INSTITUTE OF MANAGEMENT STUDIES D.A.V.V., Indore (M.P.)

Masters of Business Administration (F.A.)

Session 2014 – 16 IIIrd Semester

Third Assessment

Subject: - Retail Banking

Topic:- Plastic Money

Submitted to: - Submitted by:-

Prof. Arvind Parajape Apoorv Sharma (57415)

CONTENTS

Introduction

Meaning & Definition of Plastic Money Properties of Plastic Money Advantages & Disadvantages Of Plastic Money Credit cards – Meaning & History Processing of credit card Advantages & Disadvantages of credit cards Debit cards – Meaning ,History, Features & Types Processing of Debit card Advantages & Disadvantages of Debit cards Other Types of Plastic money – Smart card, Cheque card and

Charge card Development of Plastic Money

INTRODUCTION

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

of paying for goods and services. Plastic money was introduced in the 1950s

and is now an essential form of ready money which reduces the risk of

handling a huge amount of cash. It includes credit cards, debits cards, ATMs,

smart cards, etc. This assignment on plastic money is divided into two portions

titled Concept and Experiences. The former covers the emergence of plastic

money, different types of plastic cards, their growth in India. Plastic money are

the alternative to the cash or the standard 'money'. Plastic money is used to

refer to the credit cards or the debit cards that we use to make purchases in our

everyday life. Plastic money is much more convenient to carry around as you

do not have to carry a huge some of money with you. It is also much safer to

carry it along or to travel with it as if it is stolen one can consult the bank

whose service you are using and get it blocked hence saving your money from

getting stolen or even lost. Nowadays even developing countries like India are

encouraging the use of these plastic money more than cash due to these

reasons. Furthermore these credit and debit cards also have plastic used in their

making and that is where the name 'plastic money' has originated from.

Meaning and Definition of Plastic Money

The term plastic money has been used in different settings to describe a wide variety of payment systems and technologies. “Stored-value” products are

generally prepaid payment instruments in which a record of funds owned by or available to the consumers is stored on an electronic device in the consumer’s possessions, and the amount of “stored value” is increased or decreased, as appropriate, whenever the consumer uses the device to make a purchase or other transaction. By contrast, “access” products are those typically involving a standard personal computer, together with appropriate software, that allow a consumer to access conventional payment and banking products and services, such as credit cards or electronic funds , through computer networks such as the internet or through other telecommunications links.According to Basel (1998) plastic/electronic money refers to “stored value” or prepaid payment mechanisms for executing payments via point of sale terminals, direct transfers between two devices, or over open computer networks such as the internet. Stored value products include “hardware” or “Card-based” mechanisms (also called “electronic purses”), and “Software” or “network-based” mechanisms (also called “digital cash”). Stored value cards can be “single – purpose” or “multi-purpose”. Single-purpose card (e.g. telephone cards) are used to purchase one type of good or services, or products from one vendor, multi-purpose cards can be used for a variety of purchases from several vendors. Also, RBI (2002) quoted that plastic money is an electronic store of monetary value on a technical device used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument. Basle (1998) argues that banks may participate in electronic money schemes as issuers, but they may also perform other functions. Those include, distributing electronic money issued by other entities; redeeming the proceeds of electronic money transactions for merchants, handling the processing, clearing, and settlement of electronic money transactions; and maintaining records of transactions.

Properties of Plastic Money

When implementing a plastic money a big effort has been made to make an

plastic money as close as possible to real, physical money. Here are the

following six properties of an ideal electronic payment system:

The security of plastic money does not depend on a special physical

conditions . No special hardware is necessary and money can be sent

over the network.

Plastic money cannot be copied, modified, or double-spent.

Anonymity and non-traceability. Privacy of user is protected. No-

body can deduce the link between user and his payment. The

customer may perform operations anonymously.

The Protocol for plastic payment between customer and merchant can

be performed off-line. No direct link to third party (e.g. bank) is

necessary.

The plastic money can be transferred to any other user.

Types Of Plastic Money

Credit cards

Debit cards

Smart cards

Charge cards

Cheque cards

Advantages & Disadvantages Of Plastic Money

Advantages

Plastic money, unlike paper money, will not burn easily and can resist

higher temperatures than paper money.

You have no fear to be theft. And its easy to use.

Plastic money, unlike paper money, will not burn easily and can resist

higher temperatures than paper money.

Paper money also picks up dirt and stains more easily than plastic

money.

Plastic money is the debit and credit cards. Plus point of plastic

money is that you won't have to carry your cash around all the time.

It also doesn't wear after time as paper does nor does it rip and tear.

Give you incentives, such as reward points, that you can redeem.

Be more convenient to carry than cash.

Provide a convenient payment method for purchases made on the

Internet and over the telephone.

Help you establish a good credit history.

Disadvantage

Cost much more than other forms of credit, such as a line of credit or

a Personal loan, if you don't pay on time.

Damage your credit rating if your payments are late;

Allow you to build up more debt than you can handle;

Have complicated terms and conditions;

Its disadvantage is that, some extra money will be deducted for the

bank services.

It’s around 2.5% of the money you spent.

CREDIT CARDS

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.

Meaning & 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. 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.

History of Credit Card

The word Credit comes from a Latin word meaning trust. In the 21st century using credit cards seems to be a way of life that is generally taken for granted. Whatever needs or wants cannot be met with cash, can easily be obtained via credit, credit cards however, have quite an interesting history. Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of exchange-the forerunner of banknotes was established in 14th century. Debts were settled by one-third cash and two-thirds billof exchange. Paper money followed only in the 17th century. Credit cards date back to 1914 when western union provided metal cards giving free, deferred-payment privileges to preferred customer. These cards came to be called “metal money.” Credit cards grew in popularity until the beginning of world war II when ‘Regulation w’ restricted the use of such Cards during

the war and temporarily suppressed the growth of this new payment alternative. But this only heightened people’s desire to be allowed to ‘charge it’ once the war was over. Bank card association began in 1965 when Bank of America formed licensing agreements with other banks. This enabled them to issue Bank Americard and interchange transactions among participating banks. By 1966, fourteen US (United States) bank formed interlink, a new association with the ability to exchange information on credit card transactions. In 1967, four California banks formed the Western States Bankcard association and introduced the Master Charge program to compete with the Bank Americard program. As the bankcard industry grew, bank interested in issuing cards became members of either Bank Americard or mastercharge. Their members shared card program costs, making the bankcard program available to even small financial institutions. Master charge and Bank Americard developed rules and standardized procedures for handling the bank card paper flow in order to reduce fraud and misuse of cards. The two associations also created international processing systems to handle the exchange of money and information and established an arbitration procedure to settle disputes between members. In 1977, Bank Americard became VISA, and in 1979, Master Charge changed its name to Mastercard.Both VISA and Mastercard are non-profit organization which credit cards, set and maintain the rules for processing. These two independent card companies led to latest innovations in the credit card business. Now, the credit card system has become universally popular throughout the world including the communist countries. Credit cards are now issued by most banks to customers with sound credit ratings. Although it is claimed that the idea of credit card was first developed by a Bavarian Farmer and Franz Nesbitum, the credit card firstappeared in U.S.A. and is now spreading throughout the developed countries.

In India, the foreign banks and organisation forayed first into the credit card market. The pioneer in the Indian field is the Citibank’s Diner’s Club Card which entered in 1969. Recognising the potentiality of the credit cards, a few Indian banks took early initiative to introduce them. However, it was only during 1981, when Andhra Bank introduced its own credit card, did the Indian Banks constructively enter the field. Andhra bank is the first nationalised bank to introduce it along with the Vijaya Bank. In the same year, the Central Bank of India in association with Vysya Bank, United Bank of India issued the Central Card. In 1985, the Bank of Baroda along with Allahabad Bank launched the Bobcard. The Mercantile Credit

Corporation Limited’s Mercard came in 1986. The Canara Bank made later entry into the credit card business in 1987 and the Bank of India issued its own card, India card in 1988. Among the foreign banks the ANZ Grindlays Bank came with Visa Classic Card by 1989. Citibank’s Master and Visa Cards appeared in 1990 along with Taj Premium Card of the Bank of India which has also issued the ATM Card. Apart from these the Bank of Madura and Bank of Maharashtra also tied up with Canara Bank and Bank if India respectively for issuing their cards. The Indian Credit card market turned busy with all the twenty eight public sector banks operating in it. The State Bank of India has introduced also the State Bank cheque card. However, credit cards should not be confused with cheque cards, as they perform a quite different function, although certain credit cards can be used also as cheque cards. In 1992, the Hong Kong Bank entered the field with its Visa International and Mastercard International and recently it has launched the Hyatt Regency Preferred Gold Card.

How Credit card processing works 

When a customer pays for products or services with a credit card, the card information is recorded — either by manual entry, a card imprinter, point-of-sale (POS) terminal, or virtual terminal—and then verified so that the merchant can receive payment for the transaction. This process involves the following parties: Cardholder: The owner of the card used to make a purchase Merchant: The business accepting credit card payments for products or services sold to the cardholder Acquirer: The financial institution or other organization that provides card processing services to the merchant Card association: A network such as VISA or MasterCard (and others) that acts as a gateway between the acquirer and issuer for authorizing and funding transactions Issuer: The financial institution or other organization that issued the credit card to the cardholder.

The flow of information and money between these parties — always through the card associations — is known as the interchange, and it consists

of a few steps: 1.Authorization:-The cardholder pays for the purchase and the merchant submits the transaction to the acquirer. The acquirer verifies with the issuer — almost instantly — that the card number and transaction amount are both valid, and then processes the transaction for the cardholder.

2.Batching:-After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment (usually at the end of the day). 

3.Clearing and settlement:-The acquirer sends the transactions in the batch through the card association, which debits the issuers for payment and credits the acquirer. In effect, the issuers pay the acquirer for the transactions. 

4.Funding:-Once the acquirer has been paid, the merchant receives payment. The amount the merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction. The entire process, from authorization to funding, usually takes about 3 days. However, Merchant Card Processing from some banks and financial institutions can offer next-day deposits to their customers with a business checking account. 

In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

ADVANTAGES & DISADVANTAGES OF CREDIT CARD

ADVANTAGES OF CREDIT CARD

(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

(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

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

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

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

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

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

j) Credit card is considered as a status symbol.

DEBIT CARD

A debit card (also known as a bank card or check card) is a plastic card that provides the cardholder electronic access to his or her bank account(s) at a financial institution. Some cards have a stored value with which a payment is made, while most relay a message to the cardholder's bank to withdraw funds from a designated account in favour of the payee's designated bank account. The card can be used as an alternative payment method to cash when making purchases. In some cases, the primary account number is assigned exclusively for use on the Internet and there is no physical card.

In many countries the use of debit cards has become so widespread that their volume has overtaken or entirely replaced checks and, in some instances, cash transactions. The development of debit cards, unlike credit cards, has generally been country specific resulting in a number of different systems around the world, which were often incompatible. Since the mid 2000s, a number of initiatives have allowed debit cards issued in one country to be used in other countries and allowed their use for internet and phone purchases.

However, unlike credit cards, the funds paid using a debit card are transferred from the bearer's bank account, instead of having the bearer pay back the money at a later date.

Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash. Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase.

History of Debit CardATM and debit card transactions take place within a complex infrastructure. The common attribute of all ATM and debit card transactions is that the transaction is directly linked to the consumer’s bank account – that is, the amount of a transaction is deducted (debited) against the fund in thataccount. A Debit card transaction involves the purchase of goods or services. In this case, the consumer present a debit card (which again was

issued by the bank holding the checking account) to a merchant, and the consumer either enters a PIN (online debit) or signs a receipt (offline debit) to verify the consumer’s identity. The merchant, in turn, sends information about the transaction across one or more debit card networks, and if the transaction is approved, the consumer receives the goods or services and the checking account is correspondingly debited. The merchant is reimbursed by a credit to its bank account. An ATM card is typically a dual ATM /Debit card that can be used for both ATM and debit card transactions. Many ATM/Debit cards offer the consumer both types of debit card transactions, online and offline.The history of debit cards is an interesting one. The late 1960s marked the beginning of modern ATM and Point of Sale (POS) systems, although the concept of ATMs and debit cards existed prior to this. It might be argued that the first ATMs were cash-dispensing machines. England’s Barclays Bank, for example, installed the first cash dispenser in 1967. But it did not use magnetic-stripe cards. Customers were issued paper vouchers after that were fed into the machine, which retained the voucher and dispensed a single £10 note. Don Wetzel has been credited with developing the first modern ATM. The idea came to him in 1968 while waiting in line at a Dallas bank, after which he proposed a project to develop on ATM to his employer, Docutel. A major part of the development process involved adding a magnetic stripe to a plastic card and developing standards to encode and encrypt information on the stripe. A working version of the Docutel ATM was sold to New York’s Chemical Bank, which installed it in 1969 at its Rockville center (Long Island, N.Y.) office. Although the Docutel ATM did the modern magnetic stripe access card, the technology remained primitive compared with today’s. The Docutel ATM only dispensed cash and was an offline machine. To enable payment processing, the machine printed a transaction record that was MICR encoded. By the early 1970 ATM technology advanced to the system. ATMs were first accessed primarily with credit cards, but in 1972, City National Bank of Cleveland successfully introduced a card with an ATM but on debit card function. ATMs were developed that could take deposits, transfer money from cheque to saving or savings to cheque, provide cash advances from a credit card, and take payments. ATMs also were connected to computers, allowing real-time access to information about card holder account balances and activity. By connecting a string of ATMs to a centralized computer, banks established ATM network. At first, ATMs were located on the premises of bank offices, but off-premises ATMs soon followed. Grocery

stores and convenience stores quickly recognized the benefits of installing ATMs on their premises.In 1982, VISA acquired ownership positions in the regional network plus and began to build a national EFT network. Perhaps more important, in 1985 the U.S. Supreme Court held that ATM’s did not represent bank branches. Until the time there had been considerable legal uncertainty about the legal status of ATMs. If ATMs were considered branches, the limitation on interstate branching would affect their placement and, in turn, might put any EFT network that operated across state lines in legal jeopardy. The decision by the U.S. Supreme Court encouraged interstate EFT networks. Debit cards have been used more extensively in recent years for a number of possible reasons. It is relatively easy to add a debit function to an ATM card and because the base of ATM card holders was well established in the 1980s, it was not difficult for banks to establish a similar base of debit cardholders. Aggressive marketing on the part of banks helped familiarize debit card holders with the instrument, as did the emergence of Visa and Mastercard’s offline debit products, which opened up their credit card infrastructures to debit cardholders.

Types of debit card systems

Online Debit System: Online debit cards require electronic authorization

of every transaction and the debits are reflected in the user’s account

immediately.

Offline Debit System: This type of debit card may be subject to a daily

limit, and/or a maximum limit equal to the current/checking account

balance from which it draws funds. Transactions conducted with offline

debit cards require 2–3 days to be reflected on users’ account balances.

Electronic Purse Card System : Smart-card-based electronic purse

systems (in which value is stored on the card chip, not in an externally

recorded account, so that machines accepting the card need no network

connectivity)

Features of Debit card

The following are features of Debit Cards

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.

The debit card service is meant for withdrawals against the balance

already available in the designated account.

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

designated account to meet withdrawals and service charges.

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.

No credit cheque is required to get a debit card.

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

insolvency of the cardholder or for other valid reasons.

Spending is limited to our bank balance.

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 transactionsAn 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

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. 0Another 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. 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.

ADVANTAGES & DISADVANTAGES OF DEBIT CARD

Advantages of Debit Card

Plastic money, unlike paper money, will not burn easily and can resist

higher temperatures than paper money.

You have no fear to be theft. And its easy to use.

Paper money also picks up dirt and stains more easily than plastic

money.

Plastic money is the debit card and credit cards. Plus point of plastic

money is that you won’t have to carry your cash around all the time.

It also doesn’t wear after time as paper does not rip and tear.

Give you incentives, such as reward points,that you can redeem.

Be more convenient to carry than cash.

Provide a convenient payment method for purchases made on the

internet an over the telephone.

Help you establish a good credit history.

Disadvantages of Debit card

cost much more than other forms of credit, such as a line of credit or a

personal loan, if you don’t pay on time.

Damage your credit rating if your payment are late.

Allow you to build up more debt than you can handle.

Have complicated terms and conditions.

It’s around 2.5% of the money you spent.

Some extra money will be deducted for the bank services.

It is cheaper to make.

Other Types Of Plastic Money

CHARGE CARDA charge card carries all the features of credit cards. However, after using a charge card you will have to pay off the entire amount billed, by the due date. If you fail to do so, you are likely to be considered a defaulter and will usually have to pay up a steep late payment charge. When you use a credit card you are not declared a defaulter even if you miss your due date. A 2.95 per cent late payment fees (this differs from one bank to another) is levied in your next billing statement.A charge card is a mean of obtaining a very short term (usually around 1 month)loan for a purchase. Thus, a charge card is a convenience instrument, not a credit instrument. Under this facility, the cardholder needs to make a consolidated payment to the issuer for all purchases effected with the card during a specified period of time.There is no “minimum payment” other than full balance. A partial payment (or no payment) result in a severe late fee and the possible restriction of future transactions and risk of potential cancellation of the cad. The Diner’s club card of Citibank, American Express, Travel and entertainment cards falls under the category of charge card

SMART CARDA smart card contains an electronic chip which is used to store cash. This is most useful when you have to pay for small purchases, for example bus fares and coffee. No identification, signature or payment authorization is required for using this card.The exact amount of purchase is deducted from the smart card during payment and is collected by smart card reading machines. No change is given. Currently this product is available only in very developed countries like the United States and is being used only sporadically in India. Smart Card ,Smart cards, sometimes called chip cards, contain a computer chip embedded in the plastic. It has the capacity to store upto 80 times more information than other magnetic stripe cards. Smart cards carry the electronic proof of its holder’s identity enabling its holder to make secure purchases anywhere on the globe, leading to a dramatic increase in

electronic commerce. It is estimated that by the year 2018, five billion smart cards will be in use in over 100 countries covering 24 percent of the world populations. Presently, smart cards are used primarily for telephones, healthcare, transportation, movies, fast food outlets, internet banking and loyalty programs. There are two types of Smart cards. First, contact Smart cards that requires insertion into a reader and contact less smart cards which requires only close proximity to an antennavia radio waves.

CHEQUE CARDThe card issued by a bank which guarantees the payment of a cheque within prescribed limit, whether presented for cash at a branch of a paying bank or to a trader for goods or services. The first cheque card was introduced by National Provincial Bank in October 1965, guaranteeing payment of cheque upto £ 30. A cheque guarantee card is essentially therefore an abbreviated portable “letter of credit” granted to a qualifieddepositor, providing that when he is paying a business by cheque and the retailer writes a card number in the back of the cheque. The cheque was signed in the retailer presence and the retailer verifies the signature on the cheque against the signature on the card, then the cheque cannot be stopped and payment cannot refused by the bank. Cheques drawn against insufficient funds in this manner can result in an overdraft with penalty interest.

Development of Plastic Money

Plastic money is gradually strengthening its position with the potential of further growth in the future. It is worthwhile to observe how plastic money will evolve in the future in a competitive environment in terms of safety, efficiency and convenience. The use of plastic money has been expanding quite rapidly and its development is a prominent trend in the area of retail payment. There are many evident advantage of an electronic mode of transfer as compared to conventional clearing house because banks are increasingly turning to technology for managing their payments. Some of the value attributes include secure payments, cost-cutting, payment on due date and easier cash management compared to conventional systems. Plastic money in recent years is gaining momentum in India as merchant establishments and customers are realizing the safer mode of making payments compared to conventional payment. Financial institutions have realized the acceptance of traders and customers, which has motivated them in leveraging on these systems. The plastic culture is influencing into the daily purchasing habits of Indian customers and the payment card business is growing as never before. Over the past few years, customer attitude towards the use of traditional cash and cheques payments has changed drastically leading to improved way of making payment. With the change in technology and the improvement in the payment system has lead to further development in plastic money. This development in plastic moneyhelps the customers to satisfied their ever changing needs.