PLASTIC MONEY UIET, PANJAB UNIVERSITY CHANDIGARH

Definition of Plastic Money

Plastic money is a term that is used predominantly in

reference to the hard plastic cards we use everyday in place of actual bank notes. They can come in many different forms such as cash cards, credit cards, debit cards, pre-paid cash cards and store cards.

Cash Cards
Cash Cards - A card that will allow you to withdraw

money directly from your bank via an Automated Teller Machine (ATM) but it will not allow the holder to purchase anything directly with it.

Credit Cards
Credit Cards - Again this card will permit the card

holder to withdraw cash from an ATM, and a credit card will allow the user to purchase goods and services directly, but unlike a Cash Card the money is basically a high interest loan to the card holder, although the card holder can avoid any interest charges by paying the balance off in full each month.

Debit Cards
Debit Cards - This type of card will directly debit

money from your bank account, and can directly be used to purchase goods and services. While there is no official credit facility with debit cards per se, as it is linked to the bank account the limit is the limit of what is in the account, for instance if an overdraft facility is available then the limit will be the extent of the overdraft.

Pre-paid Cash Cards

Pre-paid Cash Cards - As the name suggests the user

will add credit to the card themselves, and will not exceed that amount. These are usually re-useable in that they can be 'topped up' however some cards, usually marketed as Gift Cards are not re-useable and once the credit has been spent they are disposed of.

Store Cards
Store Cards - These are similar in concept to the Credit

Card model, in that the idea is to purchase something in store and be billed for it at the end of the month. These cards can be charged at a very high interest rate and can are limited in the places they can be used, sometimes as far as only the store brand that issued it.

Amex card
Amex stands for American Express and is one of the

well-known charge cards. This card has its own merchant establishment tieups and does not depend on the network of MasterCard or Visa.

Co-branded Card
Co-branded cards are credit cards issued by card

companies that have tied up with a popular brand for the purpose of offering certain exclusive benefits to the consumer. For example, the City-Times card gives you all the benefits of a Citibank credit card along with a special discount on Times Music cassettes, free entry to Times Music events, etc.

Affinity Card
The card issuer ties up with popular organizations/

institutions which are often non-profit organizations (Citi-WWF card)to offer an affinity card. When the card issued, a certain percentage is contributed to the organization /institution by the card issuer

Credit Card
Credit Card is a plastic card that is issued by financial

company to the holders to borrow instant funds at the point of sale. It denoted the good credit ranking of the person and also is a promise that the borrower will repay the money within due date. It has become a lifestyle asset for the third generation people. But it can become liability to you if you do not have control on your spending..

Credit cards history from international arena

The idea of lending money through a card goes as far back as the 1800s. According to the 2005 FDIC (Federal Deposit Insurance Corporation) Banking Reviews paper called Overview of Recent Developments in the Credit Card Industry", merchants and financial intermediaries provided credit for agricultural and durable goods. The cards soon began to spread to other industries. Hotels and department stores presented their most valued customers with paper identification cards. The cards were mostly used at that one location; however, some local merchants would accept the competitors card. In 1950s the Bank of America introduced the Bank Americard, the first general purpose credit card. The bank created a separate credit card operation entity that in the mid 1970s became known as VISA . In 1966, competing banks spawned rival cards as a result of Bank of Americas success. This network of bank owners later created an association that came to be known as MasterCard

Some facts of credit cards in India

The first card was issued in India by Visa in 1981.

The country's first Gold Card was also issued from Visa in 1986. The first international credit card was issued to a restricted number of customers by Andhra Bank in 1987 through the Visa program, after getting special permission from the Reserve Bank of India. The credit cards are shape and size, as specified by the ISO 7810 standard. It is generally of plastic quality. It is also sometimes known as Plastic Money.

Credit cards eliminate the need for carrying cash or checks. A typical plastic card includes the customers name and a series of numbers that represent the applicable network, bank and account. The numbers in aggregate are referred to as the "account number" or "card number". The front also features the cards expiration date and the issuers logo.

The back of the card has a horizontal magnetic strip and a signature box that must be signed by the card holder. The account number and a three- to four-digit card identification number or security number are often listed as well.

Magnetic strip Security no.

Credit cards are based on your ability to repay the borrowed money. The lender is cautious about giving money to a risky borrower, especially since the money is unsecured. A borrowers spending habits are used to determine his or her risk; these are assessed based on his or her credit report. The report is a very important tool that lenders, such as credit card issuers, use to make a decision as to whether to loan you money. The credit report keeps tabs on your credit history. It aggregates your financial information, such as your credit accounts, the account limits and balances, and your repayment history. A numerical rating is applied to your credit history and it is this score that is considered by lenders.

Types of credit cards

Standard

Credit Cards Standard credit cards are the general purpose cards that have revolving credit lines. They are marketed to people above the age of 18 who meet or exceed the financial institutions minimum credit criteria. No deposits are needed and the credit limit is established by the credit card issuer.

Continue..
Reward

Cards Many credit cards have reward programs that can influence your spending. The perks may come in the form of cash, points or discounts. Points that accumulate, for instance, can be traded off for free hotel stays, merchandise, air travel car rentals and certificates. However, these credit cards can come with complex rules, limits and restrictions. The key is to try to make sure that annual fees dont end up eliminating all the benefits. Rewards cards are typically best for people who pay their balances off every month.

Continue..
Cash Back: Cash back cards literally give some of the money you have spent back to you in cash. Credits range from 1-5%. Some cards give a flat amount of money based on all your purchases regardless of how much you spend, while other have tiers with different levels of rewards depending on how much you spend and where the money is spent. Premium Credit Cards: These are the gold and platinum cards. They are generally referred to as upscale. They are offered to consumers with excellent credit.

Additional Features of credit card in India

The following are some of the plus features of

credit card in India Hotel discounts Travel fare discounts Free global calling card Lost baggage insurance Accident insurance Insurance on goods purchased Waiver of payment in case of accidental death Household insurance

Advantage of Credit Card Payment

People can purchase items even they do not have money. The can take instant fund and can shop the items. You can use them practically everywhere, especially overseas. They can boost your purchasing power because they can be used to buy goods and services over the phone, through the mail and online. People are not required to carry cash to do shopping. You can take the loan and at the same time have a reputation of good credit history. People can do shopping anywhere. It helps you buy products online. Wireless Credit Card helps you make the payment online. Electronic payment system is really good and convenient mode to shop items.

It gives you reward points that you can redeem and enjoy the benefits.

Disadvantages of Credit Card Payment:

You are required to pay some extra amount for the

product in the form of tax. Different companies levy different tax amount on Credit Card Processing. Some consumers feel compelled to spend more money than they have. You are levied heavy tax than that of normal loan if you cross the due date of payment. It also damages your credit rating. It allows you to take more debt than that you can handle. It sometime makes you uncontrolled and you can buy unnecessary items at high cost.

Some Hidden Charges:

Nowadays most of the banks not informing the customers about the fees change and there is no clear intimation. It will affect your expenses and have to handle this clearly. 1. Avoid late payment fees It is always keep in mind that the due date for all your Credit Cards. If you are missing the due, it will end up paying the late payment fees. Also periodically check for the due date, if there is any change by the bank. 2. Annual Fees It is another expenses happening in the every year. If you taken the card with the life time free, then there should not be any fees for using the credit card. You have the rights to ask the company and they are responsible to provide the explanation. 3. Interest Rates Learn about the Interest Rates of credit cards. There is lot of trick in explaining the interest rates by the banks. They will not tell you the annual rate for the credit cards. Because, it is higher than the other form of loans like Personal Loans, etc. It is always good to avoid taking the huge amount from the credit cards.

Debit Card An electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. A debit card, sometimes called a check card (because it is similar to a check in that it allows you to access the money in your checking account), It is very similar to a credit card. In fact, many have a 16-digit number and a Visa or MasterCard logo and can be used like a credit card for purchases, with the major difference that the money still comes out of your account right away - you don't have the option of paying off your purchases later. A debit card is what you use to make purchases at stores when you want the convenience of plastic (as opposed to cash or checks) but want to pay immediately instead of accruing a balance on a credit card.

Debit cum ATM cards: This removes the need for bank clients to go to the bank to remove cash from their account as they can now just go to an ATM or pay electronically at merchant locations. This type of card, as a form of payment, also removes the need for checks as the debit card immediately transfers money from the client's account to the business account.

Pros of Using Debit Cards Unlike credit cards, debit cards can help you stay out of financial trouble by limiting your spending to the amount of money that's actually in your account. However, if you're not aware of how much money is in your account and how many checks and purchase transactions you have outstanding, it's possible to incur hefty fees for overdrawing your account.

The major benefits to this type of card are convenience and security. Along with the convenience of accessing account funds at anytime it also removes the hassles associated with having to write checks as payment like showing ID and associated fees. Debit cards are also considered to be a safer form of payment as a code is required to access the account funds, while checks can be easily stolen.

Cons of debit cards Debit cards can be safer than carrying around cash, however. If you were to get mugged and you reported the theft of your debit card right away, your liability would be capped at $50. If you were carrying around $500 in cash, it would all be gone, and you'd have no way to recover the money.

Unlike credit cards, the regular use of a debit card does not help you establish credit or improve your credit score. Also, debit cards generally do not come with the perks offered by credit cards, such as rental car insurance and product satisfaction guarantees. Debit cards generally do not offer as much protection against theft as credit cards. While you will usually not be liable for any unauthorized purchases made with your credit card, it is possible to be liable for $50, $500, or more in unauthorized purchases and withdrawals made with your debit card depending on when you report the theft. You must act quickly to report a lost or stolen card if you want to cut your losses, and sometimes by the time you realize there's a problem, you've already lost a significant amount of money that you wouldn't be on the hook for with a credit card.

Smart Cards
It looks exactly like any other plastic card or an ATM card with an integrated circuit(IC chip) installed. These cards have a built in memory and the processor along with an operating system. They perform financial operations. As it is built in, they can protect themselves against fraudulent operations. This protection is based on the data encryption standard(DES), which is accepted by the international standard organization, as safe enough for protecting electronic funds transfer (EFT) transactions.

MasterCard
MasterCard is a product of MasterCard International

and along with VISA are distributed by financial institutions around the world. Cardholders borrow money against a line of credit and pay it back with interest if the balance is carried over from month to month. Its products are issued by 23,000 financial institutions in 220 countries and territories. In 1998, it had almost 700 million cards in circulation, whose users spent $650 billion in more than 16.2 million locations.

VISA Card
VISA cards is a product of VISA USA is distributed by

financial institutions around the world. A VISA cardholder borrows money against a credit line and repays the money with interest if the balance is carried over from month to month in a revolving line of credit. Nearly 600 million cards carry one of the VISA brands and more than 14 million locations accept VISA cards.

American Express
The world's favorite card is American Express Credit

Card. More than 57 million cards are in circulation and growing and it is still growing further. Around US $ 123 billion was spent last year through American Express Cards and it is poised to be the world's No. 1 card in the near future. In a regressive US economy last year, the total amount spent on American Express cards rose by 4 percent. American Express cards are very popular in the U.S., Canada, Europe and Asia and are used widely in the retail and everyday expenses segment.

Diners Club International

Diners Club is the world's No. 1 Charge Card. Diners

Club cardholders reside all over the world and the Diners Card is a all time favorite for corporate. There are more than 8 million Diners Club cardholders. They are affluent and are frequent travelers in premier businesses and institutions, including Fortune 500 companies and leading global corporations.

JCB Cards
The JCB Card has a merchant network of 10.93 million

in approximately 189 countries. It is supported by over 320 financial institutions worldwide and serves more than 48 million cardholders in eighteen countries world wide. The JCB philosophy of "identify the customer's needs and please the customer with Service from the Heart" is paying rich dividends as their customers spend US$43 billion annually on their JCB cards.

CREDIT CARD PROCESS

Step 1: The customer submits his credit card for

payment. Step 2: Authorize. Net manages the complex routing of the data on behalf of the merchant through the various steps. Step 3: Authorize. Net passes the secure transaction information via a secure connection to the Processor. The Merchant Bank's Processor submits the transaction to the credit card network (like Visa or MasterCard). The credit card network routes the transaction to the bank that issued the credit card to the customer.

Continue
Step 4: The issuing bank approves or declines the

transaction based on the customer's available funds and passes the transaction results back to the credit card network. The credit card network relays the transaction results to the merchant bank's processor. The processor relays the transaction results to Authorize. Net. Step 5: Authorize. Net stores the transaction results and sends them to the website for the customer and merchant to see.

Continue..
Step 6: The merchant delivers goods or services to the

buyer. Step 7: The issuing bank sends the appropriate funds for the transaction to the credit card network, which passes the funds to the merchant's bank. The bank then deposits the funds into the merchant's bank account. This is called 'settlement', and typically the transaction funds are deposited into the merchant's primary bank account within two to four business days.

Factors affecting utilization of Plastic Money in India

Interest Rate
Reward Programs Annual Fees Member Benefits