PIN transactions also are processed on entirely

different networks referred to as EFT networks and are discussed in Section

IV.

CREDIT CARD OPERATIONS OF BANK

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RBI Guidelines

Pursuant to the announcement made in the Annual Policy Statement

2004-05, the Reserve Bank of India had constituted a Working Group on

Regulatory Mechanism for Cards. The Group has suggested various

regulatory measures aimed at encouraging growth of credit cards in a safe,

secure and efficient manner as well as to ensure that the rules, regulations,

standards and practices of the card issuing banks are in alignment with the

best customer practices. The following guidelines on credit card operations

of banks have been framed based on the recommendations of the Group as

also the feedback received from the members of the public, card issuing

banks and others. All the credit card issuing banks / NBFCs should

implement these guidelines immediately.

Each bank / NBFC must have a well documented policy and a Fair

Practices Code for credit card operations. In March 2005, the IBA released a

Fair Practices Code for credit card operations which could be adopted by

banks / NBFCs. The bank / NBFC's Fair Practice Code should, at a

minimum, incorporate the relevant guidelines contained in this circular.

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Guidelines for Implementation

1. Issue of cards

a) Banks / NBFCs should independently assess the credit risk while issuing

cards to persons, especially to students and others with no independent

financial means. Add-on cards i.e. those that are subsidiary to the principal

card, may be issued with the clear understanding that the liability will be that

of the principal cardholder.

b) As holding several credit cards enhances the total credit available to any

consumer, banks / NBFCs should assess the credit limit for a credit card

customer having regard to the limits enjoyed by the cardholder from other

banks on the basis of self declaration/ credit information.

c) The card issuing banks / NBFCs would be solely responsible for

fulfillment of all KYC requirements, even where DSAs / DMAs or other

agents solicit business on their behalf.

d) While issuing cards, the terms and conditions for issue and usage of a

credit card should be mentioned in clear and simple language (preferably in

English, Hindi and the local language) comprehensible to a card user. The

Most Important Terms and Conditions (MITCs) termed as standard set of

conditions, as given in the Appendix, should be highlighted and advertised/

sent separately to the prospective customer/ customers at all the stages i.e.

during marketing, at the time of application, at the acceptance stage

(welcome kit) and in important subsequent communications

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2. Interest rates and other charges

a) Card issuers should ensure that there is no delay in dispatching bills and

the customer has sufficient number of days (at least one fortnight) for

making payment before the interest starts getting charged.

b) Card issuers should quote annualized percentage rates (APR) on card

products (separately for retail purchase and for cash advance, if different).

The method of calculation of APR should be given with a couple of

examples for better comprehension. The APR charged and the annual fee

should be shown with equal prominence. The late payment charges,

including the method of calculation of such charges and the number of days,

should be prominently indicated. The manner in which the outstanding

unpaid amount will be included for calculation of interest should also be

specifically shown with

Prominence in all monthly statements. Even where the minimum amount

indicated to keep the card valid has been paid, it should be indicated in bold

letters that the interest will be charged on the amount due after the due date

of payment. These aspects may be shown in the Welcome Kit in addition to

being shown in the monthly statement.

c) The bank / NBFC should not levy any charge that was not explicitly

indicated to the credit card holder at the time of issue of the card and getting

his / her consent. However, this would not be applicable to charges like

service taxes, etc. which may subsequently be levied by the Government or

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any other statutory authority.

d) The terms and conditions for payment of credit card dues, including the

minimum payment due, should be stipulated so as to ensure that there is no

negative amortization.

e) Changes in charges (other than interest) may be made only with

prospective effect giving notice of at least one month. If a credit card holder

desires to surrender his credit card on account of any change in credit card

charges to his disadvantage, he may be permitted to do so without the bank

levying any extra charge for such closure

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3. Wrongful billing

a) The card issuing bank / NBFC should ensure that wrong bills are not

raised and issued to customers. In case, a customer protests any bill, the

bank / NBFC 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.

b) To obviate frequent complaints of delayed billing, the credit card issuing

bank / NBFC may consider providing bills and statements of accounts

online, with suitable security built therefore.

4. Use of DSAs / DMAs and other agents

a) when banks / NBFCs outsource the various credit card operations, they

have to be extremely careful that the appointment of such service providers

does not compromise with the quality of the customer service and the bank /

NBFC’s ability to manage credit, liquidity and operational risks. In the

choice of the service provider, the bank / NBFCs have to be guided by the

need to ensure confidentiality of the customer’s records, respect customer

privacy, and adhere to fair practices in debt collection.

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b) The Code of Conduct for Direct Sales Agents (DSAs) formulated by the

Indian Banks’ Association (IBA) could be used by banks / NBFCs in

formulating their own codes for the purpose. The bank / NBFC should

ensure that the DSAs engaged by them for marketing their credit card

products scrupulously adhere to the bank / NBFC’s own Code of Conduct

for credit card operations which should be displayed on the bank / NBFC’s

website and be available easily to any credit card holder.

c) The bank / NBFC should have a system of random checks and mystery

shopping to ensure that their agents have been properly briefed and trained

in order to handle with care and caution their responsibilities, particularly in

the aspects included in these guidelines like soliciting customers, hours for

calling, privacy of customer information, conveying the correct terms and

conditions of the product on offer, etc.

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Protection of Customer Rights

Customer’s rights in relation to credit card operations primarily relate

to personal privacy, clarity relating to rights and obligations, preservation of

customer records, maintaining confidentiality of customer information and

fair practices in debt collection. The card issuing bank / NBFC would be

responsible as the principal for all acts of omission or commission of their

agents (DSAs / DMAs and recovery agents).

I. Right to privacy

a) unsolicited cards should not be issued. In case, an unsolicited card is

issued and activated without the consent of the recipient and the latter is

billed for the same, the card issuing bank / NBFC shall not only reverse the

charges forthwith, but also pay a penalty without demur to the recipient

amounting to twice the value of the charges reversed.

b) Unsolicited loans or other credit facilities should not be offered to the

credit card customers. In case, an unsolicited credit facility is extended

without the consent of the recipient and the latter objects to the same, the

credit sanctioning bank / NBFC shall not only withdraw the credit limit, but

also be liable to pay such penalty as may be considered appropriate

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c) The card issuing bank / NBFC should not unilaterally upgrade credit cards

and enhance credit limits. Prior consent of the borrower should invariably be

taken whenever there is any change/s in terms and conditions.

d) The card issuing bank / NBFC should maintain a Do Not Call Registry

(DNCR) containing the phone numbers (both cell phones and land phones)

of customers as well as non-customers (non-constituents) who have

informed the bank / NBFC that they do not wish to receive unsolicited calls /

SMS for marketing of its credit card products. The DNCR should be set up

within two (2) months from the date of this circular and wide publicity

should be given to the arrangement

e) The intimation for including an individual’s telephone number in the Do

Not Call Registry (DNCR) should be facilitated through a website

maintained by the bank / NBFC or on the basis of a letter received from such

a person addressed to the bank / NBFC.

f) The card issuing bank / NBFC should introduce a system whereby the

DSAs/ DMAs as well as its Call Centers have to first submit to the bank /

NBFC a list of numbers they intend to call for marketing purposes. The bank

/ NBFC should then refer to the Do Not Call Registry (DNCR) and only

those numbers which do not figure in the Registry should be cleared for

calling.

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g) The numbers cleared by the card issuing bank / NBFC for calling should

only be accessed. The bank / NBFC would be held responsible if a Do Not

Call Number (DNCN) is called on by its DSAs / DMAs or Call Centre/s.

h) The card issuing bank / NBFC should ensure that the Do Not Call

Registry (DNCR) numbers are not passed on to any unauthorized person/s or

misused in any manner.

I.)Banks / NBFCs/ their agents should not resort to invasion of privacy viz.,

persistently bothering the card holders at odd hours, violation of "do not

call"

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(ii) Customer confidentiality

a) The card issuing bank / NBFC should not reveal any information relating

to customers obtained at the time of opening the account or issuing the credit

card to any other person or organization without obtaining their specific

consent, as regards the purpose/s for which the information will be used and

the organizations with whom the information will be shared. Banks / NBFCs

should satisfy themselves, based on specific legal advice that the

information being sought from them is not of such nature as will violate the

provisions of the laws relating to secrecy in the transactions. Banks / NBFCs

would be solely responsible for the correctness or otherwise of the data

provided for the purpose.

B) In case of providing information relating to credit history / repayment

record of the card holder to a credit information company (specifically

authorized by RBI), the bank / NBFC may explicitly bring to the notice of

the customer that such information is being provided in terms of the Credit

Information Companies (Regulation) Act, 2005.

c) Before reporting default status of a credit card holder to the Credit

Information Bureau of India Ltd. (CIBIL) or any other credit information

Company authorized by RBI, banks / NBFCs may ensure that they adhere to

a procedure, duly approved by their Board, including issuing of sufficient

notice to such card holder about the intention to report him/ her as defaulter

to the Credit Information Company. The procedure should also cover the

notice period for such reporting as also the period within which such report

will be withdrawn in the event the customer settles his dues after having

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been reported as defaulter. Banks / NBFCs should be particularly careful in

the case of cards where there are pending disputes.

The Disclosure/ release of information, particularly about the default,

should be made only after the dispute is settled as far as possible. In all

cases, a well laid down procedure should be transparently followed. These

procedures should also be transparently made known as part of MITCs

d) The disclosure to the DSAs / recovery agents should also be limited to

the extent that will enable them to discharge their duties. Personal

information provided by the card holder but not required for recovery

purposes should not be released by the card issuing bank / NBFC. The card

issuing bank / NBFC should ensure that the DSAs / DMAs do not transfer or

misuse any customer information during marketing of credit card products.

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(iii) Fair Practices in debt collection

a) In the matter of recovery of dues, banks / NBFCs may ensure that they, as

also their agents, adhere to the extant instructions on Fair Practice Code for

lenders (circular DBOD. Leg. No. BC. 104 /09.07.007 / 2002–03 dated May

5, 2003) as also IBA’s Code for Collection of dues and repossession of

security. In case banks / NBFCs have their own code for collection of dues it

should, at the minimum, incorporate all the terms of IBA's Code.

b) In particular, in regard to appointment of third party agencies for debt

collection, it is essential that such agents refrain from action that could

damage the integrity and reputation of the bank / NBFC and that they

observe strict customer confidentiality. All letters issued by recovery agents

must contain the name and address of a responsible senior officer of the card

issuing bank whom the customer can contact at his location.

c) Banks / NBFCs / their agents should not resort to intimidation or

harassment of any kind, either verbal or physical, against any person in their

debt collection efforts, including acts intended to humiliate publicly or

intrude the privacy of the credit card holders’ family members, referees and

friends, making threatening and anonymous calls or making false and

misleading representations.

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6. Redresses of Grievances

a) generally, a time limit of sixty (60) days may be given to the customers

for preferring their complaints / grievances.

b) The card issuing bank / NBFC should constitute Grievance Redresses

machinery within the bank / NBFC and give wide publicity about it through

electronic and print media. The name and contact number of designated

grievance redresses officer of the bank / NBFC should be mentioned on the

credit card bills. The designated officer should ensure that genuine

grievances of credit card subscribers are redressed promptly without

involving delay.

c) The grievance redresses procedure of the bank / NBFC and the time

frame fixed for responding to the complaints should be placed on the bank /

NBFC's website. The name, designation, address and contact number of

important executives as well as the Grievance Redresses Officer of the

bank / NBFC may be displayed on the website. There should be a system of

acknowledging customers' complaints for follow up, such as complaint

number / docket number, even if the complaints are received on phone.

d) If a complainant does not get satisfactory response from the bank /

NBFC within a maximum period of thirty (30) days from the date of his

lodging the complaint, he will have the option to approach the Office of the

concerned Banking Ombudsman for redresses of his grievance/s. The bank /

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NBFC shall be liable to compensate the complainant for the loss of his time,

expenses, financial loss as well as for the harassment and mental anguish

suffered by him for the fault of the

Bank and where the grievance has not been redressed in time.

7. Internal control and monitoring systems

With a view to ensuring that the quality of customer service is ensured

on an on-going basis in banks / NBFCs, the Standing Committee on

Customer Service in each bank / NBFC may review on a monthly basis the

credit card operations including reports of defaulters to the CIBIL, credit

card related complaints and take measures to improve the services and

ensure the orderly growth in the credit card operations. Banks / NBFCs

should put up detailed quarterly analysis of credit card related complaints to

their Top Management. Card issuing banks should have in place a suitable

monitoring mechanism to randomly check the genuineness of merchant

transactions.

8. Right to impose penalty

The Reserve Bank of India reserves the right to impose any penalty on

a bank / NBFC under the provisions of the Banking Regulation Act, 1949

for violation of any of these guidelines.

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Different Types of Credit Cards

Different Types of Credit Cards

Credit cars are of various types, every one has to select credit cards on

the basis of the pros and cons of each type of credit card and at the same

35

time the nature of use. This article gives an insight into the several types of

credit cards available in the market

Today, credit card customers enjoy more options and choices than ever

before. To gain new customers, credit card companies compete by offering

new services and cards to customers. No matter what your needs, chances

are good that there is a card out there that would be ideal for you. If you are

looking for the right card, you can begin by considering the many types of

cards available to you:

Low Interest Credit Cards

These types of credit cards offer very low interest. In some cases,

these cards just charge a few percent interests. The reasons for this are

numerous. In most cases, the low interest rate is for a limited time only.

After a set number of months, you will begin paying higher interest rates. In

some cases, low interest credit cards are not really credit cards at all - they

are debit cards linked to a low-interest loan such as a line of credit. Check

your agreement to find out what type of card you have. If you need to

consolidate debts or if you like the idea of having low interest for a while,

this type of credit card can be perfect for you.

Instant Approval Credit Cards

These cards are really a product of our fast-paced society. The idea

behind this type of credit card is that once you fill out your application, you

will be told whether you are approved or not right away. The approval

process only takes a few minutes. Instant approval credit cards are very

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popular online and applicants can apply via the internet or over the phone.

If you are very impatient or need credit right away, these types of

cards can be for you. However, you should be aware that these cards do not

guarantee that you will be approved right away - sometimes, more time is

needed to process your application. Another drawback to these cards is that

they rely heavily on your credit score. If you have poor credit or any

extenuating financial circumstances, these types of cards may not be for you.

Balance Transfer Cards

Balance transfer cards are a type of temporary low-interest card that is

meant to help you consolidate your debt. They work this way: if you have

several credit cards with a balance, you can get a balance transfer card. You

then transfer all your credit card debt onto the new card and work to pay it

off. Since the new card has a low interest rate, you can quickly repay your

bills.

If you are in debt, a balance transfer card can be a great way to get out

of debt. It offers the convenience of one bill and low rates. However, some

cards have high fees. Also, if you run up your other cards after consolidating

your debts or if you are unable to pay off your new card in the limited time

before the low interest rate increases, you may find yourself even more in

debt than before.

Rewards Credit Cards

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Rewards credit cards offer you points, rewards, or bonuses for

every cash purchase made with your credit card over time. As you

accumulate rewards or points, you can redeem your bonus for entertainment

events, purchases, travel, and other fun prizes. Some cards even offer

customers extra automatic-enter sweepstakes and draws. Each time you use

your card, you are entered into a draw to win specific prizes.

These types of cards are really a marketing tool for card companies.

Companies know that customers love rewards and prizes and so offer these

enticements to lure customers. The major advantage of these cards is that

they can help you get more cash value for your money. They can also be fun

and rewarding for almost any credit card customer. However, not all reward

credit cards are a deal. Some charge high fees to offset the costs of the

bonuses. Some also have very low points systems, meaning that you need to

spend a lot with your credit card to get any rewards at all. Read the fine print

carefully before signing.

Cash Back Credit Cards

Cash back credit cards give you money rewards. When you make a

purchase with this type of credit card, you get some points based on the

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amount of money you have spent with your credit card. When you

accumulate enough points, you get cash back. On most cards, you can get

back about 1% of your total purchases.

These cards are great for those who are budget-conscious as they give

you some money back from your purchases. However, there are several

drawbacks to these types of cards. Some cards have low cash-back

percentage rates. Some charge high fees or have limits on how much money

you can get back each year. Most cards only offer you cash back advantages

on purchases - not on your balance. If you decide this card is right for you,

do compare several card offers to find the best cash back credit card option.

Airline Credit Cards

This type of card allows you to accumulate frequent flyer points on all

your credit card purchases. If you travel a lot or love to travel, this card can

help you accumulate points for a free trip or for a discount ticket. In many

cases, these cards are great because they allow you to gather points for every

purchase. However, these cards can also charge high fees. In some cases,

your points will expire if you do not use them within a specified time.

Worse, some airline credit cards make use of a point system that is not very

user-friendly. You may have to slowly accumulate an enormous amount of

points to qualify for a trip. If you do not love to travel and if you do not use

your Credit card a lot, then, your ability to get rewards you like may be very

limited.

Prepaid Debit Cards

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These cards are sometimes called junior credit cards. They are not

truly credit cards at all, since you are not getting credit or loans from the

credit card company. Instead, these cards work by having you deposit some

money into the card account. You can then use your card to charge any

amount up to the amount in the account. When you add more money, you

can charge more to your card.

Secured Credit Cards

Secured credit cards use collateral to ensure that the card company

will be paid back. Often, these cards are used by people with no credit or bad

credit. With secured credit cards, you can enjoy credit card convenience

even if you do not qualify for traditional cards. However, you will also have

to cope with the additional fees and low credit limits that these credit cards

have.

Credit Cards for Bad Credit

Bad credit credit cards are designed for people with poor credit

histories. These cards generally have very low credit limits and charge extra

fees. This is because they are designed for people who are considered far

less likely to repay their debts. If you have a bad credit rating, these types of

credit cards can be a great way to rebuild your credit history. These cards

can also allow you to have credit even if you would be rejected for most

other cards due to your credit history.

Student Credit Cards

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Student credit cards are cards meant to attract college and university

students. These cards often offer sign-up bonuses for students. They are also

easier to apply for, since credit card companies recognize that students have

much shorter credit histories than the average customer.

If you are a student, student credit cards can be a great option. They

are simple to use and can help you build a good credit rating before you

graduate. However, there are some disadvantages to student credit cards.

These cards may have no reward programs and may have fewer benefits,

including fewer bonuses and services, than other cards.

Business Credit Cards

Business credit cards are created especially for business use. They

offer many of the same advantages as traditional credit cards, but also offer

services that can really help a business. With some business credit cards, for

example, you can enjoy higher interest rates, extra cards for business

employees, monthly reports on your expenses, and services that let you keep

your personal and business expenses separate on the same card. These

advantages mean that using this card for your business is more convenient.

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Types of Credit Cards offered ByIndian Banks

Types of Credit Cards offered by Indian Banks

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Silver Cards

Silver credit cards rank lowest among the metal named cards, and,

because of lower prestige when compared to gold and platinum cards, are

commonly known as basic and standard credit cards. Silver credit cards

come with advantages such as lower annual membership fees if there is any,

and a lower threshold salary which banks use to evaluate your application in

case you should apply.

Silver credit cards will provide you with almost the same credit limit

as other cards provided you have a good credit history. You can also avail of

0% interest balance transfer schemes which are made available for a period

of 6-9 months for silver card holders.

There are also some disadvantages to using silver credit cards. One

would be the lower cash advance limits, less rewards and promotional

packages, and less travel perks compared to gold and platinum cards.

HDFC Bank, ICICI offer silver credit cards through their HDFC Bank Silver

cards and ICICI Sterling Silver credit card

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Gold and Platinum Cards

Gold and platinum credit cards are a status symbol for any credit card

holder, bringing prestige since getting gold and platinum cards usually

require that you have good credit rating and a higher income levels. Gold

and platinum cards offer higher limit for cash advance withdrawals and

sometimes can provide higher credit limits as compared to standard or silver

cards.

If you have a gold or platinum card, you also get better perks and

privileges such as travel insurance, extended warranties for appliance

purchases and special deals on specific products, and purchase protection

insurance.

You can also engage in some loyalty schemes that are offered for gold and

platinum credit card holders which can sometimes involve cash back promos

and reward points systems.

Some popular gold and platinum cards available are the American Express

Gold card, and the ICICI Solid Gold Credit Card.

It is not possible to cover them the exact offerings of these cards but I

will highly advice you to check all these websites of the banks to get all the

info about the credit cards they are offering. Also try to talk to your friends

who are having credit cards to get more info.

CHAPTER 2

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DEBIT CARD

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 cheque, 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 the cheque 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 cheque guarantee card.

Merchants may also offer cash back facilities to customers, where a

customer can withdraw cash along with their purchase.

Types of debit card systems

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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, although

this is becoming commonplace for all card transactions in many countries.

Overall, the online debit card is generally viewed as superior to the offline

debit card because of its more secure authentication system and live status,

which alleviates problems with processing lag on transactions that may only

issue online debit cards. Some on-line debit systems are using the normal

authentication processes of Internet banking to provide real-time on-line

debit transactions. The most notable of these are Ideal and POL

Offline Debit System

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

MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and

other countries, but not the United States) and are used at the point of sale

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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. In some countries and with some banks and merchant

service organizations, a "credit" or offline debit transaction is without cost to

the purchaser beyond the face value of the transaction, while a small fee may

be charged for a "debit" or online debit transaction (although it is often

absorbed by the retailer). Other differences are that online debit purchasers

may opt to withdraw cash in addition to the amount of the debit purchase (if

the merchant supports that functionality); also, from the merchant's

standpoint, the merchant pays lower fees on online debit transaction as

compared to "credit" (offline) debit transaction

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, most notably in Germany (Geldkarte), Austria

(Quick), the Netherlands (Chipknip), Belgium and Switzerland (CASH). In

Austria and Germany, all current bank cards now include electronic purses.

Prepaid Debit Card

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Prepaid debit cards, also called reload able debit cards or reload able

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 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 transfers. Providers

include Caxton FX prepaid cards, [ Escape prepaid cards and Travelex

prepaid cards. [ Whereas, web-based services such as stock photography

websites (stockpot), outsourced services (odes), and affiliate networks

(Media Whiz) have all started offering prepaid debit cards for their

contributors/freelancers/vendors.

BENEFITS OF DEBIT CARDS

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The following are the benefits of the debit card services

FREE WITH OUR BANK ACCOUNT

Obtaining a debit card is easy. If we qualify to open a bank account, we

usually get a debit card, if our bank offers the service.

NO BACKGROUND CHECK

When we are applying for a debit card, the ban does not need to look into

our credit history. All we need is the documentation to open a bank, account,

and money in our bank when we use our debit card.

CASH WITHDRAWALS

The customer can withdraw a minimum of Rs. 100/- and a maximum Rs.10,

000/- per day

CONVENIENCE

A Debit card fees us from carrying a lot of cash or a cheque book. In case,

we are an international traveler, we don’t need to stock up on Traveler’s

Cheques or cash. We can use our debit card to withdraw Cash from over

500,000 ATMs around the world in over 100 countries. We can withdraw in

the local currency of the country we are in, limited only by the money we

have back home in our account, and Business Travel Quota (BTQ) limit

arability.

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FAIR EXCHANGE

If we return merchandise or cancel services paid for with a Debit card, the

transaction is treated as if it were made with cash or a check. Customers

usually get cash back for offline purchases; for on-line transactions, the

amount is credited to our account.

STATEMENT OF ACCOUNT

A statement of transactions can be obtained from the customer’s branch. For

example, a mini statement containing the last four transactions and balance

can be obtained at a State Bank Group during the working hours of the

customer’s branch.

BANKING CUM SHPPING CARD

Your Debit card can be used as ATM card at any ATM across the world, as

well as for making purchase at merchant locations. You can also withdraw

cash from any of the 12000 ATMs in India.

WIDELY ACCEPTED, INTERNATIONALLY VALID

FEATURES OF DEBIT CARD

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The following are features of Debit cards

A) It is a combination of a Cheque and ATM card. Therefore, there are no

fees for using the ATM for cash withdrawal, or as a debit card for purchase.

B) The Debit Card services in meant for withdrawals against the balance

already available in the designated account.

C) It is the card holder’s obligation to maintain sufficient balance in the

designated account to meet withdrawals and service charges.

D) A Debit card is more affordable than credit card. We just our bank

account for all our transactions.

No credit period. Our bank account is debited immediately.

E) No credit check is required to get a Debit card.

F) Use of card is terminated without notice, upon the death, bankruptcy or

insolvency of the cardholder or for other valid reasons.

G) Spending is limited to our bank balance.

DRAWBACKS OF DEBIT CARDS

NO GRACE PERIOD

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A) Unlike a credit card, debit card transactions are on a “pay now” basis

LIMITED PROTECTION

B) Using a debit card may mean we have less protection than we would have

with a credit card for undelivered or defective goods.

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Process Debit Card Transactions

A successful business will usually accept debit cards as a part of their

overall profile of payment solutions. If you don’t process debit cards, you

may not be taking full advantage of all the potential that your merchant

account can deliver. There are essentially two ways you can accept debit

cards, online and offline.

Off line debit card transactions

An offline debit card transaction is still the way most merchants

accept debit cards. This is essentially the same as processing credit cards.

You swipe your customer’s debit card through a credit card terminal and

have them sign the receipt.

If you choose to accept debit cards offline, be sure that the debit card

has a VISA or MasterCard logo. Otherwise, the debit card won’t be

approved and you won’t be able to process the debit card offline

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Online debit card transactions

The most advantageous way to process debit cards is to do it online.

You will still be able to accept debit cards at the point of sale, but you will

need to install a PIN pad on your credit card terminal.

An online debit card transaction works much like a credit card

transaction, except that after your customer swipes his or her debit card, they

will enter a PIN instead of signing the receipt.

At this point the encrypted debit card information is sent to the

customer’s bank for authorization, and you’ll receive the funds just as you

would for a credit card transaction.

Your business has many advantages when you accept debit cards.

For example, you pay a flat fee for each debit card transaction that

you process, instead the flat fee plus percentage rate that you are charged

when you accept credit cards. Over time, this can potentially save you a lot

of money.

Another advantage when you process debit cards is that you can’t be

charged higher “downgrade” fees.

In a credit card transaction, you are usually charged the “discount

rate.” However, some transactions are considered to be a higher risk or

expense to the bank, and you are charged a higher rate as a result.

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But when you accept debit cards, you always pay the same flat rate,

with no danger of the rate increasing.

You can also cut down on checkout time when you accept debit cards.

It takes an average of 30 seconds to hand over the pen, wait for the customer

to sign the receipt, and then take the pen back.

If you process 20 credit card transactions a day, you’re losing 100

minutes a day just passing a pen back and forth! That’s almost two hours

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Plastic Fraud

State-of-the-art thieves are concentrating on plastic cards. In the past,

this type of fraud was not very common. Today, it is a big business for

criminals. Plastic cards bring new convenience to your shopping and

banking, but they can turn into nightmares in the wrong hands. This

pamphlet describes credit and debit cards and some common schemes

involving card fraud with tips to help you avoid them

The following are the types of frauds

1. Stolen Cards at the Office

2. Extra Copies of Charge Slips

3. Discarded Charge Slips

4. Unsigned Credit Cards

5. Loss of Multiple Cards

6. Strange Requests for Your PIN Numbers

7. Legitimate Cards

8. Altered Cards

9. Counterfeit Cards

New Technology

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New technology is making it more difficult for criminals to use, alter,

or counterfeit credit and debit cards. Some of the innovations are already in

use.

These security features have been added to major credit cards:

Holograph –

A three-dimensional, laser produced optical device that changes its color and

image as the card is tilted.

Fine-line printing –

A repeated pattern of the card company name positioned as background for

the company logo.

Ultra-violet ink –

Special ink that is visible only under ultra-violet light, which will display the

credit card company's logo.

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Credit Card Data:

Credit Card is either Visa or MasterCard which is the

Most popular and in some instance American Express.

The Top 10 Credit Card Issuers in India are

as follows,

ICICI Bank - 5.07 Mn

HDFC Bank - 4.42 Mn

SBI Cards - 2.65 Mn

Citibank - 2.54 Mn

HSBC Cards - 1.3 Mn

ABN Amro - 0.78 Mn

Axis Bank - 0.57 Mn

Deutsche Bank - 0.495 Mn

American Express - 0.45 Mn

Data Courtesy - The Reserve Bank of India

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CHAPTER 5

QUESTIONNARIES

1. Meaning of credit card

Credit is a privilege and a convenience. Credit lets you charge a meal on a

credit card, pay for an appliance on an installment plan, take out a loan to

buy a house, or pay for schooling. Credit allows you to make a purchase

without ready cash.

A credit card enables you to buy things now and pay for them later. You get

credit by promising to pay in the future for something you receive in the

present. Credit usually costs something, and what is borrowed must be paid

back.

2. The reason for the neediness of credit

Convenient, hassle-free shopping. When you use a credit card to make a

purchase, you don't have to carry a lot of cash, pay by check, or present

additional identification. A credit card also simplifies and speeds up catalog

ordering and currently is virtually the only way to make Internet purchases.

Emergency help. Credit cards are the ultimate financial security blanket.

They can get you through nearly any emergency situation.

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Easier budgeting. With a credit card, you can make purchases and pay them

off on a schedule that fits your budget. Credit cards also allow you to take

advantage of sales and special offers.

3. Reason to establish a good credit history

Establishing a good credit history is an important part of your personal and

financial future. It can help open doors for you or keep them locked.

A variety of people and businesses make decisions affecting your future that

are based on your credit history. Banks and other lenders consider your

credit report when reviewing applications for mortgages, revolving lines of

credit, or other loans. Landlords sometimes use credit reports to decide

among rental applicants. And a potential employer may even assess an

applicant's credit report before extending a job offer.

4. Meaning of debit card

Debit Card is an electronic purse, which allows the holder to withdraw cash

from ATMs and also enables him to purchase goods or services from the

member establishments. Debit Cards are mostly issued in collaboration

either with VISA or MasterCard.

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CONCLUSION

21ST Century banking has become wholly customer-driven &

technology driven by challenges of competition, rising customer

expectations & shrinking margins, banks have been using technology to

reduce cost & enhance efficiency, productivity & customer convenienence.

Technology intensive delivery channels like net banking, mobile banking,

etc have created a win-win situation by extending great convenienence. &

multiple options for customer.

From educating customers about credit cards there is a need to

educate them about the differentiating factors of the cards. Because visa and

master card are advertising regularly and thereby increases awareness. The

strategy should be to emphasize on its differentiating characteristics.

They also need to identify potential customers and target those using

mailers. As internet is growing at a fast rate the net users can be targeted by

having interactive sites. The prospective company’s card personality could

also be used in the home page to solve customer queries in the ‘Best

Possible Manner’.

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BIBLIOGRAPHY

BOOKS

INOVATION IN BANKING & INSURANCE

FINANCIAL MARKET & SERVICES

INDIAN BANKING INDUSTRIES

INDIAN BANKING

TIMES OF INDIA NEWS PAPER (1st OCT 2010)

WEBSITE

WWW.GOOGLESERCH.COM

WWW.YAHOO.COM

WWW.RBI.ORG

WWW.WIKIPEDIA .COM

WWW.INFOSEE.COM

WWW.INDIANMBA.COM

WWW.INDINBANKING.ORG

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