MERITS AND DEMERITS OF PLASTIC MONEY

BASED ON EXPERIENCES OF PEOPLES

INTRODUCTION
Introduction to Plastic Money
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 handlings 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.
MEANING
Plastic money refers to credit cards, we use them whenever we want and pay later (with
interest, of course). It makes it too easy for us to buy things we normally could not afford,
which makes it easier to get into debt.
DEFINITION
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 economy's
money supply.
History of Credit Cards and Debit Cards In Plastic Money
Credit cards have evolved into a safe and secure manner to purchase goods and services. The
internet has given credit card users additional purchasing power. Banks have options like
cash-back rewards, saving plans and other incentives to entice people to use their cards. Debit
cards allow people the convenience of cards without the worry of racking up debt. The
convenience, security and rewards offered by credit and debit cards keep shoppers using their
cards as opposed to cheques or cash.

Credit Card Origins

The first credit cards were issued by individual stores and merchants. These cards were issued
in limited locations and only accepted by the business that issued them. While the cards were
convenient for the customers, they also provided a customer loyalty and customer service
benefit, which was good for both customer and merchant. It was not until 1950 that the
Dinners Club card was created by a restaurant patron who forgot his wallet and realized
there needed to be an alternative to cash only. This started the first credit card specifically for
widespread use, even though it was primarily used for entertainment and travel expenses.
Plastic Becomes the Standard
The first Diner's Club cards were made out of cardboard or celluloid. In 1959 American
Express changed all that with the first card made of plastic. American Express created a
system of making an impression of the card presented at the register for payment. Then that
impression was billed to the customer and due in full each month. Several American Express
cards till operate like this as of 2010. It was not until the late 1980s that American Express
began allowing people to pay their balance over time with additional card options.
Bank Card Associations
In 1966, Bank of America created a card that was a general purpose card or "open loop" card.
These "closed loop" agreements limited cards like Diners Club and American Express to
certain merchants, unlike the new open loopcards.
The new general purpose system required interbank cooperation and additional regulations.
To his created additional safety features and began building the credit card system of today.
Two systems emerged as the leaders--Visa and Master Card. However, today there is little
difference between the two and most merchants accept both card associations.
Debit Cards Emerge
The Visa association of cards took credit cards to a new level in 1989when they introduced
debit cards. These cards linked consumers to their checking accounts. Money was now drawn
from a checking account at the point of sale with these new cards and replaced check writing.
This helped the merchants check that money was available and made it easier to track the
customer if the funds could not be obtained. Consumers liked the convenience of not having
to write checks at the point of sale, which made debit cards a safe alternative to cash and
checks.
The Future
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 sale is
even more convenient.

TYPES OF PLASTIC MONEY

Different types of Plastic money are:Credit card
A credit card is plastic money that is used to pay for products and services at over 20 Million
locations around the world. All we need to do is produce the card and sign a charge slip to
pay for our purchases. The institution which issues the card makes the payment to the outlet
on our behalf; we will pay this Loan back to the institution at a later date.
Debit card
Debit cards are substitutes for cash or cheque payments, much the same way that credit cards
are. However, banks only issue them to us if we 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.
Don't borrow on your credit card! Here's why
A debit card is only accepted at outlets with electronic swipe-machines that can check and
deduct amounts from your bank balance online.
Charge card
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 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.
Amex card
Amex stands for American Express and is one of the well-known charge cards. 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 don'ts.
This card is typically meant for high-income group categories and companies and may not be
acceptable at many outlets. There are a wide variety of special privileges offered to Amex
cardholders.
Dinner club card
Diners Club is a branded charge card. There are a wide variety
of special privileges offered to the Diners Club cardholder. For instance, as a cardholder you

DETAIL REPORT
A credit card is a small plastic card issued to users as a system of payment. It allows its
holder to buy goods and services based on the holder's promise to pay for these goods and
services. The issuer of the card grants a line of credit to the consumer or the user) from which
the user can borrow money for payment to a merchant or as a cash advance to the user. Usage
of the term "credit card" to imply a credit card account is a metonym. When a purchase is
made the user would indicate consent to pay by signing a receipt with a record of the card
details and indicating the amount to be paid. Issuer agrees to pay the merchant and the credit
card user agrees to pay the card issuer.
DEFINITION:The credit card can be defined as A small plastic card that allows its holder to buy goods and
services on credit and to pay at fixed intervals through the card issuing agency.
MEANING:A credit card is a card or mechanism which enables card holder to purchase goods, travels
and dine in a hotel without making immediate payments. The holders can use the cards to get
credit from banks up to 45days.
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.

ADVANTAGES OF CREDIT CARD

The benefits of credit card can be grouped as follows:
(A) BENEFITS TO BANK
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 customers.
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.
The most 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.
This also provides additional customer services to the existing clients. It enhances the
customer satisfaction.
More use by the car holder and consequently the growth of banking habits in general.
Better network of card holders and increased use of cards means higher popularity and
image of the bank

Savings of expense on cash holdings, i.e. stationery, printing

man power to handle clearing transactions while considerably is reduced.

and

(B) BENEFITS TO CARD HOLDER

The principal benefits to a card holder are:

He can purchase goods and services at a large number of outlets

withoutcash or cheque. The card is useful in emergency, and can saveembarrassment.
The risk factor of carrying and storing cash is avoided. It is convenientfor him to carry
credit card and he has trouble free travel and may purchasehis without carrying cash
or cheque.
Months purchases can be settled with a single remittance, thus, tending to reduce bank
and handling charges.
The card holder has the period of free credit usually between 30-50 days of purchase.
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.
Availing credit with minimum formality.
The credit card saves trouble and paper work to travelling businessman.

(C) Benefits to the Merchant Establishment

The principal benefits offer credit card to the retailer is:

This will carry prestigious weight to the outlets.

Increases in sale because of increased purchasing power of the card holder due to
unbilled credit available to the card holder.
The retailers gain from the impulse buying and trading up the tendency to buy the bigger
or better article.
Credit card ensures timely and certainly of payments.
Suppliers/ sellers no longer have to send reminders of outstanding debits.
Systematic accounting since sales receipts are routed through banking channels.
Advertising and promotional support on national scale.
Development of prestigious clientele base.

Disadvantages of credit card

The following are the common disadvantages of the credit card:

Some credit card transactions take longer time than cash transactions because of
various formalities.
The customer tends to overspend out of immerse happiness.
Discounts and rebates can rarely be obtained.
The cardholder is responsible for charges due to loss or theft of the cardand the bank
may not be party for loss due to fraud or collusion of staff, etc
Customers may be denied cash discount for payment through card.
It might lead to spending habits and cardholders may end up in big debts

Avoid the entire cost and security problem involved in handling cash.
Losses to bad debts and reduced an additional liquidity is
It also allows him to delegate spending power to add on members
Credit card is considered as a status symbol.

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.
Different Types of Credit Cards - Know Which One to Go For
Credit cars are of various types, everyone has to select credit cards on the basis of the pros
and cons of each type of credit card and at the same time the nature of use. This article gives
an insight into the several types of credit cards available in the market
Today, credit card customers enjoy more options and choices than ever before. To gain new
customers, credit card companies compete by offering new services and cards to customers.

No matter what your needs, chances are good that there is a card out there that would be ideal
for you. If you are looking for the right card, you can begin by considering the many types of
cards available to you:
1. Low Interest Credit Cards
These types of credit cards offer very low interest. In some cases, these cards just charge a
few percent interest. The reasons for this are numerous. In most cases, the low interest rate is
for a limited time only. After a set number of months, you will begin paying higher interest
rates. In some cases, low interest credit cards are not really credit cards at all - they are debit
cards linked to a low-interest loan such as a line of credit. Check your agreement to find out
what type of card you have. If you need to consolidate debts or if you like the idea of having
low interest for a while, this type of credit card can be perfect for you.
2. Instant Approval Credit Cards
These cards are really a product of our fast-paced society. The idea behind this type of credit
card is that once you fill out your application, you will be told whether you are approved or
not right away. The approval process only takes a few minutes. Instant approval credit cards
are very popular online and applicants can apply via the internet or over the phone.
If you are very impatient or need credit right away, these types of cards can be for you.
However, you should be aware that these cards do not guarantee that you will be approved
right away - sometimes, more time is needed to process your application. Another drawback
to these cards is that they rely heavily on your credit score. If you have poor credit or any
extenuating financial circumstances, these types of cards may not be for you.
3. Balance Transfer Cards
Balance transfer cards are a type of temporary low-interest card that is meant to help you
consolidate your debt. They work this way: if you have several credit cards with a balance,
you can get a balance transfer card. You then transfer all your credit card debt onto the new
card and work to pay it off. Since the new card has a low interest rate, you can quickly repay
your bills.
If you are in debt, a balance transfer card can be a great way to get out of debt. It offers the
convenience of one bill and low rates. However, some cards have high fees. Also, if you run
up your other cards after consolidating your debts or if you are unable to pay off your new
card in the limited time before the low interest rate increases, you may find yourself even
more in debt than before.
4. Rewards Credit Cards
Rewards credit cards offer you points, rewards, or bonuses for every cash purchase made
with your credit card over time. As you accumulate rewards or points, you can redeem your
bonus for entertainment events, purchases, travel, and other fun prizes. Some cards even offer
customers extra automatic-enter sweepstakes and draws. Each time you use your card, you

are entered into a draw to win specific prizes.

These types of cards are really a marketing tool for card companies. Companies know that
customers love rewards and prizes and so offer these enticements to lure customers. The
major advantage of these cards is that they can help you get more cash value for your money.
They can also be fun and rewarding for almost any credit card customer. However, not all
reward credit cards are a deal. Some charge high fees to offset the costs of the bonuses. Some
also have very low points systems, meaning that you need to spend a lot with your credit card
to get any rewards at all. Read the fine print carefully before signing.
5. Cash Back Credit Cards
Cash back credit cards give you money rewards. When you make a purchase with this type of
credit card, you get some points based on the amount of money you have spent with your
credit card. When you accumulate enough points, you get cash back. On most cards, you can
get back about 1% of your total purchases.
These cards are great for those who are budget-conscious as they give you some money back
from your purchases. However, there are several drawbacks to these types of cards. Some
cards have low cash-back percentage rates. Some charge high fees or have limits on how
much money you can get back each year. Most cards only offer you cash back advantages on
purchases - not on your balance. If you decide this card is right for you, do compare several
card offers to find the best cash back credit card option.
6. Airline Credit Cards
This type of card allows you to accumulate frequent flyer points on all your credit card
purchases. If you travel a lot or love to travel, this card can help you accumulate points for a
free trip or for a discount ticket. In many cases, these cards are great because they allow you
to gather points for every purchase. However, these cards can also charge high fees. In some
cases, your points will expire if you do not use them within a specified time. Worse, some
airline credit cards make use of a point system that is not very user-friendly. You may have to
slowly accumulate an enormous amount of points to qualify for a trip. If you do not love to
travel and if you do not use your credit card a lot, then, your ability to get rewards you like
may be very limited.
7. Secured Credit Cards
Secured credit cards use collateral to ensure that the card company will be paid back. Often,
these cards are used by people with no credit or bad credit. With secured credit cards, you can
enjoy credit card convenience even if you do not qualify for traditional cards. However, you
will also have to cope with the additional fees and low credit limits that these credit cards
have.
8. Credit Cards for Bad Credit

Bad credit credit cards are designed for people with poor credit histories. These cards
generally have very low credit limits and charge extra fees. This is because they are designed
for people who are considered far less likely to repay their debts. If you have a bad credit
rating, these types of credit cards can be a great way to rebuild your credit history. These
cards can also allow you to have credit even if you would be rejected for most other cards due
to your credit history.
9. Student Credit Cards
Student credit cards are cards meant to attract college and university students. These cards
often offer sign-up bonuses for students. They are also easier to apply for, since credit card
companies recognize that students have much shorter credit histories than the average
customer.
If you are a student, student credit cards can be a great option. They are simple to use and can
help you build a good credit rating before you graduate. However, there are some
disadvantages to student credit cards. These cards may have no reward programs and may
have fewer benefits, including fewer bonuses and services, than other cards.
10. Business Credit Cards
Business credit cards are created especially for business use. They offer many of the same
advantages as traditional credit cards, but also offer services that can really help a business.
With some business credit cards, for example, you can enjoy higher interest rates, extra cards
for business employees, monthly reports on your expenses, and services that let you keep
your personal and business expenses separate on the same card. These advantages mean that
using this card for your business is more convenient.
If you own a business, you may wish to consider this type of card. The only real disadvantage
of business cards is that there are so many of them. Some cards offer fewer features and some
charge businesses additional fees for bonuses and services. You can avoid these problems by
seeking out the best possible business credit cards for your needs.
Now that you understand the different types of credit cards, you can make the right credit
card decision for yourself. Knowing which cards are right for you can help empower you to
make the right financial choices.
Types of Credit card offered by Indian banks
I.

Silver Cards

Silver credit cards rank lowest among the metal named cards, and, because of lower prestige
when compared to gold and platinum cards, are commonly known as basic and standard
credit cards. Silver credit cards come with advantages such as lower annual membership fees
if there is any, and a lower threshold salary which banks use to evaluate your application in

NEEDS AND IMPORTANT

Following are the findings that are drawn from the study:
1. Respondents taken for this study are those who are using the plastic money in their
2.
3.
4.
5.

daily life.
62% of the respondents believe that plastic money is the currency of modern India.
69% of respondents own one debit card and 25% owns two debit cards.
People have less craze for credit card. Only 28% of the respondents have credit card.
Respondents mostly prefer the plastic money of SBI Bank, HDFC Bank and ICICI

Bank.
6. 34% using the cards for the last 3 years and the trend of plastic money have emerged
from the last few years.
7. Mostly people use the cards for shopping and withdrawal of money- plastic money is
mostly preferred at the time of shopping.
8. Debit card is more beneficial according to 36% respondents.
9. Debit card provide security to the cardholders.
10. 20% respondents are dissatisfied that debit card is free from fraud.
11. Mostly people agreed that debit card provide the facility of anytime access. Anytime
you can withdraw your money.
12. Credit card is convenient way to pay agreed by most of the respondents.
13. Credit card provide prestige to holders having the tie up with the famous card
companies it provide the sense of pride.
14. 30% cardholder agreed that the plastic money holders have to tackle with the problem
of insecurity.
15. Cardholders have to fulfil the unnecessary formalities while obtaining the card.
16. Plastic money has a rapid growth in the coming years.
17. The growth credit card in India is still very slow. Companies are going really hard to
increase the sale of credit cards.

CONCLUSION
In the last two years, spending pattern through plastic money has changed drastically.
Travelling, dining and jewellery are the top three purchases that Indian makes through credit
cards. Two years ago, it was jewellery and apparel purchases that formed the largest chunk of

purchases through plastic money. Fuel accounts for a very small portion of credit card
purchases as these are largely paid through debit cards.
Consumers were not only more open to the possibility of owning a financial card, but were
also more than willing to use their cards to settle dues. The status symbol aspect of owning
and using cards too played its part on bringing about such robust growth over the space of a
single year. Debit cards in particular proved immensely popular.
According to projections for the 2003-2008 period the number of financial cards in
circulation will register a compounded annual growth rate of nearly 51 percent sp the
satisfaction of consumers has also increased. There are many ethical issues and challenges for
plastic money issuing banks/ companies. Security relating to card should be first priority for
each bank/company.
Consumers are preferring these cards mostly for shopping online E- commerce has given a
better way to use the plastic money.
At last it is concluded that plastic money has a very bright future in the coming years because
of the increasing trend of E- commerce.

SUGGESTIONS
1. Various offers and discounts should be provided on the plastic money so that all the users
feel satisfied with their card choice.
2. The interest charges on credit cards should be reduced so that people are encouraged to
3.
4.
5.
6.
7.

use it in regular routine.

More facility should be provided to the card holder in order to satisfy them completely.
There should be more sales executives to reinforce new customers.
More outlets should be provided where the cards can be easily accepted.
The unnecessary formalities should be reduced in order to obtain the plastic money.
Advertisements should be given through TVs, magazines and hoardings to have

maximum reach because the respondents perceive these as important promotional tools.
8. The whole procedure of obtaining the plastic money needs to be authentic. Companies
should provide security to the card holders.
9. Companies should reduce the amount of the annual fee charged on the cards.

REFERENCES
Kothari C.R, Research Methodology : Research and Techniques; Vishwa Prakshan, New
Delhi, 4th edition.
E.gordan and Natrajan, Financial Services, Himalaya Publishing House, Mumbai. 5th edition.
College Student using the Credit Card
Smart card based Electronics Commerce characteristics and Roles
Credit card and Debit cards : What new ? Where to ?
Competition and Credit and Debit card Interchange Fees
Theory of Credit card Networks: A survey of Literature
An introduction to the economics of payment card networks
Credit card crisis in South Korea
Ethical Issues and Challenges
www.rba.gov.au
www.federalreserve.gov
www.direct.gov.uk
www.paypal.com
www.google.com