CERTIFICATE

This is to certify that the project entitled

Plastic Money is successfully done by Tanvi.J.Shah
during the Third year , 5th sem of B.com
{ Financial markets } under the university of
Mumbai through the Thakur College Of Science and
Commerce, kandivali ,Mumbai -400101.

_____________________
___________________

____________________

Co-coordinator
Principal

Project Guide

Date- ___________
Mumbai

Place____________________________

External Examiner

DECLARATION
I Tanvi.J.Shah from Thakur College of
Science and Commerce, student of T.Y.Bcom
(financial markets), semester V, examination seat
no.-___________, here by submit my project report
on Plastic Money.
I also declare that this project which is the
partial fulfillment of the requirement for the degree
of T.Y.Bcom (financial markets) of the Mumbai
University is the result of my own efforts with the
help of experts.
Date-____________

ACKNOWLEDGEMENT
It gives me immense pleasure in
presenting the project on Plastic Money.
Firstly, I take the opportunity in thanking
the almighty and my parents without whose
continuous blessings; I would not have been able
to complete this project.
I would like to thank my project guide
_____________ for his/her great help, valuable
opinions, advice and suggestions in fulfillment of
this project.
I am also grateful to my coordinator
Mrs.Rashmi.V.Shetty for always encouraging and
given me new hope to do this project.
I am thankful to our college for all the
possible assistance and support, by making
available the required books and the internet room
which have proved useful to me in successful in
completing my project.
I hope that I have succeeded in
3

presenting this project to the best of my abilities.

EXECUTIVE SUMMARY
This book on plastic money is divided into two sections titled
Concepts and Experiences. The former covers articles on the
emergence of plastic money , different types of plastic cards and
their growth in India and other related issues .An experience
discusses the experiences of banks like Standard Chartered,
Citibank , which deals with Plastic money and their growth in the
market.
The plastic payment card market has had tremendous growth
over the last decade and there are by now 97 million payment
cards in circulation in the UK only, with a predicted 130 million
cards by the year 2000. As the industry life cycle comes into its
mature stage competition becomes fiercer and consumer
bargaining power is growing. Possible sources of value added
have been mostly exploited. However, one of the less exploited
sources of value added is the security aspect of plastic money.
There are a number of different card types and everyone has
its advantages and its disadvantages. Cards can be divided into
categories by its technical features (smart card or magnetic
stripe card) and by the way the issuer charges the account
(charge-, credit-, and debit-card).
Regardless of the type of card, the payment circle remains
the same. It consists of the issuer of the card, the cardholder, the
merchant and the acquirer. Most fraud occurs at the point of sale
(POS) but the merchants cover only one third of the damage
whereas the issuers cover the remaining two thirds. This puts the
4

issuers on the receiving end of fraud. It is therefore not surprising

that a perfect creditworthiness is a condition to possess a
payment card. This is the reason why only 20 million citizens in
the entire UK have a payment card.
This situation is unlikely to change if the security standard
remains at the current level since fraud is increasing again after a
decrease some years ago.
In order to combat fraud effectively current technologies
have to be developed further and new technologies have to be
implemented. Magnetic stripes, encryption and hot card file
verification are examples of the first and smart cards and
biometric verification are examples of the latter. There are a
number of typical attack patterns and corresponding counter
measures but so far security systems cannot guarantee a 100%
security.
If anyone issuer is to build a sustainable competitive
advantage, the security aspect offers itself for further exploitation.
Not only is it a good method to decrease losses due to fraud but it
is also a valuable marketing tool as empirical evidence shows.
The leader in terms of security has therefore a big advantage in
establishing a cost leadership and in differentiating himself forms
his competitors. But at the moment banks and other issuers
hesitate to implement innovative solutions to battle fraud although
some countries have shown a high readiness for the introduction
of new methods (South Africa, Czech Republic and Russia).
Furthermore have there been first attempts to establish future
standards for new technologies by many countries e.g. UK and
EC.
Traditionally banks have been cautious about admitting
losses due to fraud in order to avoid damaging their image but
even the banks annual reports are mentioning the problem by
now. This indicates that the future development will be one
towards innovation and fraud detection and prevention.
5

In early age, there were many ways in which trade took place
but they had their own limitations. Some of the ways are:-

BARTER:
The first people didn't buy goods from other people with
money. They used barter. Barter is the exchange of personal
possessions of value for other goods that you want. This kind of
exchange started at the beginning of human kind and is still used
today. From 9,000-6,000 B.C., livestock was often used as a unit
of exchange. Later, as agriculture developed, people used crops
for barter. For example, I could ask another farmer to trade a
pound of apples for a pound of bananas.

SHELLS:
At about 1200 B.C. in China, cowry shells became the first
medium of exchange, or money. The cowry has served as money
throughout history even to the middle of this century. China, in
1,000 B .C. produced mock cowry shells at the end of the Stone
Age.

FIRST METAL MONEY:

Tools made of metal, like knives and spades, were used in
China as money. From these models, we developed today's round
coins that we use daily. The Chinese coins were usually made out
of base metals which had holes in them so that you could put the
coins together to make a chain.

SILVER:
At about 500 B.C., pieces of silver were the earliest coins.
Eventually in time they took the appearance of today and were
6

imprinted with numerous gods and emperors to mark their value.

These coins were first shown in Lydia, or Turkey, during this time,
but the methods were used over and over again, and further
improved upon by the Greek, Persian, Macedonian, and Roman
empires.
Not like Chinese coins, which relied on base metals, these
new coins were composed from scarce metals such as bronze,
gold, and silver, which had a lot of intrinsic value.

LEATHER CURRENCY:
In 118 B.C., banknotes in the form of leather money were
used in China. One-foot square pieces of white deerskin edged in
vivid colors were exchanged for goods. This is believed to be the
beginning of a kind of paper money.

NOSES:
During the ninth century A.D. the Danes in Ireland had an
expression "To pay through the nose."It comes from the practice
of cutting the noses of those who were careless in paying the
Danish poll tax.

PAPER CURRENCY:
From the ninth century to the fifteenth century A.D., in China,
the first actual paper currency was used as money. Through this
period the amount of currency skyrocketed causing severe
inflation.

OBJECTIVES OF STUDY
Primary objective -To know the perception of people towards
plastic money.
Secondary objectives- To know the importance of plastic
money in the daily life of consumers W.R.T credit and debit
cards.
To study the benefits of debit card and credit cards.
7

 To find out the market leader among the various

banks/companies issuing credit anddebit cards
To know the problems faced by respondents using plastic
money.
To study the satisfaction level of consumers towards plastic
money.

INDEX
SR
NO.
1
2
3

CHAPTER
NO.
CH1.
CH2.
CH3.

TOPIC

4
5

CH4.
CH5.

INTRODUCTION
NEED AND SCOPE OF STUDY
FUTURE SCENARIO OF PLASTIC
MONEY
TYPES OF PLASTIC MONEY
CREDIT CARDS

CH6.

DEBIT CARDS

7
8
9

CH7.
CH8.
CH9.

ATM CARDS
MASTER CARDS
STANDARD CHARTERED
8

PAGE
NO.

10
11
12
13
14

CH10.
CH11.
CH12.
CH13.
CH14.

15
16
17

CH15.
-

ADVANTAGES V/S DISADVANTAGES

TECHNOLOGY & INFRASTRUCTURE
FRAUDS
CASE STUDY
METHOD TO PREVENT THE
INCREASING ABUSE OF PLASTIC
MONEY
SURVEY
CONCLUSION
BIBLIOGRAPHY

CH(1)-INTRODUCTION
MEANING
Plastic money refers to credit cards, you use them
whenever you want and pay later (with interest, of Course). It
makes it too easy for people to buy things they normally could
not afford, which makes it easier to get into debt.
Plastic money is a term that is used predominantly in
reference to the hard plastic cards we use every day in place of
actual bank notes.
A colloquial name for credit card, cash card, debit card, or
multifunctional card. It is often shortened to plastic.

DEFINATION
A slang phrase for credit cards, especially when such cards
used to make purchases. The plastic portion of this term
refers to the plastic construction of credit cards, as opposed to
paper and metal of currency. The money portion is an
erroneous reference to credit cards as a form of money, which
they are not. Although credit cards do facilitate transactions,
because they are a liability rather than an asset, they are not
money and not part of the economys money supply.
Plastic money or polymer money, made out of plastic, is a
new and easier way of paying for goods and services. Such
polymer bank notes incorporate many security features not
available to paper banknotes, including the use of metameric
inks; they also last significantly longer than paper notes
resulting in a decrease in environmental impact and reduction
of production and replacement costs .Nothing has come to
represent cash the way plastic cards have.
The idea of using a card to make purchases was first drawn
by Edward Bellemy in 1887. The US was the first country to
launch it in the early 1990s. It was dinner club international, the
first independent credit card company in the world and the
American Express which has changed the way cards were
used .They developed it into tangible business phenomenon.
In India, the concept of plastic money caught on in the late
1980s only after private sector banking
came into practice.
10

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 debit cards, ATMs,
smart cards, etc. Credit cards, variants of plastic money, are
used as substitutes for currency.
Plastic cards in India are gaining ground. A number of banks
in India are encouraging people to use credit card. The concept
of credit card was used in 1950 with the launch of charge cards
in USA by Diners Club and American Express. Plastic cards
however became more popular with use of magnetic strip in
1970.
Plastic card in India became popular with the introduction of
foreign banks in the country. Plastic cards are financial
instruments, which can be used more than once to borrow
money or buy products and services on credit or debit.
Basically banks, retail stores and other businesses issue these.
It was introduced around and has now become an essential
form of ready money.
One of the main reasons for introducing plastic money,
especially credit cards was to reduce the risk of handling a
huge amount of cash by individuals/ merchants.
Plastic money can be used anywhere in the world and
etc .Now as the world is becoming globalised so every card is
accepted everywhere with the power of VISA which
interconnects different countries. The cards are accepted
worldwide, in which you can utilize your own money and also
banks money .The card through which you spend your own
money is known as debit card .The card through which you
spend the amount of bank as loan is called credit card.
The growth and popularity of plastic money in India has
been phenomenal in the last few years.
In the present day world, no one wants to be bothered by
the presence of huge cash in his or her wallet and the Indians
are no exceptions. The unprecedented growth in the number of
plastic card users has stimulated the Indian economy by a
significant extent.
11

The arrival of malls, multiplexes, online shopping stores and

shopping complexes have contributed to the growth of the use
of plastic cards.
The Best plastic cards in India are usually meant for specific
user group such as women, students and small business
owners. These cards are offered to the prospective customers
with appealing deals.
Over the years, Indians have been averse to plastic cards.
This is primarily because they believed that spending through
credit is a sure shot way of getting into the debt trap. Of course,
movies highlighting the sad state of a borrower did not exactly
help matters. And even the local kirana shops have the famous
lines Aaj Nagad; Kal Udhari (cash today, credit tomorrow).But
the situation is not actually that scary. And it is all about right
timing.
Plastic money are the alternatives to the cash or the
standard money'. Plastic cards can be a useful tool at the
hands of savvy consumers who can effectively use the benefits
offered by cards. It is important to know that plastic card is a
financial tool that needs to be used responsibly. While it
ensures cash flow, it is not advisable for customers to borrow
for a longer period of time.
Use it effectively and take good advantage of the time line
and clear your debts, without any additional costs.
Progress in civilization in its turn has brought out radical
changes in the manner of trading.
The need for something intrinsically
useful and easily
12

applicable in everyday dealing is clearly felt. Cash in the form of

currency notes and coins makes up just one form of the
payment system.
Development in banking while also giving inputs to the
further development of cash brought about a second phase in
payment namely paper instructions such as cheques and credit
transfers.
The requirement for greater flexibility and convenience has
led to electronic payments, and this is where plastic cards have
proved their worth. It allows the card issuers to limit the sum of
money the card-holders wish to spend.
The spending of card-holders who have defaulted on
payments or who are over their credit limit can be restricted
until the balances are cleared.
With 73 card issuers in the UK alone, competition is fierce
and customer bargaining power is high. Issuers have tried to
differentiate themselves from competitors through offering
special services to their card holders in order to gain a
competitive advantage. But those services have mostly been
easy to copy and have therefore not been able to help any of
the issuers to build a competitive advantage.
Furthermore has the industry achieved such a high market
penetration that it has become virtually impossible to attract
new customers without taking them away from a competitor.
The industry is therefore in its mature stage. Consolidation is
taking place and critical size is crucial.
Collaboration and strategic alliances are found throughout
the industry. Table 1 demonstrates the size of the plastic card
market as means of payment. As table 1 shows, the global
amount of cards in circulation is now more than one billion
cards. However, this amount of cards is held by a very small
minority of the worlds population.
The main reason for that is the missing financial
infrastructure in vast parts of the globe and the lack of
creditworthy customers.
13

Table 1

Credit Card Market

Card holders
American
Express
Diners
Club
Euro card/
Master
card
JCB
Visa

Points Of Sale

Europe
N/A

Global
41.5m(12/96)

Europe
N/A

Global
4.5m(12/96)

2.5m(6/97)

7.6m(6/97)

1.3m(6/97)

3.6m(6/97)

34m(12/96)

435.1m(12/96
)

3m(12/96)

13m(12/96)

N/A
101m(3/97)

34.9m(12/96)
540m(3/97)

N/A
3.6m(3/97)

4.4m(12/96)
14m(3/97)

14

CH (2)-NEED AND SCOPE OF

THE STUDY
15

NEED
It is rightly said the plastic money is the need of the hour.
People are using these cards on a vast scale. But after
considering the review of literature it is seen the whole payment
process of processing these cards is not safe and customer are
facing many problems relating to plastic money. Thats why
study is focused on consumer perception regarding the plastic
money.
Need of the study is to get to know about the comparative
analysis of plastic money. There are many ethical issues and
challenges in the market of plastic money which is required to
be studied. This study is concerned with the Seven perks of
plastic money Convenience, Budgeting technology, Reputation
boosting , Corporate might, Cops and robbers, The float,
Openness to negotiations.

SCOPE OF STUDY
The following are the areas covered by plastic money: ATM
cards are slowly being transformed into value-added debit
cards. Bankers and analysts see tremendous scope for growth
in debit cards. "There is tremendous potential for debit cards. It
will soon be substituting cheques.
Utility payments will soon be made through debit cards,
either at the ATMs or at the counters. The debit card can be
used to withdraw cash from ATMs of other banks depending on
whether the debit card-maker has a Visa or a Maestro tie-up.
Visa and MasterCard both confirmed that they had been
notified of the breach and had in turn notified several banks and
credit card companies of the potential data compromise. They
declined to say how many companies have been notified.
Credit cards are convenient, accessible to credit; credit cards
offer consumers an easy way to track expenses, which is
necessary for both monitoring personal expenditures and the
tracking of work-related expenses for taxation and
reimbursement purposes.

CH (3)- FUTURE SCENARIO OF

PLASTIC
CARDS
16

Starting from 'Diners Club', some 50 years ago, the card

industry has been growing with a rapid pace world over and so
has been the growth in the domestic card industry. With only
two players in domestic card industry, HSBC and Citibank in
the early 80s, the number swelled to over 25 in the year 2001.
Credit cards in India, made their debut in 1981, and are on
the verge of an unprecedented boom. Between 1987 and 2001,
the market has virtually grown to over 4 million cards with over
25-30% of compounded annual growth in new card holders
base.
There were almost 29 million debit card users as of 2006,
with a projected 34.4 million users by 2016. However, online
services like paypal are emerging as a way for people to pay
their debts in new secure and convenient ways. Technology
also exists to have devices implanted into phones, keys and
other everyday devices so that the ability to pay at the point of
scale is even more convenient.
Its not that only the card numbers have increased, but
even the types of cards on offer have seen a surge. Today the
domestic card industry is flooded with different types of cards
ranging from gold, silver, global, co-branded credit cards, smart
to secure.the list is endless.
Foreign banks have shouldered the major responsibility of
increasing the card base and adding value-added services to
the card products in the past. This is also evident from the fact
that the market share of these foreign banks is estimated to be
well over 70%. But the scenario has changed dramatically in
the last of couple of years with the entry of State Bank of India
(SBI), a domestic major in the banking sector.
17

More and more nationalized banks and private sector

banks like ICICI and HDFC Bank are aggressively launching
credit card with value added features.
There is immense growth potential in the domestic card
industry. A glance at the Indian population reveals that India's
middle/upper middle class (target segment) represents a
population of over 10 m. There are only 2 to 3 m cardholders,
each possessing an average of 2 cards.
This is a very low figure given India's huge middle to upper
class population. There is no doubt that the domestic card
industry has to yet to mature and offers significant long-term
growth potential.
Given the lack of maturity of the domestic card industry, its
growth will depend upon building core retail business, with
more sophisticated products.
In the expansion of domestic credit card market, the
existing foreign players, SBI, other nationalized banks and the
new domestic private sector banks are expected to play
important role with complementary strategies.
Foreign banks with the advantage of technology and
industry experience are expected to concentrate on increasing
card spending and customer loyalty in the major cities. SBI, on
the other hand is expected to capitalize its superior distribution
network to expand card acceptance in the smaller towns.
The new private sector banks would have the opportunity to
capture significant market share by combining the strengths of
foreign banks and nationalized bank like SBI.
18

Although at present the card market is mainly limited to

India's relatively bigger cities and tourist locations only, there is
also a potential in smaller cities.
Domestic banks, owing to their vast network and reach to
smaller cities, can easily tap this potential. They would be
better off, penetrating into smaller cities and bringing credit card
to the masses rather than cannibalizing other foreign banks'
existing cardholder base.
The efforts of these banks to increase the card base is
going to be wholeheartedly supported by the residents of these
smaller cities with their higher disposable income, changing
lifestyle, increasing travel and the growth in the entertainment
sector.

CH (4) TYPES OF PLASTIC

MONEY
1.

Credit Cards

A credit card is plastic money that is used to pay for

products and services at over 20 million locations around
the world .All you need to do is to produce the card and
sign a charge slip to pay for your purchases. The
institution which issues the card makes the payment to the
outlet on your behalf; you will pay this loan back to the
institution at a later date.

19

2.

Debit Cards

Debit cards are substitutes for cash or check

payments, much the way that credit cards are. However,
banks only issue them to you if you hold an account with
them .When a debit card is used to make a payment, the
total amount charged is instantly reduced from our bank
balance.
Dont borrow on your credit card! Heres why
A debit card is only accepted at outlets with electronic
swipe-machines that can check and deduct amounts from
your bank balance online.

3.

Charge Cards

A 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 you are not declared a
20

defaulter even if you miss your due date. A 2.95% late

payment fees (this differs from one bank to another) is
levied in your next billing statement.

4.

Amex Cards

Amex stands for American Express and is one of the

well-known charge card. This card has its own merchant
establishment tie-ups and does not depend on the
network of MasterCard or Visa.
Credit cards: remember these dos and donts.
This card is typically meant for high income group
categories and companies and may not be accepted at
many outlets. There are a wide variety of special privileges
offered to Amex cardholders.

5.

Dinner Cards
Diners club is a branded charge card. There are a wide
21

variety of special privileges offered to the Diners club

cardholder. For instance, as a cardholder you can set you
own spending limits.
Besides, the card has its own merchant establishment
tie-ups and does not depend on the networks of Master
card or Visa.
However, since the card is typically meant for high
income group categories, it may not be acceptable at
many outlets. It would be a good idea to check whether a
member establishment does accept the card or not in
advance.

6.

Global Cards

Global cards allow you the flexibility and convenience

of using a credit card rather than cash or travelers cheque
while travelling abroad for either business or personal
reasons.

22

7. Co-branded Cards
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.
A debit cards with a difference.
For e.g.: the citi-times cards give you all the benefits of
a Citibanks credit card along with a special discount on
times music cassettes, free entry to times music events,
etc.

8.

Master Card & Visa

Master cards and Visa are global non-profit

organizations dedicated to promote the growth of the card
business across the world.
They have built a vast network of merchant
establishments so that customers worldwide may use
their respective credit cards to make various purchases.

23

9.

Smart Cards

A 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 the 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.

10.

Photo cards
If your photograph is imprinted on a card, then you
24

have what is known as a photo card. Doing this helps

identify the user of the credit card and is therefore
considered safer. Besides, in many cases, your photo card
cans function as you identity card as well.

11.
Afffinity Card
The card issuer ties up with popular organizations/
institutions which are often non-profit organizations to offer
an affinity card. When the card is used, a certain
percentage is contributed to the organization /institution by
the card issue

25

CH (5)-CREDIT CARDS
DEFINATION OF CREDIT CARDS
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.

MEANING
A credit card is a card or mechanism which enables
card holder to purchase goods, travel and dine in a
hotel without making immediate payments .the holders
can use the cards to get credit from banks up to
45days.The credit card relives the consumers from the
botheration of carrying cash and ensures safety. It is
convenience of extended credit without formality. Thus
credit card is a passport to, safety, convenience,
prestige and credit.

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 holders promise to pay for these goods
and services.
The issuer 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
26 agrees to pay the card

issuer.

HISTORY
Our society was once upon a time functioning without
money; it is again likely to become moneyless. While ancient
society was confronted with the problems of adjusting mutually
satisfactory rates and basis of exchange, future society, with
the help of computers, electronics and telecommunications,
credit cards, telephone and other modern means of
communications, would settle financial transactions instantly.
Money as a medium of exchange will serve its function. The
difference will be that in future coins, currency notes, cheques,
etc., will be dispensed with in favors of records. India has
entered the stage of credit card system and credit cards are
gaining increasing relevance to facilitate industrial, commercial
and agricultural transactions.
Credit was first used in Assyria, Babylon and Egypt 3,000
years ago. The bill of exchange the forerunner of bank notes was established in the 14th century.
Debts settled by one-third cash and two-thirds bill of
exchange paper money followed only in the 17th century. The
first advertisement for credit was placed in 1730 by Christopher
Thornton who offered furniture that could be paid off weekly.
From the 18th century until the early part of the 20th,
tallymen sold clothes in return for small weekly payments; they
were called tallymen because they kept a record of tally of
what people had brought on a wooden stick. One side of the
stick was marked with notches to represent the amount of debt
and the other side was a record of payments.
In the 1920sshoppers plate buy now, pay later system
was introduced in USA. It could only be used in shops which
issued it.
In 1950, Diners Club and American Express launched their
charge cards in USA, the first plastic money.
In 1951, Diners Club issued the first credit card to 200
customers who could use it at 27 restaurants. With the
magnetic strip in 1970, the credit
card became a part of the
27

information age.
The origins of the bank credit card have been traced to
John.C.Biggins, a consumer credit specialist at the Flatbush
National Bank of Brooklyn, New York.
In 1946, Biggins launched a credit plan called Charge-It.
The programmer featured a form of scrip that was accepted by
local merchants for small purchases. After the sale was
completed, the merchant deposited the scrip in a bank account,
and the bank billed the customer for the total scrip issued.
A credit card is part of a system of payments named after
the small plastic card issued to users of the system. It is a card
entitling 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.
A credit card is different from a charge card, where a charge
card requires the balance to be paid in full each month. In
contrast, credit cards allow the consumers to 'revolve' their
balance, at the cost of having interest charged.
Most credit cards are issued by local banks or credit unions,
and are the shape and size specified by the ISO/IEC 7810
standard as ID-1.

FEATURES OF CREDIT CARDS

All credit cards offer a variety of features. Knowing and
understanding these features will help to decide which card is
right for.
1. Fees
Most credit cards charge fees for various things, and it is
important to know what these fees are and how to avoid them.
2. The annual fee
Some credit card companies charge you an annual fee just
for using their card. Because of stiff competition, you can often
negotiate this fee away if you call and speak to a customer
service representative.
3. Cash Advance Fee
28

Most credit card companies will charge you a fee for cash
advances. These fees can vary but are usually somewhat hefty.
Not only will they charge you a one-time fee, but the
interest rate for this money will be at a considerably higher rate.
Plus, unlike a regular purchase, where interest begins
accruing after some grace period passes, cash advances
accrue interest charges from day one.
Many card companies are competing for your business and
are now offering an introductory cash advance and balance
transfer rates for a specific amount of time.
This lower rate can be applied to any balances you may
wish to transfer from another card. Although it sounds good,
some companies will charge you a fee for the transfer. Know
what the fee is before you transfer any balances.
4. Miscellaneous Fees
Things like late-payment fees, over-the-credit-limit fees,
set-up fees, and return-item fees are all quite common these
days and can represent a serious amount of money out of your
pocket if you get whacked for any of these fees.
5. Incentives
Since there are so many credit card companies,
competition is stiff.
Adding incentives to their offers is one of the more popular
ways to tip the scales in their favor.
Incentives like rebates on purchases, frequent flyer miles
on certain airlines, and extended warranties on purchases are
just a few of the bonuses that card companies will now offer.
For those of you who collect and use your frequent flyer
miles, they also have added incentives like travel insurance and
car rental insurance for your convenience.
Of course, they are hoping that with all this traveling, you
are using their card to foot at least some of the bill.
6. Rewards
Many card companies are looking to keep your business
and are therefore making it worth your while to use their card.
Just simply by using their card you can accumulate points that
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will in turn earn you rewards.

What kind of reward depends solely on the amount of points
you accumulate. Since you can't accumulate these points
without charging things on your card, this is a classic case of
'you have to spend money to save money.
Bottom line is this: Know what you need and what you don't.
No sense in paying for any features that you won't use.
7. APR
The annual percentage rate (APR) is the interest rate
applied a balance carried beyond the grace period. Credit cards
can have different APRs for different types of balances, e.g.
balance transfers or purchases.
Balance transfers and cash advances usually have higher
APRs than for purchases. Your APR may increase when you're
late on your payment to a particular creditor, and other creditors
if your card agreement includes a universal default clause.
APRs can be fixed or variable. A fixed APR can change, but
the creditor must inform you in writing before changing the rate.
A variable APR changes from time to time.
8. Grace Period
The grace period is the amount of time you have to pay your
balance in full before a finance charge is applied to your
purchase. If you carried a balance from the previous month,
you may not have a grace period for your new purchases.
In addition, balance transfers and cash advances typically
do not have a grace period. When balances don't have an
applicable grace period, interest is applied right away.
To find out the length of the grace period refer to the credit
card application or your credit card agreement. Your monthly
statements should also include the number of days in the grace
period.
A credit card's grace period is the time the customer has to
pay the balance before interest is charged to the balance.
Grace periods vary, but usually range from 20 to 40 days
depending on the type of credit card and the issuing bank.
Some policies allow for reinstatement after certain
conditions are met.
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Usually, if a customer is late paying the balance, finance

charges will be calculated and the grace period does not apply.
Finance charges incurred depend on the grace period and
balance; with most credit cards there is no grace period if there
is any outstanding balance from the previous billing cycle or
statement (i.e. interest is applied on both the previous balance
and new transactions).
However, there are some credit cards that will only apply
finance charge on the previous or old balance, excluding new
transactions.
9. Technology And Infrastructure
One of the most important features that Plastic Money offers
is the technology associated with this business.
Credit card business relies on very reliable and secure
technology and demands very strong connectivity backbone.
Although a third world country, with lot of insecurities and
almost no infrastructure, Pakistan has no exception when it
comes to credit card business.
There is approximately 3000 Point of Sale Terminals (POST)
present on merchant's sites connected with bank host system.
Inter-city connectivity is accomplished through X.25
networks.
Perhaps, it is the most important time in the history of
Pakistan as the parameters of its infrastructure are coming into
existence.
There is an immense need of reliable wide area connectivity
and this market is so huge and lucrative that it can
accommodate many more industry giants.
Soon the Automatic Teller Machines (ATMs) will be seen
everywhere in Pakistan and it will require a very reliable and
secure wide area connectivity setup.
10. Interest Charges
Credit card issuers usually waive interest charges if the
balance is paid in full each month, but typically will charge full
interest on the entire outstanding balance from the date of each
purchase if the total balance is not paid.
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For example, if a user had a $1,000 transaction and repaid it

in full within this grace period, there would be no interest
charged.
If, however, even $1.00 of the total amount remained
unpaid, interest would be charged on the $1,000 from the date
of purchase until the payment is received.
The precise manner in which interest is charged is usually
detailed in a cardholder agreement which may be summarized
on the back of the monthly statement.
The credit card may simply serve as a form of revolving
credit, or it may become a complicated financial instrument with
multiple balance segments each at a different interest rate,
possibly with a single umbrella credit limit, or with separate
credit limits applicable to the various balance segments.
Usually this compartmentalization is the result of special
incentive offers from the issuing bank, to encourage balance
transfers from cards of other issuers.
In the event that several interest rates apply to various
balance segments, payment allocation is generally at the
discretion of the issuing bank, and payments will therefore
usually be allocated towards the lowest rate balances until paid
in full before any money is paid towards higher rate balances.
Interest rates can vary considerably from card to card, and
the interest rate on a particular card may jump dramatically if
the card user is late with a payment on that card or any other
credit instrument, or even if the issuing bank decides to raise its
revenue.

FUNCTIONS OF CREDIT CARDS

Today, credit cards have many functions and are very
versatile. They can be summarized into the following functions:
Credit
The holder may obtain extended credit up to an agreed limit
at a published interest rate.
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Charge
The holder can repay the whole amount at the end of the
month, without charge provided no cash advance has been
taken.
Cash
On presentation at the appropriate banks, subject to check,
cash can be obtained. In most cases can also be used in ATMs
to obtain cash.
Cheque guarantee
A cheque drawn on a bank may be guaranteed up to a
published limit provided it is accompanied by a Cheque
Guarantee Card (or in some cases a Visa or MasterCard
card)issued by the bank on which it is drawn.
Cheque encashment
Cheque guaranteed as above may be used to obtain cash
from branches of most banks, although a charge may be levied
in certain circumstances.
International
If the card is a member of Visa International or MasterCard
International, you can use your card at many countries where
there are a lot banks who are members of them. Perhaps the
most significant fact to emerge from the summary of card
functions is that strictly speaking, they are not debit cards.
Although they can be used to obtain cash via ATM, the debit
will be made from the credit card account and not from the
holder's bank account. The credit cards discussed above are
bank cards. Different bank cards have different card functions.
The functions of bank cards really depend on the individual
bank itself.
Some bank card may have all of the above functions and
some may not. There other credit cards that are issued by retail
stores such as Petrol Card, Quasi Card and Private Label Card
which may have some of the above functions mentioned above.

ADVANTAGES AND DISADVANTAGES OF

CREDIT CARDS
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Advantages Of Credit Card

Purchase Power and Ease of Purchase
Credit cards can make it easier to buy things. If you don't
like to carry large amounts of cash with you or if a company
doesn't accept cash purchases (for example most airlines,
hotels, and car rental agencies), putting purchases on a credit
card can make buying things easier.
Protection of Purchases
Credit cards may also offer you additional protection if
something you have bought is lost, damaged, or stolen. Both
your credit card statement (and the credit card company) can
vouch for the fact that you have made a purchase if the original
receipt is lost or stolen. In addition, some credit card companies
offer insurance on large purchases.
Building a Credit Line
Having a good credit history is often important, not only
when applying for credit cards, but also when applying for
things such as loans, rental applications, or even some jobs.
Having a credit card and using it wisely (making payments on
time and in full each month) will help you build a good credit
history.
Emergencies
Credit cards can also be useful in times of emergency.
While you should avoid spending outside your budget,
sometimes emergencies may lead to a large purchase
anywhere. This completely debunks the statement that you
need one to rent a car.
Credit Card Benefits
In addition to the benefits listed above, some credit cards
offer additional benefits, such as discounts from particular
stores or companies, bonuses such as free airline miles or
travel discounts, and special insurances (like travel or life
insurance.)
While most of these benefits are meant to encourage you to
charge more money on your credit card(remember, credit card
companies start making their money when you can't afford to
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pay off your charges!) the benefits are real and can be helpful
as long as you remember your spending limits.
Benefit of customers
The main benefit to each customer is convenience.
Compared to debit cards and checks, a credit card allows small
short-term loans to be quickly made to a customer who need
not calculate a balance remaining before every transaction,
provided the total charges do not exceed the maximum credit
line for the card.
Benefits To merchants:
An example of street markets accepting credit cards. Most
simply display the logos (shown in the upper-left corner of the
sign) of all the cards they accept.
For merchants, a credit card transaction is often more
secure than other forms of payment, such as checks, because
the issuing bank commits to pay the merchant the moment the
transaction is authorized, regardless of whether the consumer
defaults on the credit card payment (except for legitimate
disputes, which are discussed below, and can result in charges
back to the merchant).
In most cases, cards are even more secure than cash,
because they discourage theft by the merchant's employees
and reduce the amount of cash on the premises.
Prior to credit cards, each merchant had to evaluate each
customer's credit history before extending credit. That task is
now performed by the banks which assume the credit risk.
Credit cards can also aid in securing a sale, especially if the
customer does not have enough cash on his or her person or
checking account.
For each purchase, the bank charges the merchant a
commission (discount fee) for this service and there may be a
certain delay before the agreed payment is received by the
merchant. The commission is often a percentage of the
transaction amount, plus a fixed fee.
In addition, a merchant may be penalized or have their
ability to receive payment using that credit card restricted if
there are too many cancellations or reversals of charges as a
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result of disputes.
Some small merchants require credit purchases to have a
minimum amount (usually between $5 and $10) to compensate
for the transaction costs; though this is strictly prohibited by
credit card companies and credit card companies attempt to get
consumers to report such merchants.
In some countries, for example the Nordic countries, banks
guarantee payment on stolen cards only if an ID card is
checked and the ID card number/civic registration number is
written down on the receipt together with the signature. In these
countries merchants therefore usually ask for ID.
Non-Nordic citizens, who are unlikely to possess a Nordic
ID card or driving license, will instead have to show their
passport, and the passport number will be written down on the
receipt, sometimes together with other information.
Some shops use the card's PIN for identification, and in that
case showing an ID card is not necessary.

Disadvantages Of Credit Cards

Blowing Your Budget
The biggest disadvantage of credit cards is that they
encourage people to spend money that they don't have.
Most credit cards do not require you to pay off your balance
each month, so even if you only have $100, you may be able to
spend up to $500 or $1,000 on your credit card.
While this may seem like 'free money' at the time, you will
have to pay it off -- and the longer you wait, the more money
you will owe since credit card companies charge you interest
each month on the money you have borrowed.
High Interest Rates and Increased Debt
Credit card companies charge you an enormous amount of
interest on each balance that you dont pay off at the end of
each month.
This is how they make their money and this is how most
people in the United States get into debt (and even
bankruptcy).Consider this: If you have a $100 in savings, most
banks will give you at the most 2.0 to 2.5% interests on your
money over the course of the year.
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This means you earn $2.00 - $2.50 a year on your

$100savings.
Most credit cards charge you up to 10 times that amount of
interest on balances. This means that if you have $100 balance
that you don't pay off, you will be charged 20-25%interest on
that $100.This means that you owe almost $30 interest (plus
the original $100) at the end of the year.
A good way to look at this is in comparison to what you
would earn in interest from a bank or owe in interest to a bank
loan: Savings accounts may pay you around 2% interest; if you
have a loan from a bank you may pay them around 10%
interest (5 times as much as you earn off your savings); if you
owe money to a credit card company, you may pay them
around 20% interest (10 times as much as you earn off your
savings.)
Credit Card Fraud
Like cash, sometimes credit cards can be stolen.
They may be physically stolen (if you lose your wallet) or
someone may steal your credit card number (from a receipt,
over the phone, or from a Web site) and use your card to rack
up debts.
The good news is that, unlike cash, if you realize your credit
card or number has been stolen and you report it to your credit
card company immediately, you will not be charged for any
purchases that someone else has made.
Even if you don't realize your credit card number has been
stolen (sometimes you might not know until you receive your
monthly statement), most credit card companies dont charge
you or only charge a small fee, like $25 or $50, even if the thief
has charged thousands of dollars to your card.
There are several things you can do to prevent credit card fraud:

If you lose your card or wallet, report it to your credit card

company immediately.
Don't loan your credit card to anyone and only give out your
credit card information to trusted companies or Web sites.
Check your statement closely at the end of each month to
make sure all charges are yours.
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 You can find out more about protecting your personal

information by visiting our Personal Safety course. Credit
cards can make life easier and be a great tool, but if they
aren't used wisely they can become a huge financial burden.
If you do decide to use credit cards, remember these simple
rules: Keep track of all your purchases.
Don't spend outside your budget.
Pay off your balance on all of your credit cards at the end
of each month.
Don't loan your credit or give out your credit card information
to anyone but reliable companies.
Determents To Customers
Credit cards with low introductory rates are limited to a fixed
term, usually between 6 and 12months after which a higher rate
is charged. As all credit cards assess fees and interest, some
customers become so encumbered with their credit debt
service that they are driven to bankruptcy.
Credit cards will often stipulate a default rate of 20 to 30
percent in the event a payment is missed. That is, if a
consumer misses a payment, the rate will automatically
increase to a very burdensome level. This can lead to a
snowball effect in which the consumer is drowned by
unexpectedly high interest rates.
Further most card holder agreements enable the issuer to
arbitrarily raise the interest rate for any reason they see fit.
Costs To Merchants
Merchants are charged many fees for the privilege of
accepting credit cards.
The merchant may be charged a discount rate of 1%-3%+ of
each transaction obtained through a credit card. Usually, the
merchant will also pay a flat per-item charge of $0.05 - $0.50
for each transaction.
Thus in some instances of very low value transactions, use
of credit cards may actually cause the merchant to lose money
on the transaction. Merchants choose to pay these costs in
exchange for the increased profitable
sales they can create.
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Thus, they are considering part of the overall cost of marketing.

Merchants with very low average transaction prices or very high
average transaction prices are more averse to accepting credit
cards. But rates are often reduced in an attempt to include
more of these types of merchant

NEED OF CREDIT CARDS

There may be many people who suggest that you get a
credit card, but before you do you should carefully decide
whether or not you really need a credit card. The answer is that
you can get by without a credit card. Although a credit card can
be a useful tool, when used properly (paid in full every month),
it can be a bigger liability than an asset.
Here are five common misconceptions about needing a
credit card:1. Credit Card to Build Credit
You build credit by paying your bills on time. You can build
enough credit to qualify for a home loan by paying your rent on
time for several years. You destroy your credit when you do not
pay your bills on time.
The utility companies and other businesses can send you to
a collection agency if you do not pay on time. You do not need
a credit card to build your credit history. You may find it a little
easier to do with a credit card, but you should be very careful
as you try to do so.
2. Credit Card to Shop Online or Rent a Car
Since debit cards have been introduced you no longer need
a credit card to do these things. In fact you can do everything
with a debit card that you can with a credit card, except spend
money that you do not have. You should not be doing that
anyway. Debit cards can be used anywhere a credit card can.
This completely debunks the statement that you need one to
rent a car.
3. Credit Card for Emergencies
If you plan well you should set up an emergency fund for
emergencies. Your emergency fund should have at least
$1000.00 in it, but you should try to have three to six months of
39

expenses saved up. This much money should be able to

handle any emergency that comes your way. If you are
stranded on the road and need to be towed you can use your
debit card to pay for the tow, and your emergency fund to cover
those expenses.
4. Credit Card to Save Money on Purchases
Many stores will offer discounts for having a store credit
card. Stores do not offer cards to give you discount; they offer
cards because they realize that while most people intend to pay
the card off every month, few actually do. They make more
back on interest than they the discount they offer to you.
5. Credit Card to Earn Rewards
This is a dangerous game to play. If you are responsible
and pay off your balance in full each month, you may consider
having a rewards credit card. You should make sure that you
have a credit card with no annual fee. Additionally it is important
to remember that the credit card offers its rewards, because the
company realizes that most people are not going to pay off their
credit cards in full each month. This means that they make
more money off the customers, then rewards they give out.

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