Winter Project Report SSCMR 2009-2011 PLASTIC MONEY 1

Winter Project Report SSCMR 2009-2011 TABLE OF CONTENT 2

CHAPTER NO. 1. Winter Project Report SSCMR 2009-2011 2. TOPIC OBJECTIVE OF STUDY NEED &SCOPE OF THE STUDY INTRODUCTION PAYMENT OPTIONS C ONCEPT OF CREDIT CARDS DEFINITION OF CREDIT CARDS PAGE NO. 4 5 6-8 3. 4 HISTORY OF CREDIT CARDS 8-10 5. PARTIES INVOLVED IN CREDIT 11 CARDS 6. 7. 8. 9. 10. DIFFERENT TYPES OF CREDIT 11-13 CARDS PROCESS OF CREDIT CARDS FUNCTIONS OF CREDI T CARDS FEATURE OF CREDIT CARDS ADVANTAGES DISADVANTAGES OF CARDS NEED OF CREDIT CARDS INTRODUCTION OF DEBIT CARDS TYPES OF DEBIT CARD SYSTEMS WORKING OF DEBIT CARDS ADVANTAGES DISADVANTAGES OF 14 15 16-17 & 19-21 CREDIT 22-24 25 26 27 AND 29-31 DEBIT 32-33 34 34-39 11. 12. 13. 14. 15. 16. 17. 18. CARDS DEBIT CARDS V/S CREDIT CARDS TYPES OF DEBIT CARDS RESEARCH COMPARISION BET WEEN HDFC 3 19. BANK & ICICI BANK FINDINGS & 40

Winter Project Report SSCMR 2009-2011 OBJECTIVES OF STUDY Primary objectives 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 cre it and debit cards. To study the benefits of debit card and credit cards. To fin d out the market leader among the various banks/companies issuing credit and deb it cards To know the problems faced by respondents using plastic money. To study the satisfaction level of consumers towards plastic money. 4

Winter Project Report SSCMR 2009-2011 NEED AND SCOPE OF THE STUDY Need of the study It is rightly said the plastic money is need of hour. People a re using these cards on a vast scale. But after considering the review of litera ture 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 ma ny ethical issues and challenges in the market of plastic money which is require d to be studied. This study is concerned with the Seven perks of plastic money C onvenience, 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: 5

Winter Project Report SSCMR 2009-2011 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 p otential 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. T he 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 MasterCar d both confirmed yesterday that they had been notified of the breach and had in turn notified several banks and credit card companies of the potential data comp romise. They declined to say how many companies have been notified. Credit cards As well as convenient, accessible credit; credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditu res and the tracking of work-related expenses for taxation and reimbursement pur poses. INTRODUCTION Plastic money or polymer money, made out of plastic, is a new and easier way of paying for goods and services. Plastic money was introduced in the 1950s and is now an essential form of ready money which reduces the risk of handling a huge a mount of cash. It includes debit cards, ATMs, smart cards, etc. Credit cards, va riants of plastic money, are used as substitutes for currency Credit cards in In dia 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 cha rge cards in USA by Diners Club and American Express. Credit card however became more popular with use of magnetic strip in 1970. Credit card in India became po pular with the introduction of foreign banks in the country. Credit cards are fi nancial instruments, which can be used more than once to borrow money or buy pro ducts and services on credit. Basically banks, retail stores and other businesse s 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 c redit cards is to reduce the risk 6

Winter Project Report SSCMR 2009-2011 of handling a huge amount of cash by individuals/merchants. The growth and popul arity of plastic money in India has been phenomenal in the last few years. In th e 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 i n the number of credit card users has stimulated the Indian economy by a signifi cant extent. The arrival of malls, multiplexes, online shopping stores and shopp ing complexes have contributed to the growth of the use of plastic cards. The Be st credit 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 cre dit 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 ki rana shops have the famous lines Aaj Nagad, Kal Udhari (cash today, credit tomor row).But the situation is not actually that scary. And it is all about right tim ing. Credit cards can be a useful tool at the hands of savvy consumers who can e ffectively use the benefits offered by cards.It is important to know that credit card is a financial tool that needs to be used responsibly. While it ensures ca sh 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 deb ts, without any additional costs. Major Banks issuing Credit Card in India State Bank of India credit card (SBI credit card) Bank of Baroda credit card or BOB credit card ICICI credit card HDFC credit card IDBI credit card ABN AMRO cre dit card Standard Chartered credit card HSBC credit card 7

Winter Project Report SSCMR 2009-2011 Citibank Credit Card Global player in Credit card market are Master Card, VISA Card, American Express , Diners Club International. The first 6 digits of credit cards number are known as the issuer identification number (IIN),previously known as bank identificati on number (BIN).These identify the institution that issued the to the card holde r The IIN ranges used by the major card schemes are VISA: Card number start with a 4. Master Card: Card start with No.51 and 55 Diners Club: Card number beginni ng 36 or 38 Amex Ex: Card number beginning 34 or37 PAYMENT OPTIONS Concept of credit card 8

Winter Project Report SSCMR 2009-2011 Progress in civilization in its turn has brought out radical changes in the mann er of trading. The need for something intrinsically useful and easily applicable in everyday dealing is clearly felt. Cash in the form of currency notes and coi ns makes up just one form of the payment system. Development in banking while al so 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 paymen ts, 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 o f cardholders who have defaulted on payments or who are over their credit limit can be restricted until the balances are cleared. Definition of credit card A credit card is a credit-token within the meaning of section 14(1), Consumer Cr edit Act 1974 of the UK which defines a credit-token as a card, cheque, voucher, coupon, stamp, form booklet or other document or thing given to an individual b y a person carrying on a consumer credit business, who undertakes: That on the production of it (whether or not some other action is also That were , on the production of it to third party (whether or not any other required), he will supply, cash, goods and services (or any of them) on credit, or action is also required), the third party supplies cash, goods and services ( whether or not deducting any discount or commission), in return for payment to h im by the individual. In very simple words credit card can be termed as an unsec ured personal loan offered to customers by the banks where the card-holder could purchase goods and services from authorized merchant or merchant establishments (MEs) of the bank up to a fixed limit on credit. Such credit is normally made a vailable for a period of 30 to 45 days. A credit card can also be used to secure airline tickets and car rentals. Having a credit card can make purchases and re servations easier; however, a credit card should be used 9

Winter Project Report SSCMR 2009-2011 responsibly so that the consumer does not over extend his finances. Credit cards are usually issued by banks or other financial institutions. Some c redit cards may be available online. HISTORY OF CREDIT CARDS Our society was once upon a time functioning without money; it is again likely t o become moneyless. While ancient society was confronted with the problems of ad justing mutually satisfactory rates and basis of exchange, future society, with the help of computers, electronics and telecommunications, credit cards, telepho ne and other modern means of communications, would settle financial transactions instantly. Money as a medium of exchange will serve its function. The differenc e will be that in future coins, currency notes, cheques, etc., will be dispensed with in favour of records. India has entered the stage of credit card system an d credit cards are gaining increasing relevance to facilitate industrial, commer cial and agricultural transactions. Credit was first used in Assyria, Babylon an d 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 adver tisement for credit was placed in 1730 by Christopher Thornton who offered furni ture that could be paid off weekly. From the 18th century until the early part o f 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 1920s shoppers plate buy now, pay later system was introduced in USA. It could only be used in s hops which issued it. In 1950, Diners Club and American Express launched their c harge 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 magne tic strip in 1970, the credit card became a part of the information age. 10

Winter Project Report SSCMR 2009-2011 The origins of the bank credit card have been traced to John C. Biggins, a consu mer credit specialist at the Flatbush National Bank of Brooklyn, New York. In 19 46, Biggins launched a credit plan called Charge-It. The programme featured a fo rm 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. Plastic Money: the Currency of Modern India Indian consumers have never had it so good. The soiled notes are definitely out. Carrying cash is no more a pain in the neck as consumers are relying more on the plastic card which gives them money on credit. Plastic money basically mea ns debit cards and credit cards which is having a magnetic stripe, logo, signatu re of the cardholder made of plastic. Credit Cards have finally arrived in India . The card industry which is growing at the rate of 20% per annum is flooded wit h cards ranging from gold, silver, global, smart to secure.the list is endless. F rom just two players in early 80s, the industry now houses over 10 major players vying for a major chunk of the card pie. Currently four major bishops are rulin g the card empire---Citibank, Standard Chartered Bank, HSBC and State Bank of In dia (SBI). The industry, which is catering to over 3.8 million card users, is ex pected to double by the fiscal 2003. According to a study conducted by State Ban k of India, Citibank is the dominant player, having issued 1.5 million cards so far. Stanchart follows way behind with 0.67 million, while Hongkong Bank has 0.3 million credit card customers. Among the nationalized banks, SBI tops the list with 0.28 million cards, followed by Bank of Baroda at 0.22 million. Parties involved: Cardholder: The owner of the card used to make a purchase; the consumer. 11

Winter Project Report SSCMR 2009-2011 Card-issuing bank: The financial institution or other organization that issued t he credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were pre viously the only cardissuing banks for their respective brands, but as of 2007, this is no longer the case. Merchant: The individual or business accepting credi t card payments for products or Acquiring bank: The financial institution accept ing payment for the products or Independent sales organization: Resellers (to me rchants) of the services of the Merchant account: This could refer to the acquir ing bank or the independent sales Credit Card association: An association of car d-issuing banks such as Visa, services sold to the cardholder services on behalf of the merchant. acquiring bank. organization, but in general is the organizati on that the merchant deals with. MasterCard, Discover, American Express, etc. th at set transaction terms for merchants, cardissuing banks, and acquiring banks. Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may ope rate multiple networks. Transaction processing networks include: Cardnet, Nabanc o, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet. DIFFERENT TYPES OF CREDIT CARDS Charge card A charge card carries all the features of credit cards. However, after using a c harge card you will have to pay off the entire amount billed, by the due date. I f you fail to do so, you are likely to be considered a defaulter and will usuall y have to pay up a steep late payment charge. 12

Winter Project Report SSCMR 2009-2011 At the time of using the card he is not declared not as a defaulter even if miss es due date. A 2.95 per cent late payment fees (this differs from one bank to an other) is levied in the 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 netw ork of MasterCard or Visa. Smart card A smart card contains an electronic chip which is used to store cash. This is mo st useful when you have to pay for small purchases, for example bus fares and co ffee. No identification, signature or payment authorisation is required for usin g this card. The exact amount of purchase is deducted from the smart card during payment and is collected by smart card reading machines. No change is given. Cu rrently this product is available only in very developed countries like the Unit ed States and is being used only sporadically in India. Diners Club card Diners Club is a branded charge card. There are a wide variety of special privil eges offered to the Diners Club cardholder. For instance, as a cardholder you ca n set your own spending limit. Besides, the card has its own merchant establishm ent tie-ups and does not depend on the network of MasterCard or Visa. However, s ince this card is typically meant for high-income group categories, it may not b e acceptable at many outlets. It would be a good idea to check whether a member establishment does accept the card or not in advance. Photo card 13

Winter Project Report SSCMR 2009-2011 In this photograph is imprinted on a card, and then you have what is known as a photo card. Doing this helps identify the user of the credit card and is therefo re considered safer. Besides, in many cases, your photo card can function as you r identity card as well. Global card Global cards allow you the flexibility and convenience of using a credit card ra ther than cash or travellers checks while travelling abroad for either business or personal reasons. Co-branded card Co-branded cards are credit cards issued by card companies that have tied up wit h a popular brand for the purpose of offering certain exclusive benefits to the consumer. . Affinity card The card issuer ties up with popular organizations/ in stitutions which are often non-profit organizations (Citi-WWF card or the stanch art-Cricket cards) to offer an affinity card. When the card is used, a certain percentage is contributed to the organization /institution by the card issue Mas terCard and Visa MasterCard 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 world-wide may use their respective cr edit cards to make various purchases. Visa card: Visa, Inc., commonly called VIS A, is an economic joint venture of 21,000 financial institutions that issue and market Visa products including credit and debit cards. The company was originall y named Visa International Service Association. The name change occurred in the fall of 2007 as a part of Visas restructuring and IPO plan. The company is based in San Francisco, California, USA. 14

Winter Project Report SSCMR 2009-2011 PROCESS OF CREDIT CARDS FUNCTIONS OF CREDIT CARDS Today, credit cards have many functions and are very versatile. They can be summ arized into the following functions: 15

Winter Project Report SSCMR 2009-2011 Credit The holder may obtain extended credit up to an agreed limit at a publishe d interest rate. 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 presentat ion at the appropriate banks, subject to check, cash can be obtained. In most ca ses 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 th e 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 levie d in certain circumstances. International If the card is a member of Visa Intern ational or MasterCard International, you can use your card at many countries whe re there are a lot banks who are members of them. Perhaps the most significant f act 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 debi t will be made from the credit card account and not from the holder s bank accou nt. The credit cards discussed above are bank cards. Different bank cards have d ifferent card functions. The functions of bank cards really depend on the indivi dual bank itself. Some bank card may have all of the above functions and some ma y 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 functio ns mentioned above. 16

Winter Project Report SSCMR 2009-2011 FEATURES OF CREDIT CARDS All credit cards offer a variety of features. Knowing and understanding these fe atures will help to decide which card is right for. Fees Most credit cards charg e fees for various things, and it is important to know what these fees are and h ow to avoid them. The annual fee Some credit card companies charge you an annual fee just for using their card. Because of stiff competition, you can often nego tiate this fee away if you call and speak to a customer service representative. Cash Advance Fee Most credit card companies will charge you a fee for cash advan ces. These fees can vary but are usually somewhat hefty. Not only will they char ge you a one-time fee, but the interest rate for this money will be at a conside rably higher rate. Plus, unlike a regular purchase, where interest begins accrui ng after some grace period passes, cash advances accrue interest charges from da y one. Many card companies are competing for your business and are now offering an introductory 17

Winter Project Report SSCMR 2009-2011 cash advance and balance transfer rates for a specific amount of time. This lowe r 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. Miscellaneous Fees Things like late-payment fees, over-the-credit-limit fees, se t-up fees, and return-item fees are all quite common these days and can represen t a serious amount of money out of your pocket if you get whacked for any of the se fees. Incentives Since there are so many credit card companies, competition i s stiff. Adding incentives to their offers is one of the more popular ways to ti p the scales in their favor. Incentives like rebates on purchases, frequent flye r 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 hop ing that with all this traveling, you are using their card to foot at least some of the bill. 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 will in turn earn you rewards. What k ind of reward depends solely on the amount of points you accumulate. Since you c an t accumulate these points without charging things on your 18

Winter Project Report SSCMR 2009-2011 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. APR The annual percentage rate (APR) is the interes t 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 purcha ses. Balance transfers and cash advances usually have higher APRs than for purch ases. Your APR may increase when you re late on your payment to a particular cre ditor, and other creditors if your card agreement includes a universal default c lause. APRs can be fixed or variable. A fixed APR can change, but the creditor m ust inform you in writing before changing the rate. A variable APR changes from time to time. Grace Period The grace period is the amount of time you have to pa y your balance in full before a finance charge is applied to your purchase. If y ou carried a balance from the previous month, you may not have a grace period fo r 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 ref er to the credit card application or your credit card agreement. Your monthly st atements should also include the number of days in the grace period. 19

Winter Project Report SSCMR 2009-2011 ADVANTAGES AND DISADVANTAGES OF CREDIT CARDS ADVANTAGES OF CREDIT CARDS 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 exam ple most airlines, hotels, and car rental agencies), putting purchases on a cred it card can make buying things easier. Protection of Purchases Credit cards may also offer you additional protection if something you have boug ht 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 origin al receipt is lost or stolen. In addition, some credit card companies offer insu rance on large purchases. Building a Credit Line Having a good credit history is often important, not only when applying for cred it 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 sp ending outside your budget (or money you don t have!), sometimes emergencies (su ch as your car breaking down or flood or fire) may lead to a large purchase (lik e the need for a rental car or a motel room for several nights.) 20

Winter Project Report SSCMR 2009-2011 Credit Card Benefits In addition to the benefits listed above, some credit cards offer additional ben efits, such as discounts from particular stores or companies, bonuses such as fr ee airline miles or travel discounts, and special insurances (like travel or lif e 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 the ir money when you can t afford to pay off your charges!) the benefits are real a nd can be helpful as long as you remember your spending limits. DISADVANTAGES OF CREDIT CARDS Blowing Your Budget The biggest disadvantage of credit cards is that they encour age 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 l ike 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 interes t each month on the money you have borrowed. High Interest Rates and Increased D ebt Credit card companies charge you an enormous amount of interest on each bala nce that you don t 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. This means you earn $2.00 - $2.50 a year on your $100 savings. Most credit card s 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% int erest on that $100. This means that you owe almost $30 interest (plus the origin al $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: S avings accounts may pay you around 21

Winter Project Report SSCMR 2009-2011 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 ca rd company, you may pay them around 20% interest (10 times as much as you earn o ff your savings.) Credit Card Fraud Like cash, sometimes credit cards can be sto len. They may be physically stolen (if you lose your wallet) or someone may stea l your credit card number (from a receipt, over the phone, or from a Web site) a nd use your card to rack up debts. The good news is that, unlike cash, if you re alize your credit card or number has been stolen and you report it to your credi t card company immediately, you will not be charged for any purchases that someo ne else has made. Even if you don t realize your credit card number has been sto len (sometimes you might not know until you receive your monthly statement), mos t credit card companies don t 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 Don t loa n your credit card to anyone and only give out your credit card Check your state ment closely at the end of each month to make sure all You can find out more abo ut protecting your personal information by visiting immediately. information to trusted companies or Web sites. charges are yours. o ur 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 y our purchases. Don t spend outside your budget. Pay off your balance on all of y our credit cards at the end of each month. 22

Winter Project Report SSCMR 2009-2011 Don t loan your credit or give out your credit card information to anyone but re liable companies 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 bi gger 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 bi lls on time. You can build enough credit to qualify for a home loan by paying yo ur rent on time for several years. You destroy your credit when you do not pay y our 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 bu ild your credit history. You may find it a little easier to do with a credit car d, but you should be very careful as you try to do so. 2. Credit Card to Shop On line or Rent a Car Since debit cards have been introduced you no longer need a c redit card to do these things. In fact you can do everything with a debit card t hat you can with a credit card, except spend money that you do not have. You sho uld not be doing that anyway. Debit cards can be used 23

Winter Project Report SSCMR 2009-2011 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 se t 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 expenses save d 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 ca rd to pay for the tow, and your emergency fund to cover those expenses. 4. Credi t 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 discounts; they offer c ards because they realize that while most people intend to pay the card off ever y 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 p lay. 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 cre dit card with no annual fee. Additionally it is important to remember that the c redit 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 the y make more money off the customers, then rewards they give out. Fraud Question What kinds of credit card frauds are more prevalent? Counterfeit and CNP (card n ot present) continue to be the two main types. Physical 24

Winter Project Report SSCMR 2009-2011 theft of cards is not such an issue. Since online transactions typically don t r equire the card to be presented, the information sitting on the card and other c ustomer authentication details are sometimes compromised and used for transactio ns. This is becoming a big problem. However, India has been pro-active in this r egard and has introduced the two-factor identification system, wherein a custome r transacting online must also have a T-Pin for transactions where the card is n ot present. What is being done to prevent such fraud? Visa is doing a number of things in partnership with issuers to introduce measures which can easily preven t such frauds. Since the prevention of theft is of utmost important, banks are o ffering customers the option of opting for alerts whenever there is a transactio n. This measure is immediate in nature and can help the customer know about his or her transactions in real time.Also, we are increasingly encouraging issuers t o opt for chip cards, which can go a long way in controlling fraud. We would lik e all banks to issue chip cards to increase security. Why is a chip card safer? It is very difficult to copy, as a unique cryptogram or code is generated for ea ch transaction. So, even if a card is counterfeited, it will be declined. In Ind ia, banks are selectively issuing chip cards to consumers, depending on their us age pattern. What are some of the most effective fraud detection tools that Visa has? Some very sophisticated ones are in place. Some are rule-based tools, wher ein a customer can define a set of rules for transactions like a spending limit, places of transactions, etc.If there is a deviation from these, and the transac tion won t be complete. In the USA, neural networks (artificial intelligence) ar e being deployed to 25

Winter Project Report SSCMR 2009-2011 ensure the authentication sits on the back-end. These networks basically study t he pattern of usage by a customer and any deviation comes up for further verific ation. So, a customer gets a call if there is a deviation from his or her set pa ttern. What can a customer do to avert card-related frauds? They should first op t for customer alerts each time there is a transaction. Second would be dynamic authentication by using chip cards. Also, they should be careful of hidden camer as in ATMs and should watch for fake ATM fronts, where your card can be skimmed INTRODUCTION OF DEBIT CARDS The debit card has emerged from the shadow of its older sibling, the credit card . Over the past decade, debit card has grown from accounting for 274 million tra nsactions in 1990 to 8.15 billion transactions in 2002, to challenge the credit card as the preferred payment card. As it stands, the debit card industry is a m ulti-billion dollar engine that helps drive bank profits and point-of purchase c onsumer sales - but is also beginning to redefine traditional payment options in the business and government sectors, such as food stamps, benefits, and payroll . MEANING AND FUNCTIONS OF DEBIT CARDS Two decades ago, the number of debit cards in circulation was approximately 19 m illion. This figure is projected to cross 34.4 million by 2016. A debit card (al so known as a bank card or check card) is a plastic card that provides an altern ative payment method to cash when making purchases. Functionally, it can be call ed an electronic check, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card. In some cases, the cards ar e designed exclusively for use on the Internet, and so there is no physical card . 26

Winter Project Report SSCMR 2009-2011 In many countries the use of debit cards has become so widespread that their vol ume of use has overtaken or entirely replaced the check and, in some instances, cash transactions. Like credit cards, debit cards are used widely for telephone and Internet purchases and, unlike credit cards, the funds are transferred immed iately from the bearer s bank account instead of having the bearer pay back the money at a later date. Debit cards may also allow for instant withdrawal of cash , acting as the ATM card for withdrawing cash and as a check guarantee card. Mer chants may also offer cash back facilities to customers, where a customer can wi thdraw cash along with their purchase. Debit cards can also allow for instant wi thdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque gu arantee card. Merchants can also offer "cash back"/"cash out" facilities to cust omers, where a customer can withdraw cash along with their purchase. Types of Debit Card systems Online Debit Card Offline Debit Card Electronic Purse Card System Prepaid debit cards Debit card 27

Winter Project Report SSCMR 2009-2011 An example of the front of a typical debit card: 1. Issuing bank logo 2. EMV chip 3. Hologram 4. Card number 5. Card brand logo 6. Expiration date 7. Cardholder s name An example of the reverse side of a typical debit card: 1. Magnetic stripe 2. Signature strip 3. Card Security Code 28

Winter Project Report SSCMR 2009-2011 There are currently three ways that debit card transactions are processed: onlin e debit (also known as PIN debit), offline debit (also known as signature debit) and the Electronic Purse Card System. It should be noted that one physical card can include the functions of an online debit card, an offline debit card and an electronic purse card. Although many debit cards are of the Visa or MasterCard brand, there are many other types of debit card, each accepted only within a par ticular country or region. Online Debit System Online debit cards require electronic authorization of every transaction and the debits are reflected in the users account immediately. The transaction may be ad ditionally secured with the personal identification number (PIN) authentication system and some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine (ATM) cards. One difficul ty in using online debit cards is the necessity of an electronic authorization d evice at the point of sale (POS) and sometimes also a separate PIN pad to enter the PIN Offline Debit System Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCar d) or major debit cards and are used at the point of sale like a credit card (wi th payer s signature). This type of debit card may be subject to a daily limit, and/or a maximum limit equal to the current/checking account balance from which it draws funds. Transactions conducted with offline debit cards require 23 days t o be reflected on users account balances. Electronic Purse Card System 29

Winter Project Report SSCMR 2009-2011 Smart-card-based electronic purse systems in which value is stored on the card c hip, not in an externally recorded account, so that machines accepting the card need no network connectivity are in use throughout Europe since the mid-1990s. Prepaid debit cards Prepaid debit cards, also called reloadable debit cards or reloadable prepaid ca rds, are often used for recurring payments. The payer loads funds to the cardhol der s card account. Prepaid debit cards use either the offline debit system or t he online debit system to access these funds. Particularly for companies with a large number of payment recipients abroad, prepaid debit cards allow the deliver y of international payments without the delays and fees associated with internat ional checks and bank Working of Debit Card The user has to present the card to merchant who will swipe it through the elect ronic terminal and enter the amount of purchase. The customers need to sign the transaction slip. Account will be automatically debited for the amount of the pu rchase and the transaction can be verified by entering the PIN. Debit Card can b e used to access the Account from over 5,000 Shops, Department Stores, Petrol Pu mps and Restaurants and over 235 ATMs in India .It can also be used at over 4 mi llion Visa Electron merchant locations and equally strong MasterCard outlets. If Debit Card ever gets lost or stolen, card companies protect from fraudulent usa ge at the loss. It is necessary to have a savings or current account with the de bit card issuer; by filling an application form. The card company then couriers the card across around a weeks time. The Debit card does have a daily limit which could be somewhere around Rs. 15,000 at ATMs, and Rs. 10,000 at merchant locati ons. This again is subject to the balance available in the account. 30

Winter Project Report SSCMR 2009-2011 Advantages and Disadvantages of Debit Cards The widespread use of debit and check cards have revealed numerous advantages an d disadvantages to the consumer and retailer alike. Advantages of debit cards A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to ma ke plastic transactions. For example, legislation often prevents minors from tak ing out debt, which includes the use of a credit card, but not online debit card transactions. For most transactions, a check card can be used to avoid check wr iting altogether. Check cards debit funds from the user s account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requireme nt to pay a credit card bill at a later date, or to write an insecure check cont aining the account holder s personal information. Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions qu icker and less intrusive. Unlike personal checks, merchants generally do not bel ieve that a payment via a debit card may be later dishonored. Unlike a credit ca rd, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PI Nbased transaction at no extra charge, other than a foreign ATM fee. Disadvantag es of debit cards Use of a debit card is not usually limited to the existing funds in the account to which it is linked, most banks allow a certain threshold over the available bank balance which can cause overdraft fees if the users transaction does not reflec t available balance. 31

Winter Project Report SSCMR 2009-2011 Many banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by th e merchant (some of which may be unknown until later discovery by account holder ). Many merchants mistakenly believe that amounts owed can be "taken" from a customer s account after a debit card (or number) has been presented, without ag reement as to date, payee name, amount and currency, thus causing penalty fees f or overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks. In some countries debit cards offer lower levels of security protection than credit cards. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. How ever, theft of users PIN codes using skimming devices can be equally easily acc omplished with a debit transaction PIN input, as with a credit transaction PIN i nput, and theft using a signature-based credit transaction is equally easy as th eft using a signaturebased debit transaction. In many places, laws protect the c onsumer from fraud much less than with a credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is of ten waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. The consumer also ha s a shorter time (usually just two days) to report such fraud to the bank in ord er to be eligible for such a waiver with a debit card, whereas with a credit car d, this time may be up to 60 days. A thief who obtains or clones a debit card al ong with its PIN may be able to clean out the consumer s bank account, and the c onsumer will have no recourse Debit Cards Benefits Debit Cards offer the following benefits: 32

Winter Project Report SSCMR 2009-2011 They help people to be disciplined financially, since one cannot splurge with A person with poor credit can obtain a debit card too much trouble. Debit cards ca n be used to make online purchases and payments. They provide freedom from carry ing cash checks while traveling, herby the limited amount of funds deposited for the card. offering more safety. Debit Cards: Issuers The banks issuing debit cards include: Bank of America Citibank American Express Standard Chartered HSBC Debit Cards vs. Credit Cards: Similarities and Differences Similarities The same financial institutions offer both debit cards and credit cards. Both ca rds offer special rewards, such as points and cash back on purchases made throug h the card. Debit cards and credit cards can be used to make online payments wit h the help of the pin number assigned to them. 33

Winter Project Report SSCMR 2009-2011 They can be used to withdraw money from ATMs depending on the cash limit availabl e on these cards. Differences In the case of a credit card, the issuer offers credit and overdraft facilities. This facility is not available with a debit card, which will only debit payment s from existing and available funds within the cardholders account. A credit car dholder therefore has a monthly bill to pay in every month that the card is used . If they dont pay that bill, high interest charges are applied. A debit card hol der is free from the hassle of paying those bills and from the risk of building up large debts to credit card companies. Debit Card Problems can be worse than Credit Card Problems When an improper charge appears on the credit card it cannot automatically out t he money and simply need to work with the credit card issuer to have the charge removed from the bill. When an improper charge occurs with a debit card, however , the funds are automatically taken from the account and customer is burdened wi th attempting to get the money back. Meanwhile, he may experience cash flow prob lems and the legitimate checks could bounce. Traveling with your Debit Cards The reverse side of the debit card will display the names or symbols of the various ATM systems that will accept the card. Debit card can be used at any ATM in the world as long as the ATM displays one of the same system names or symbols that is on debit card. When obtaining funds at an ATM in a foreign country the funds dispersed will be in the currency of the coun try going to visit. TYPES OF DEBIT CARDS 34

Winter Project Report SSCMR 2009-2011 DEBIT CARDS Combining the wide acceptability of a credit card and the thoughtful prudence of an ATM card, the ICICI Bank Debit Card is the most convenient acces sory. No more fear of overspending. No more searching for the nearest ATM. Only more comfort and convenience in the debit cards provided by ICICI. Various Products The ICICI Bank Private Banking Debit Card The ICICI Bank Gold Debit Card The ICI CI Bank HPCL Debit Card The ICICI Bank Ncash Silver Card The ICICI Bank Ncash De bit Card DEBIT CARD HDFC BANK Debit Cards give you complete and instant access to the mon ey in accounts without the risk or hassle of carrying cash. TYPES OF DEBIT CARDS Easy Shop International Debit Card Easy Shop International Gold Debit Card 35

Winter Project Report SSCMR 2009-2011 Easy Shop International Business Debit Card rd Kisan card Easy Shop Woman s Advantage Debit Ca

RESEARCH COMPARISION BETWEEN HDFC BANK AND ICICI BANK About - HDFC Bank Limited, India The Housing Development Finance Corporation Lim ited (HDFC) was amongst the first to receive an in-principle approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI s liberalization of the Indian Banking Industry in 1994. The bank was in corporated in August 1994 in the name of HDFC Bank Limited , with its registere d office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commerc ial Bank in January 1995. 36

Winter Project Report SSCMR 2009-2011 Capital Structure The Indian Private Equity Fund, Mauritius (IPEF) and Indocean Financial Holdings Ltd., Mauritius (IFHL) (both funds advised by J P Morgan Part ners, formerly Chase Capital Partners) together hold about 5.5% of the bank s eq uity. Roughly 27.5% of the equity is held by FIIs, NRIs/OCBs while the balance i s widely held by about 214,000 shareholders. The shares are listed on The Stock Exchange, Mumbai and the National Stock Exchange. The bank s American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol "HDB" BOARD OF DIRECTORS Managing Director Executive Director Executive Director Chair man Assets and Credit Cards Aditya Puri Paresh Sukhthankar Harish Engineer C.M. Vasudev Pralay Mondal About ICICI Bank Limited, In 1955, The Industrial Credit and Investment Corporat ion of India Limited (ICICI) was incorporated at the initiative of World Bank, t he Government of India and representatives of Indian industry, with the objectiv e of creating a development financial institution for providing medium-term and long-term 37

Winter Project Report SSCMR 2009-2011 project financing to Indian businesses. In 1994, ICICI established Banking Corpo ration as a banking subsidiary. Formerly known as Industrial Credit and Investme nt Corporation of India, ICICI Banking Corporation was later renamed as ICICI B ank Limited Capital structure ICICI Bank is India s second-largest bank with to tal assets billion (US$ 108.7 billion) at March 31, 2010. ICICI Bank s equity sh ares are listed in India on Bombay Stock Exchange and the National Stock Exchang e of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). BOARD OF DIRECTORS Managing Director and Chief executive Officer DeputyManaging Director Executive Director Chanda Kochhar Sandeep Bakhshi N.S.Kannan CREDIT CARDS OF HDFC BANK CREDIT CARD: HDFC bank credit cards provide a facility of easy availability of c ash and convenience to the cardholder. TYPES OF CREDIT CARDS OF HDFC BANK CLASSI C CARDS Silver Credit Card Value plus Credit Card 38

Winter Project Report SSCMR 2009-2011 Health plus Credit Card Gold Credit Card Titanium Credit Card CREDIT CARDS OF ICICI BANK CREDIT CARDS ICICI Bank Credit Cards give you the facility of cash, convenience and a range of benefits, anywhere in the world. These benefits range from life t ime free cards, Insurance benefits, global emergency assistance service, discoun ts, utility payments, travel discounts and much more. TYPES OF CARDS Premium Cards Classic Cards Value for Money Cards Co Branded Cards Affinity Card s EMI Card Who s the banking king? ICICI or HDFC? Their offices reflect their attitudes. ICICI Bank s headquarters in suburban Mum bai is a huge, imposing edifice in glass and granite. HDFC Bank s office in cent ral Mumbai is comparatively smaller and more sedately furnished.The two banks ha ve carried forward their style statement in their approach to business. ICICI Ba nk thinks big, is all for growth and hungry for market share.HDFC Bank is more c onservative and cautious, grows at a measured pace, without taking any undue ris ks.ICICI Bank began its retail banking venture in mid-1999. By January 2000, it had moved on to 39

Winter Project Report SSCMR 2009-2011 introducing home loans, car loans, personal loans and credit cards.Realising the need for a bigger retail deposit base, the bank started building a branch and a n ATM network. The acquisition of Bank of Madura in March 2001 added 263 branche s, many of them in cities where ICICI Bank did not have a presence.The merger of the erstwhile financial institution ICICI Limited with the bank in April 2002, gave it a ready-made corporate clientele. The flip side was that ICICI Bank had Rs 10,000 crore (Rs 100 billion) of restructured assets for which it had to make provisions. On the other hand, HDFC Bank kick started its operations in 1995 wi th a focus on corporate banking, targeting the top-end of the market. Reminisces Paresh Sukthankar, head, credit and market risk, HDFC Bank, "Although the asset yields may have been lower, we were able to cross-sell products so that the ove rall returns were better. We may have grown slower than our peers, but the risks were lower." HDFC Bank ventured into retail lending in 1998, a year before ICIC I Bank. But in products like credit cards, it was slow to get off the mark. For instance, its credit cards were launched only two years ago. By then ICICI Bank had been present in the credit card business for nearly three years. According t o some industry experts, growth for ICICI Bank may have come at the cost of qual ity. BETTER PICK UP The number tell story Share of the wallet HDFC Bank 1725 4232 789 39.723 40 Mar-10 Branches ATMs Cities Total assets (USD) ICICI Bank 2016 5219 932 108.7

Winter Project Report SSCMR 2009-2011 Revenue(Rs crore) Credit cards (Mn) customers (Mn) Profit (crore) 20,666 2.6 12 3,032 59,599 5.14 24 4,843 ICICI Bank has issued 5.14 million credit cards -- that is more than twice the n umber of HDFC Bank s credit card users. However, industry observers point out th at ICICI Bank s effective users for credit cards may not be high. However, consu ltants believe that HDFC Bank could have leveraged its parent s customers far mo re effectively to cross-sell products and grow faster. Says a banking consultant , "While HDFC Bank has about two years to get ready for the future, ICICI Bank p robably has three years." Should HDFC Bank and its parent be merged, it could ca tapult them to a new league. But round one of the banking sweepstakes has clearl y gone to ICICI Bank. Calling the customer Both players targeted the same customer -- the upper-middle class. The marketing channels used by both, including direct sales agents (DSAs), were the same. Yet , there was a difference. While ICICI settled for nothing less than film star Am itabh Bachchan as an ambassador, HDFC Bank chose to rely on the trusted lineage of its housing finance parent, Housing Development Finance Corporation (HDFC). " While HDFC was no doubt a great brand, it was a single-product brand. Hence, it was a challenge to make it work with other products." 41

Winter Project Report SSCMR 2009-2011 In the past two years, the bank has spent less than Rs 100 crore (Rs 1 billion) on advertising and publicity (In comparison, ICICI has spent Rs 185 crore). HDFC Bank says that its spends have always focused on other channels such as direct sales and phone banking rather than mainstream advertising. It made sense to get the direct communication right rather than focus on the masses. Meeting the cus tomer face-to-face is important." Is the brand visible enough? The ICICI brand d oes have greater visibility, though that HDFC Bank is well-known even in smaller towns. . FINDINGS AND RECOMMENDATION ICICI Bank and HDFC bank has to improve its brand image, i.e. it has to position itself in the minds of prospects in a better way in comparisons to others. It should provide better career opportunities for the retention of its potential advisors. People who deal with customers should have complete knowledge about the differen t products and their features. 42

Winter Project Report SSCMR 2009-2011 It should more emphasize in advertising, as it is the most powerful tool to posi tion ant brand in the mindsets of customers. It should provide online training and for those who are in jobs and want to beco me advisors ICICI should provide evening training classes, so that they can join the training after doing there jobs. CONCLUSION In the last two years, spending pattern through plastic money has changed drasti cally. Travelling, dining and jewellery are the top three purchases that Indians make through credit cards. Two years ago, it was jewellery and apparel purchase s that formed the largest chunk of purchases through plastic money. Fuel account s for a very small portion of credit card purchases as these are largely paid th rough debit cards. Consumers were not only more open to the possibility of ownin g 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 in bringing about such robust growth over the space of a single year. Debit card s, in particular, proved immensely popular. According to projections for the 200 3-2008 period, the number of financial cards in circulation will register a comp ounded annual growth rate of nearly 51 per cent so the satisfaction of consumers has also increased. There are many ethical issues and challenges for plastic mo ney issuing banks/companies. Security relating to card should be first priority for each bank/company. 43

Winter Project Report SSCMR 2009-2011 Consumers are preferring these cards mostly for shopping online E-commerce has g iven 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 tr end of ecommerce. After doing a research and studying the materials available on internet, newspapers, and journals. I want to conclude that people prefers ICIC I Bank more than HDFC BIBLIOGRAPHY Books Marketing Management (10 Edition), Philip Kotler Research Methodology (2nd Editi on), C.R. Kothari Websites www.hdfcbank.com www.google.com www.icicibank.com 44