Plastic Money - Current Market & Future Potential

INTRODUCTION
The topic which I intend to do for my thesis is an overall study of the Plastic Money (Credit Cards), the pros and cons of it, the existing companies and the market scenario. The concept of Buy Now, Pay Later dates back the to late 1960s & 70s with the introduction of plastic money in the western nations. It originated because the people wanted a convenient and rapid means of accessing their bank accounts. Also, the exorbitant price of money changing hands between the consumer, merchants and the banks led to the diffusion of this concept in the banking system. For spendthrifts and habitual borrowers plastic money induces spontaneous and on-the-spur spending. But its advantages in terms of convenience, flexibility and safety far outweigh its pitfalls. Provision for easy repayment give the card the liquidity of cash along with the accountability of credit card. In the past 20 years these cards have proliferated the world market so successfully that they have altered the face of retail banking. With the power of plastic ruling the world, India cannot remain behind. With a slow and steady move towards scruples trading the country is moving towards cashless transactions. The plastic money market is bubbling with activity with both Indian and foreign banks vying to expand their market presence. While the foreign banks have been hogging the limelight Indian banks are the slumbering giants. The latter have the advantage of a large customer base, branch network along with low service charges. These advantages need to be tapped to realize the full potential of these banks. There are about 1.4 million people with plastic-money cards in their pockets which is over four times the 1990 figure of 3 lacs. Amazingly,

Plastic Money - Current Market & Future Potential

nearly 40% of them are holding more than one credit card, perhaps to stretch their outstanding permissible limit per card. Seeing the growth rate and sensing the potential, many companies and business establishment are jumping into the fray by joining hand with the banks that are issuing cards - thereby nurturing the so called Cobranded Cards. The adage, consumer is the king is at last becoming a reality with nifty banks making efforts to upgrade and differentiate their services to widen their client base. Although any bank can issue its own credit card, its ability to establish a merchant network that accepts those cards will always be limited by the geographical reach. Today both Master and Visa through their association of banks offer their acceptance networks and brand names to almost any bank that wants to make use of them. Huge cost of building infrastructure has let to the hegemony of these two players in the market today. Although the role of plastic is still in the infancy as it is restricted to less than 1% of population in India, the average spending through cards which was around Rs. 15,000 in 1996 is moving up steadily at the annual rate of 12%. The factors inhibiting the growth of plastic money could range from poor infrastructure, lack of bureau for checking credit worthiness of people, the guilt associated with credit purchases, to the homongous amount floating in the parallel economy which cannot be tapped through the plastic cards. This study provides an insight into the current scenario of the plastic money market and looks into the potential for the growth of the same in the coming years.

Plastic Money - Current Market & Future Potential

ORIGIN
The credit card had its beginning in an embarrassing incident that took place in the early 1950s in America. The story goes that Mr. McNamara, a New York businessman took his friends out to dinner. At the end of meal he discovered that he had forgotten his wallet at home, the proprietor was kind enough to allow him a later settlement of bill. As McNamara stepped out of the restaurant he had the brainwave for the introduction of credit cards - system of availing instant credit upon confirming the identity of card holder. Thus was born the Diners Club Cards, the pioneer of business. Diners Club adopted a promising approach by recruiting various hotels and restaurants to act as member establishments for accepting the cards. Not only did these establishments pay a commission on members purchases but the members also paid an annual subscription fee. Diners Club vetted its members for credit worthiness and guaranteed payment to participating establishment. Thus was born the first Travel and Entertainment Card. It was followed by American Express which is now a dominant force in the Travel and Entertainment cards industry, and by 1959 by Carte Blanche, after many vicissitudes is now a part of Citi Bank empire together with Diners Club. In the present time American Express leads the travel and entertainment (T&E) card industry. The next great leap-forward came from Bank of America, which in other banks. Such card holders could use their card 1966 offered to license its successful blue, white and gold Bank America card to at any
3

todays multibillion dollar plastic money

Plastic Money - Current Market & Future Potential

accepting merchant establishments around the globe. Later in 1977 all the national and international Bank America licenses were pulled together under the single name of Visa. Not to be outdone, a rival group of American Banks came together in 1966 under the name of Interbank, later renamed Master Charge and later still Master Card. Ever since Master Card and Visa and their affiliates have carved the world credit card market. In the 1980s credit card concept was launched in India through the Diners Club card, and soon, within a couple of months both Visa and Master card entered into the Indian market.

Plastic Money - Current Market & Future Potential

TYPES OF CARDS ON OFFER

CREDIT CARDS
A credit card is an instrument that identifies the holder as possessing a credit account and entitles him, upon presentation to obtain goods or services from a merchant establishment on the basis that payment for them will be made by the issuer of the card. The retailer/merchant establishment pays some commission to the issuing bank, because it helps the retailer to gain greater access to customer. Thus a credit card provides card holder with both payment mechanism and an automatic loan. Credit card offers great flexibility. The cardholder has the option to treat it as a charge card by paying monthly bill in full with no interest, or paying only 5-10 % of the bill and roll over the rest as long the balance is under the pre-determined limit set on each card. Interest charged on unpaid amount is around 2.5% and their are no black marks here as is the case with charge card in case of late payments. Period of repayment is entirely upto the card holder. If he is disciplined and pays off the outstanding amount quickly it might even turnout to be cheaper than conventional consumer loan.

CHARGE CARD
Charge card is similar to the credit card with exception that in a charge card the cardholder has to settle the entire amount on the due date indicated on his card statement (i.e. normally 15 days). In this, no extended credit can be obtained and there is no option to revolve credit.

Plastic Money - Current Market & Future Potential

Any default attracts an interest penalty of 2.3% to 4% and black mark against the cardholders credit worthiness.

DEBIT CARD
Credit card provides two services bundled together in one product - (i) a payment mechanism and (ii) an automatic loan i.e. simple way of borrowing money for retail purchases. Separation of these services has led to the development of Debit Card. Debit card has a microprocessor and a memory integrated circuit chip. Valid for a fixed prepaid amount, the card gets debited after every transaction and can be reloaded after the value is exhausted. For a prepaid amount the user gets a card with a Personal Identification Number (PIN) and has to pay an initial fee for using the card. The cardholder has to insert the card into a Merchant Location Terminal (MLT) to formalize the transaction. Corresponding to the amount, the value on the card gets deducted. The bank sends the cardholder a monthly statement of his transactions. Lack of funds in the account is treated as an overdraft leading to the interest payment and black marks. Thus, there is no revolving credit facility provided, and the card holder is accessing his own money.

SMART CARD
Smart Card is a plastic card embedded with a microchip that can store far more information on it other than loading of credit spent by the cardholder. This memory chip acts as a miniature accountant, carrying users passbook and allowing him to deposit/withdraw cash. It is a multipurpose card and can be used as an information library and for

Plastic Money - Current Market & Future Potential

identification too.Thus Smart Card provides easy accountability of credit and debit cards along with liquidity of cash. The user of Smart Card guarantees the value loaded into the card so the customer knows that only good money will be transferred to his/her own card. Likewise, any recipient of the value from a customer knows that the money is good.
PRODUCT DIFFERENTIATION Since Credit-Card per se is perceived as a near commodity choice. The purchase decision is largely based on price and service. This results in intense price and service competition. However, with the acquiring of new customers becoming more and more difficult, there have been numerous introduction in

the marketplace For e.g. Affinity Cards These are actually meant to attract the potential card members by incorporating an emotional appeal i.e. affinity towards a particular association. Citibank was the first to introduce the affinity cards for the members of the alumni association of modern Chartered school, has Barakhamba also introduced road. Thereafter, cards for Standard premier

affinity

institutions such as IIT Delhi, Doon School, Sanawar. We shall discuss these in detail in the introduction on Co-branding.

Plastic Money - Current Market & Future Potential

Product Innovation However it is Standard Chartered Bank, an ambitious player in consumer lending that has been most innovative in terms of introducing a more personalised and customised card. It was

the first to introduce: Photo-Card It carries a photograph of the cardholder, thereby ensuring the security of the card and eliminating the lost card liablity. Picture-Card It is a lifestyle product. It enables one to actually customise ones credit card thus providing the distinguishing factor. The

cardholder can place any picture on the card, which can range from being a photograph of his child or his automobile or some other exciting moment in his life.

Plastic Money - Current Market & Future Potential

TRANSACTING PROCEDURE
Banks issue the card to individuals, businessmen as well as corporate. The basic procedure for obtaining the card remains the same with certain alterations for people asking for add on card. PROCEDURE FOR OBTAINING THE CARDS For establishing confidence in client, banks require a standard application form to be filled. Along with this application potential customers have to submit Income/salary statements. Photocopies of income tax return (IT) filed for the last financial year and acknowledge by an income tax officer. Income Tax Officers assessment order / photocopy of form 16 TDB / promotion letter (with salary details) / appointment letter (with salary details) / monthly pay slips / annual salary certificate on comapnys letterhead certified by an authorized signatory under official seal. For self employed - photocopy of ITR acknowledged by an income tax officer (ITO), for the last financial year or ITO assessment order or advance tax paid challans (minimum 2 quarters)

Plastic Money - Current Market & Future Potential

TERMINOLOGY
Issuer :
An issuer is an affiliate (usually a bank or financial

institution) which has entered into an agreement with Visa/Master Card and can issue cards in their name. Acquirer : An acquirer is an affiliate who has an agreement with Visa/Master card to acquire credits card charge slips from merchants and reimburse. Some banks are both Issuers and Acquirers, while some are only Acquirers. Credit Limit : There is a ceiling limit on the amount that a person can use for purchase or can borrow on his credit card. This credit limit is approved at the time when the credit card is issued to the holder by the credit issuing bank. Available credit limit is the approved limit less outstanding transactions, if any. Credit Acceptance : A merchant tied up by a Master Card/Visa issuing bank will need to display the Master Card/Visa logo at his outlet. Any other Master Card/Visa issued by other banks also becomes acceptable at the same outlet.

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Plastic Money - Current Market & Future Potential

CARDHOLDER - MERCHANT TRANSACTIONS PROCEDURE

When the cardholder presents his card to the merchant........ Checks for the expiry date, validity of the card in India, whether it (the merchant) has a tie up with the agency (Visa / Mastercard / Amex). The merchant compares the cards embossed number with the number in the Hot Card Bulletin - to ensure whether the card is valid for use. If the number is not on the bulletin, and the charged amount is within the floor limit, the merchants obtains the card impression on the sale slip, by using imprinter. He also fills amount and the date of the transactions. If the charged amount exceeds the floor limit on the establishment, the merchant phones the nearest authorization centre. The centre assess and ascertains the holders account and other details. Then the centres gives the merchant the go-ahead and approval number, if authorization is possible within the limit available on the holders account. The floor limit varies from Rs. 0 - 27,000 depending on the merchant type. However the banks are free to decide on a floor limit lower than the maximum given by Visa/Master card for each merchant category. Three copies are made (for the bank / member establishment /and the customer).The sales slip is presented to the cardholder who signs it. This signature is than compared with the one on the cards reverse,
11

Plastic Money - Current Market & Future Potential

and the copy of the sales slip is given to the card holder. By this procedure the merchant has also confirmed the identity of the presenter, and the steps in the transactions between the merchant and the cardholder are complete. MAINBANK - MERCHANT TRANSACTION PROCEDURE Agreement : Merchants enter into an agreement with the banks, to become merchant establishments for honouring cards presented at their outlets. The bank reimburses the establishment after deducting commission within a specified period. The payment terms varying from bank to bank are incorporated in the agreement between the merchant and the bank. Merchant Service Fee : Banks charges are deducted from the merchant establishments claims submitted against credit card sale. The Merchant Service Fee varies between 2%-4% and is fixed through negotiations between the merchants and the banks. Floor Limit : It is the maximum amount of merchandise /service which the merchant is authorized to sell to a cardholder on any loan occasion, without getting authorization. The limit is as per transaction (per card, per day). Each outlet has a separate limit depending on the merchant type. Authorization Centre : It is a centre established by the bank to enable merchants to get authorization in case the cardholders transaction exceeds the floor limit amount or to do a double check on transactions.

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Plastic Money - Current Market & Future Potential

MARKETING SCHEMES

AND

PROMOTIONAL

The issuer banks generate their revenues from three sources. These are: The initial entry fee as well as the annual subscription fee that a card holder pays. Interest that the bank earns on all outstanding amounts - in case of credit cards with roll-over facility. A percentage return on all transactions done by member establishments. All these funds enable the banks to widen their customer base and increase their business and revenue opportunities. This also gives the banks a competitive edge over their rivals in the market. Banks who manage their own retailer network incur prohibitive expenses in terms of technology and back up services as compared to other card issuers who piggyback on Visa and Mastercard network. Though these issuers have to share their incomes with Visa and Mastercard, they earn in terms of volumes through their wide network. Thus, wider acceptance with the merchant establishments and better marketing tie ups are essential to enable users to get the best possible benefits. There are a handful of banks that have seized the opportunities of the last five years to respond to the new competitive environment in a manner that has put their competitors at a disadvantage. These banks and member establishment are using different schemes to augment their services. Other than the conventional incentives and discounts on
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Plastic Money - Current Market & Future Potential

purchases, the following are some of the promotional offers given by them. CITIBANK Citibank cards continue to grow at a heady pace of 40% without its system going haywire, much in contrast with its competitors who are groping in the dark. The two most important levers that it figured to pry open the market were - a strong technological backup and an effective sales and distribution strategy. Citibank had the foresight to invest in new technology to deal with huge volume of transactions that a huge credit card base usually throws up. Today the system is geared to process 15mn charge slips, post 8mn credit card payments, authorize 5mn card transactions and 6mn telephone calls. Citibank has a service standard in the industry of settling payments for a member establishment within 24 hours. On the promotion side the manner in which Citibank executed its strategy was classic. In keeping with its retail product orientation Ctibank relied on advertising to fuel aspirations and then used its direct sales network to scoop the fence sitters. On the basis of the lesson that Citibank learned from the experience of the Indian banks (which were saddled with a large subscriber base but low usage levels) it concentrated on systematically creating an expanded bundle of services that would prompt the card holder to use the card. To begin with Citibank credit cards were accepted at a large number of establishments, then, to expand the scope of card usage it tied up with other product marketers. The latest in line with this strategy

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Plastic Money - Current Market & Future Potential

of tie-ups is the launch of the Times Card in association with the Times of India (Bennett, Coleman & Co.) and Mastercard. Citibanks association with British Airways enables its Diners Club card members to avail special privileges and become member of British Airways Executive Club i.e. Frequent Flyer Program (FFP) Citibank has also got special offers in terms of affinity cards for the alumini of Modern School, people serving in the Indian Army and the Indian Air Force. It has also linked up with Classic Golf Resort, Philips India, Indian Oil Corporation, World Wildlife Fund and the Vysya Bank to provide better services to its card holders and broaden its client base. The bank has also found alternative means of promotion in places where it has not been able to make a headway in tying-up with other marketers. Dial-a-draft facility allows the card holder to get demand draft on phone so that the user can use this demand draft to pay off for the goods in places where the cards are yet to be accepted. A fervent bid to push card volumes and card spends has led many banks to change their marketing strategies to keep up in this dynamic business. One such bank is the American Express.

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Plastic Money - Current Market & Future Potential

AMERICAN EXPRESS AMEX had carefully shielded itself from the battle by nurturing a small niche at the top end of the market - the brand perception of their card was - a status symbol for a select few. But today, when the consumerist wave is hitting the country, and credit card usage is expanding in the burgeoning middle class, AMEX is quitely junking most of the essential of this niche strategy. Its distinctly upscale positioning is gradually being made more mass market. Instead of its policy of inviting select members to join up, it is appointing sales agents. In addition, it has launched its member-get-member scheme. But to prevent the AMEX brand from being completely robbed of its exclusive status, it is slowing down the pace of change. More specifically the advertising today has shifted emphasis - the premimumness of the brand is not being touted now. Instead AMEX is talking more about the tangible benefits that the card offers. OTHERS In this gigantic market, banks are restoring to innovative marketing schemes to expand their reach in specific niches. Many banks are opting for co-branded cards. These cards sport the name of the company the bank has tied up with. The benefit : servicing and promotion costs can be mutually shared and each can piggyback on the customer base. While Bank of India has tied up with the Taj group of hotels for its Mastercard, Travel agent Thomas Cook has joined hands with HongKong Bank. Bank of Baroda has also joined hands with Bharat Petroleum Corporation Ltd. to launch the Bharat BOB Card Premium

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Plastic Money - Current Market & Future Potential

a co-branded multipurpose fuel card. Mastercard has also clinched a deal with Indian Railways under which Mastercard will be accepted at all reservation counters, irrespective of the bank. Seeing the boom in the credit card market Bank of America is strengthening its acquiring business and is also planning to enter the card business as an issuer, in the near future.

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Plastic Money - Current Market & Future Potential

OVERVIEW OF VARIOUS CARD ISSUERS

ISSUER BANK
1 ANZ GRINDLAYS

CLASSIFICATION OF CARDS
SILVER - MASTERCARD GOLD- MASTERCARD VISA INTERNATIONAL AMERICAN EXPRESS CARD CORPORATE CARD CLASSIC - VISA / MASTER CARD PREFERRED - VISA / MASTERCARD DINERS CLUB CARD US $ VISA CARD CLASSIC - VISA / MASTER CARD EXECUTIVE - VISA / MASTER CARD GOLD - VISA / MASTER CARD CLASSIC VISA / MASTER CARD GOLD VISA / MASTER CARD US $ MASTER CARD BOB CARD BOB SILVER BOB EXCLUSIVE BHARAT BOB CARD PREMIUM BOB CARD GLOBAL CENTRAL MASTER CARD INDIA MASTER CARD TAJ CARD CANCARD VISA / MASTER CANCARD PROPRIETOR VIJAYA GOLD VIJAYA CLASSIC ANDHRA GOLD ANDHRA CLASSIC CHARGE CARD CHARGE CARD

2 AMERICAN EXPRESS

3 CITI BANK

CHARGE CARD

4 STANDARD CHARTERED BANK

5 HONGKONG & SHANGHAI BANK

6 BANK OF BARODA

7 CENTRAL BANK OF INDIA 8 BANK OF INDIA

CHARGE CARD CHARGE CARD CHARGE CARD CHARGE CARD CHARGE CARD CHARGE CARD CHARGE CARD

9 CANARA BANK

10 VIJAYA BANK

11 ANDHRA BANK

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Plastic Money - Current Market & Future Potential

MARKET SHARE
WORLD MARKET
MASTER CARD VISA 300 MILLION 442 MILLION

INDIAN MARKET
9,15,000 6,00,000

MULTINATIONAL BANKS NO. OF CARDS

CITI BANK STANCHART BANK ANZ GRINDLAYS AMERICAN EXPRESS HONGKONG BANK 10,00,000 2,50,000 62,000 80,000 40,000

TODAY

>1,00,000 80,000

INDIAN BANKS
CANARA BANK BANK OF BARODA ANDHRA BANK CENTRAL BANK BANK OF INDIA

NO. OF CARDS
250,000 200,000 160,000 100,000 75,000

TODAY

VISA / MASTER CARD AMERICAN EXPRESS DINERS CLUB CARD

90,000 17,000 29,000

105,000 40,000

AVERAGE CARD SPEND PER ANNUM : Rs 15, ANNUAL GROWTH IN000 CARD SPEND @ 12% - 15%
THE ECONOMICS TIMES AND VANSCOM, OCTOBER 1996

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Plastic Money - Current Market & Future Potential

COMPARISON : PREFERRED EXECUTIVE CARD

BOB CARD CITI BANK STANCHART ANZ EXCLUSIVE PREFERRED EXECUTIVE SILVER CARD 100,000 96,000 90,000 84,000

ELIGIBILITY (Rs) (post tax annual income) ADD ON CARDS Entry Fee Annual Fee Renewal Fee Add on Card Fee BILLING Cycle Charge Pattern CREDIT LIMIT Minimum amount due CASH ADVANCE Primary Card Limit Add on card limit Service Fee ATM cash limit FACILITIES Card on Phone Draft on Phone Rewards Plan Discounts at Hotels Discounts at Hospitals Discounts on car rental Commission free T.C. TRAVEL SERVICES Air Booking Rail Booking Car Hire Travel Packages Travel Agent INSURANCE Air Insurance Non Air Insurance Enhanced Insurance Spouse Insurance Add on card insurance On purchases REPLACEMENT LOSS LIABILITY

N.C. 1,000 1,000 1,000 Monthly +2 weeks 45,000 10% 10,000 10,000 3% n.a. N N N Y N N N Y Y Y Y Cox & Kings 10 5 N.O. N.O. Y (same as primary card) N.O. 72 Hrs 1000

1,000 2,000 2,000 1,000 Monthly +3 weeks 70,000 5% 39,000 combined 2.50% 39,000 Y Y Y Y N Y Y Y Y Y Y Travel House 10 2 N.O. N.O. Y (same as primary
card)

400 1,100 1,100 500 50 days +3 weeks 20,000 5% 8,000 combined 1.50% 8,000 Y Y N Y Y Y N Y Y Y Y TCI 8 4 N.O. 2.50% N.O. N.O. 72 Hrs 200

500 500 500 200 2 weeks +0 days 100,000 10% 100,000 combined 2.50% n.o N N N N N Y N Y Y Y Y Sita Travels 4 2 N.O. N.O. Y N.O. 72 Hrs 1000

40,000 24 Hrs 0

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Plastic Money - Current Market & Future Potential

COMPARISON : CHARGE CARDS

INCOME SLAB : Rs 36,000 - Rs 75,000
AMEX CARD ANDHRA BOB CARD CANCARD CLASSIC PROP. ELIGIBILITY (post tax annual income) ADD ON CARDS FEE Entry Fee Annual Fee Renewal Fee Add on card Fee BILLING Cycle Charge Pattern (Bank starts levying service charge CREDIT LIMIT after Interest on outstanding Primary card limit Add on card limit Service Fee ATM cash limit FACILITIES Card on Phone Draft on Phone Rewards Plan Discounts at Hotels Discounts at Hospitals Discounts on car rental Commission free T.C. TRAVEL SERVICES Air Booking Rail Booking Car Hire Travel Packages Travel Agent INSURANCE Air Insurance Non Air Insurance Enhanced Insurance Spouse Insurance Add on card insurance On purchases REPLACEMENT LOSS LIABILITY 75,000 NO LIMIT 1,200 2,100 1,800 950 60,000 2 600 300 300 450 75,000 NO LIMIT N.C. 100 100 100 3 weeks + 3 weeks 60,000 3 200 200 200 150 monthly + 2 weeks CANCARD INDIA CARD VIJAYA VISA CLASSIC 60,000 2 250 400 400 300 monthly + 2 weeks 50,000 2 200 250 250 125 monthly + 3 weeks 36,000 3 300 100 N.C. 100 monthly + 10 days

3 weeks Monthly + 3 weeks + 2 weeks

2.50% 2500 per week 2500 per week 0% N.A. No No Yes Yes No Yes No Yes Yes Yes Yes AmEx

2.50%

~ 5000 N.O. 3% N.A. No No No No No No No Yes Yes Yes Yes No None None N.O. N.O. N.O. N.O. 48 Hrs 1000

2.50% 25,000 5000 3% 5000 No No No Yes Yes No No Yes Yes Yes Yes No 1 1 N.O. N.O. Yes^ N.O. 240 Hrs 1000

2.50% 25,000 5000 3% 5000 No No No Yes Yes No No Yes Yes Yes Yes No 4 2 N.O. Yes^ 240 Hrs 1000

2.50% 5,000

3% N.A. No No No No No No No Yes Yes Yes Yes No 1 1 N.O. N.O. Yes ^ N.O. 48 Hrs 1000

2% 2,500 per mth. 2500 N.O. 2.50% 3% 5000 2000 per day No No No No No No No Yes Yes Yes Yes No 2 1 5 N.O. N.O. N.O. 24-48 Hrs 1000 No No No No No No No Yes Yes Yes Yes No

N.O. Yes^ Yes 48 Hrs. 1000

48 Hrs 1000

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Plastic Money - Current Market & Future Potential

COMPARISON : GOLD CHARGE CARDS

INCOME SLAB : Rs 60,000 to Rs 120,000 ANDHRA CITIBANK TAJ PREMIUM GOLD DINERS VIJAYA GOLD

ELIGIBILITY (Rs) (post tax annual inc) ADD ON CARDS FEES Entry fees Annual fees Renewal fees Add-on fees BILLING Cycle Charge pattern* CREDIT LIMIT Int.on outstanding CASH ADVANCE Primary card limit Add-on card limit Service fees ATM cash limit FACILITIES Card on phone Darft on phone Rewards plan Discount at hotels Discount at hospl Dis. on car rental Comm. free T.C's
TRAVEL SERVICES

1,20,000 2 1500 500 500 1000 Monthly + 2 weeks 50,000 2.50% 10,000 10,000 3% N.A. No No No No No No No Yes Yes Yes Yes No

96,000 3 Not charged 3500 2500 1500 Monthly + '3 weeks None 2.5-4.5% 10,000 5000 3% 10,000 Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Travel House 15 2 Yes Not offered 50,000 24 hrs 0

1,00,000 2 Not charged 400 400 200 Monthly +'3 weeks 20% of GAI 2.50% 5000 2500 2.50% 5000# No No No No No No No Yes Yes Yes Yes No 4 2 Not offered Not offered Not offered 24-48 hrs 1000

60,000 3 1500 500 Not charged 500 Monthly +10 days 1,00,000 2% 10,000 p. m. Not offered 3% 2000 per day No No No No No No No Yes Yes Yes No No 4 2 Not offered Not offered Not offered 24 hrs 1000

Air booking Rail booking Car hire Travel Packages Travel partner
INSURANCE

Air insurance 3 Non-Air 1(air & non air ins.) Add-on card Yes Spouse Not offered On purchases Not offered REPLACEMENT 48 hrs LOSS LIABILITY 1000

* : card company starts levying sevice charge after these many days/ weeks of dispatching the bill # : a seprate card is needed to access cash from ATM's ^ : same amount as primary card

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Plastic Money - Current Market & Future Potential

COMPARISONS OF GOLD CARDS

ELIGIBILITY (Rs) (post tax annual inc) ADD-ON CARDS FEES Entry fees Annual fees Renewal fees Add-on fees BILLING Cycle Charge pattern* CREDIT LIMIT REVOLVING CR Mini. amt due Int.on outstanding CASH ADVANCE Primary card limit Add-on card limit Service fees ATM cash limit FACILITIES Card on phone Darft on phone Rewards plan Discount at hotels Discount at hospl Dis. on car rental Comm. free T.C's TRAVEL SERVICES Air booking Rail booking Car hire Travel Packages Travel partner INSURANCE Air insurance Non-Air Add-on card Spouse On purchases REPLACEMENT LOSS LIABILITY

Income slab : 120,000 to 240,000 p.a. ANZ CARD HONGKONG STAN CHART 240,000 175,000 120,000 2 1000 1500 1500 750 2 weeks 0days 100,000 10% 2.50% 100,000 combined # 2.50% 100,000 No No No No Yes No No Yes Yes Yes Yes Sita Travels 10 5 Yes Not offered Not offered 72 hrs 1000 2 500 1500 1500 500 monthly 3weeks 40000 5% 2.50% 40000 combined 2.25% 32000 No No No Yes No Yes Yes Yes Yes Yes Yes Thomas Cook 10 3 Yes Not offered Not offered 72 hrs 0 2 1000 2000 2000 1000 52 days 3weeks 30000 5% 2.95% 12000 combined 1.50% 12000 Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes TCI 10 5 10 Not offered 20000 72 hrs 200

# shared by primary and add-on cards * : card company starts levying sevice charge after these many days/ weeks of dispatching the bill

COMPARISONS OF CLASSIC CARDS

INCOME SLAB : Rs 50,000 to 60,000
STANCHART CITIBANK HONGKONG CANCARD

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Plastic Money - Current Market & Future Potential

ELIGIBILITY (Rs) (post tax annual inc ADD-ON CA RDS FEES Entry fees Annual fees Renewal fees Add-on fees BILLING Cycle Charge pattern* CREDIT LIMIT REVOLVING CR Mini. amt due Int.on outstanding CASH ADVANCE Primary card limit Add-on card limit Service fees ATM cash limit FACILITIES Card on phone Darft on phone Rewards plan Discount at hotels Discount at hospl Dis. on car rental Comm. free T.C's TRAVEL SERVICES Air booking Rail booking Car hire Travel Packages Travel partner INSURANCE Air insurance Non-Air Add-on card Spouse On purchases REPLACEMENT LOSS LIABILITY

50000 2 200 750 750 350 monthly + 3 weeks 30000 5% 2.95% 18000 Combined 2.50% 18000 Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Travel House 5 1 Yes Not offered 15000 24 hrs 0

60000 1 100 700 700 350 50 days + 3 weeks 12000 5% 2.95% 4800 Combined 1.50% 4800 Yes Yes No Yes Yes Yes No Yes Yes Yes Yes TCI 4 2 Not offered 2.50% Not offered 72 hrs 200

72000 2 300 500 500 200 monthly + 3 weeks 14000 5% 2.75% 6000 Combined 2.50% 20000 No No No Yes No Yes No Yes Yes Yes Yes Sita Travels 6 2 Yes Notoffered Not offered 48 - 72 hrs 1000

60000 2 250 400 400 300 monthly + 2 weeks 10000 10% 2.50% 25000 Not offered 3% 3000 No No No Yes Yes No No Yes Yes Yes Yes No 4 2 Yes 2% 25000 240 hrs 1000

RISKS IN THE BUSINESS

TO THE BANKS :

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Plastic Money - Current Market & Future Potential

Banks excited at the projected 40% growth rate1 in the plastic money industry are apprehensive about the potential corresponding increase in fraud cases . Some banks register upto 7% fraudulent case in a year. 1. Default in payments - Currently banks have huge amounts of funds blocked with willful defaulters. Lack of reliable data / infrastructure to check the credit worthiness of individuals has led to the situation where people without sufficient resources have become eligible for availing credit facilities. The marketers in India find it more cost effective to just right-off the unpaid amount in their balance sheets, after trying to recover it for six months, than to pursue it throughout the litigational labyrinths. 2. Multiple Imprints or Record of Charge (ROC) Pumping - It refers to the expedient system by which merchants make multiple charge slips instead of the relevant number when a cardholder gives in his plastic card. 3. Lost/Stolen Cards - These account for 60% of fraud in India. In case of loss all multinational banks and some Indian banks limit the liability of the cardholder upto Rs. 0 (for Gold card) and Rs. 1000 (for Classic card) if card is used after lost / stolen card has been reported. These banks transfer their risks to insurance companies and generally replace the lost card within three days. Some banks carry the risk themselves and investigate the loss before determining the liability of cardholders. These banks take about a month to replace the missing card.
1

Singh Prasana,The Changing Brand Battle, A & M.

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Plastic Money - Current Market & Future Potential

To combat this, banks have started the Photocard Option which provides the photograph of the cardholder on the card. They are also providing information about the lost/stolen cards through the Hot Card Bulletin which is continuously upgraded and sent to merchant establishments to provide them with the current status. But the success of this measure is debatable. A majority of the credit card losses are skewed towards the issuer as the risk on the cards is carried by the issuer. Visa and Mastercard have a formal set of guidelines known as charge back rules. Once a card holder has informed the bank of the loss of the card, he is subject only to a minimum liability, which most banks fix at Rs.1000 regardless of how much the card is used fraudulently. Before the hot card date, the fraud loss is the issuers responsibility. However, if a merchant accepts a hot listed card, the issuer is entitled to charge back the transaction to the merchants, through the acquirer. If a merchant is found guilty of willful fraud, his bank is liable. Visa offers its members a national merchant alert service which acquiring banks can refer to in order to check on the credentials of the merchants whose business they woo. It also has its risk identification service which monitors every single transaction through Visa Net. This enormous database helps zero in on cardholders and locations prone to fraudulent activity. Master Cards security and risk management team organizes regular training programs for banks and member establishments on fraud prevention.

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Plastic Money - Current Market & Future Potential

Delivering new cards to members by courier has drastically cut fraud arising from non-receipt of cards. TO CARD HOLDERS : The main problem with credit card is that it is easy to get in over the head. A majority of card users utilize their maximum limit. Credit cards charge higher interest than some of the other forms of borrowing. While a credit card offers convenience, that convenience can be expensive if the card holder is slow in paying off his outstanding dues. In terms of the annual percentage rate that an individual is charged towards paying off his debt, the figure ranges from anywhere between 22% to 34% p.a. depending upon the roll over period ( 30 / 45 days ). To combat these problems potential card owners decide upon the mode of payment before selecting a card. In India, for the majority of people who believe in paying off their balances in full, the prerequisites would include a card with a low or no annual fee and a long grace period (i.e. the amount of time between the purchase and when the bank begins charging the interest on the purchase). For the individuals who believe in utilizing the revolving credit facility, the prime concern is the cost of using the services offered along with the card. This is in fact the annual percentage rate or the interest paid on outstanding balances. It is the cost of borrowing money and it takes into account all the finance charges. Many credit cards come with extras like travel rebates. Usually an individual is better off worrying about the APRs. When it comes to gold or platinum cards some frequent travelers like and use the extra services that they give, and since they are offered to better credit risks
27

Plastic Money - Current Market & Future Potential

( as in the case of American Express Cards ) they usually come with higher credit limits. Unsolicited offers for special discounts, giving out the credit card number over the phone, putting addresses on credit card receipts - all these can be very risky. Plastic money is money, after all.

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Plastic Money - Current Market & Future Potential

ANALYSIS INFERENCE

OBSERVATIONS

&

The Indian credit card market which is growing at a rapid pace next only to USA and Taiwan, is projected to reach 10mn. cards by the year 2000. More pessimistic estimates put this figure at 5mn. Although the credit card business is still nascent, restricted to about 2% of the total population the average card spending is increasing every year. The fastest growing segment is the salaried class and the self employed professionals, which is growing at an annual rate of 30%. From the survey conducted it was revealed that majority of people (56%) owned a single credit card and barely (10%) of the people had more than two cards. About 62% of the respondents showed an inclination towards shifting more of their spending from cash to cards, 38% of the respondents were either unsure or negative in their response to shifting their spending pattern. Another fact revealed through the survey was that 60% of the respondents had an inclination for paying their monthly bills in full. Only 10% of the respondents utilized the revolving credit facility. Banks issuing cards feel that they have to fight the Indian mindset about settling bills in cash. A corollary to this averseness to using cards could be the existence of the parallel economy which inhibits people from paying their bills through their cards (which require accounted money). Another reason for this behaviour could be the high interest rates that the banks charge on outstanding balances. Calculated at the rate of 2.5% - 2.9% for a cycle of 30 / 45 days, the annual rates range from a minimum of 22.5% to a maximum of 34.8% , much higher than what is
29

Plastic Money - Current Market & Future Potential

available against normal borrowings or borrowings against fixed deposits. In such a scenario, charge cards (currently offered by limited banks viz. American Express and Citibank) which do not have a revolving credit option would be more suitable to the Indian market. In the survey conducted, Citibank topped the list as the most prefered issuer of cards followed by Standard Chartered Bank, AMEX and Hongkong Bank. In comparison the nationalized banks account for a miniscule percentage of the cards issued. However, in terms of preference for banks where people prefer to do their daily transactions, nationalized banks topped the list. This could be due to their larger presence and lower service costs. So far the nationalized banks have treated their card business as their auxillary and not their prime business. In the future , however there may be a change in this scenario as large Indian banks are likely to spin off their credit card division as subsidaries. BoB card division has started functioning as a separate entity which gives it operational freedom to develop its own marketing tie-ups. Among the factors that were identified as important in selection of a card, most respondents rated wide acceptability of the cards at the top, followed by ease of getting the card, interest rates, flexibility of repayment, credit limit, additional benefits and cash withdrawal facility. In terms of the respondents experience with different cards, Cancard featured at the top w.r.t. acceptability and AMEX came at the bottom of the list. AMEX limited acceptability may be due to its limited network and exclusive status. Mastercard, AMEX and Citibanks Diners Club card enjoy a high credit limit. Cancard on the other hand has very low limit.
30

Plastic Money - Current Market & Future Potential

Diners card offers good cash withdrawal facility through Citibanks voluminous network. Mastercard which is issued by almost all issuer banks has widespread ATM. All cards rate low on respondents experience with interest rates. People want the banks to charge low interest rates on outstanding balances. Mastercard and Visa have ratings close to good in terms of flexibility of repayment while Cancard features at the bottom. Almost all cards have a good rating in terms of ease of procuring a card. AMEX rates at the top w.r.t. additional offerings. However, when comparing expectations with the overall experience of respondents, Mastercard tops the list followed closely by Visa. AMEX retains its position as an exclusive card providing special benefits to its niche clientele. When comparing the services offered by different cards respondents opted for joint cards as an important expectation. Next in the line of preference for services were merchandise offerings, insurance policies, incentives and discounts and billing in hotels and restaurants. In order of importance of merchandise offerings by different cards, Cancard featured on the top of the list followed by Diners, Master and AMEX. Lowest on the list was Visa. In terms of joint cards Stanchart topped while AMEX was at the bottom. Cancard also topped in providing incentives and discounts, as well as insurance policies followed by Diners. AMEX featured low w.r.t. travel related services. This could be because of intense competition from Hongkong Bank and Citibank. Cash withdrawal facilities are high for both Matercard and Visa. While all cards rate very low w.r.t. experience of billings in hotels and restaurants.
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Plastic Money - Current Market & Future Potential

Overall Cancard enjoys a good rating for the services offered followed by Mastercard and Diners. AMEX inspite of its exclusivity is rated low for the services offered. Mastercard enjoys the maximum popularity for both its cards as well as the services offered followed closely by visa. Both AMEX and Diners occupy a separate niche and are rated almost at par. Maximum number (60%) of the respondents fall within the 21-30 years age group. They are either young executives working for big business houses or high value / frequent spenders with add-on card facilities. Their incomes range from Rs. 150, 000 - Rs. 200,000. From the information gathered through the survey and the feedback received from bank officials it was revealed that this group holds the potential as future card users. To increase their volume and value spending through cards, banks can place greater emphasis on the services utilizes by this section such as discounts-on food and beverages at leading restaurants and discotheques, gifts and complementary offers. Another recommendation would be, for the banks to hike their advertising spending to build their brand image and create higher brand recall like that of Citibank. In addition, the survey also reveals that the frequency of use of cards is between 3-5 for 32% of the users, followed by 6-8 times for 22% of the users. Fewer percentage (12%) of the respondents use cards for greater occasions i.e. between 9-11 times. In terms of billing, the maximum amount spent in a month falls in the range of Rs.200,000 - Rs.300,000 by the maximum number of respondents (32%). TECHNOLOGICAL INVESTMENT

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Plastic Money - Current Market & Future Potential

There are three phases of evolution of an electronic payment system and it is essential for any institution seeking to deploy the payment system in question to be aware of exactly which evolutionary phase the system occupies at any one time. The inception phase i.e. the initial development of the technology and the ironing out of the problems. The growth phase i.e. the period during which the effectiveness of the technology is proven. The maturity phase i.e. the period during which the technology is duly accepted and widely used. In this phase, to remain competitive all competitors have to deploy the technology to remain at par with their competitors. Today in the Indian market plastic cards equipped with magnetic tape such as credit cards are already well entrenched in the payment system. Other micro-chip card technology such as the one used in smart cards have made an indent in the Indian market and are poised to have perhaps an even greater impact on the payment and banking system. Substantial investments would be necessary to expand the existing and potential customer base. It would be beneficial if the bank went in for the latest technology even though it is expensive, as the cost of obsolence may be higher later on. Electronic authorization terminals (EAT) or electronic draft capture terminals (EDC) have to be launched across merchant establishments. VSAT connections, through Visa or Mastercard would have to be accessed to provide on-line validation through these terminals. The EAT / EDC terminal allows the merchant to validate a credit card within 20 seconds of swiping it on the machine. These terminals go a
33

Plastic Money - Current Market & Future Potential

long way in making card utilization easier and safer for card holders and the merchants. It saves data entry costs besides hastening the pace of the transaction, thus reducing the cost of the bank. In February 1997 Master Card launched its Very Small Aperture Terminals (VSAT) network, connecting it to its 22 issuer banks. Even Visa has linked all its 21 issuer banks to its National Net Settlement System (NNSS) for faster clearance and processing leading to faster flow of funds. These electronic payment options confer a number of benefits to the retail banking industry of which winning new business is only one but by far the most important one. By making the winning of new customers the principal aim, the bank is more likely to deploy other effective and workable systems.

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Plastic Money - Current Market & Future Potential

CARDS TOMORROW
SECURITY2
Todays cards are not foolproof ! With the advent of plastic money, frauds involving credit cards have seen a phenomenal rise across all national frontiers. Its easy to use someone elses card and get away with it. Credit card frauds have been a worldwide problem, as, many people use passwords or PIN numbers to get access to their computers, to their ATM machines and to secure buildings. The problem is that passwords and PIN numbers can easily be lost or stolen. Mastercard alone suffers an annual credit card fraud loss of 415 million dollars. In Washington D.C., many companies have gathered to showcase new ways to personalize card holders security using biometrix technology a means of identification that no one can steal or copy. Biometrix is a set of technologies that can identify a person on the basis of his / her physiological or behavioral characteristics. No one can copy a finger print, filiment of an eye or the composition of the face. So scientists are working on ways to capture and digitize unique characteristics to give very personal security codes to the card holders. As our society becomes larger and more complex, there is an increasing need to verify your identity to reduce fraud, to protect you and your assets, and to ensure that no one robs you of your identity. Says Paul Collier of Indeticator. Iris Scan uses the iris of the eye to create a kind of eye print. No two irises are the same, not even those of identical twins. So the eye, with

Internet. 35

Plastic Money - Current Market & Future Potential

its unique imprint, becomes a sort of natural security code. The IrisScan is an The next step in biometrix identification is to integrate physiological characteristics with the credit card. For example, an individuals fingerprint is scanned in a numerical code thats assigned to it. The code is loaded onto a computer chip that is then embedded into a smart card. Merchant establishment uses fingerprint recognition software to check a persons identification. This card contains data information as well as personal identification of an individual. If someone picks this credit card there is no way one could create the same fingerprint. Biometrix is not a replacement but an adjunct to the card technology.

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Plastic Money - Current Market & Future Potential

Phenomena Abroad today, in India Tomorrow INTERNET MONEY :

Sellers and shoppers both want the freedom to buy and sell on-line using credit cards as easily as in the physical world. Credit card usage will explode once a safe, secure and easy to use system is standardized. According to the experts, SET is the light which will guide payment safely over the Internet. Secure Encryption Technology (SET) is a secure and easy to use system that will allow Internet users to pay for Internet-based purchases with their credit cards (Roger Clark Web Page). SET which is based on encryption, protects credit card details but it cannot be used for detailed messaging and so can be easily exported. It was developed by Visa, Mastercard, Netscape, IBM and Microsoft. The merchant will not see the credit card number in unencrypted form. Only the bank or financial institution that verifies the credit card number and the money to back up the transaction will have access to the decrypted number. (Roger Clark Web Page). However, credit card transactions are not worthwhile below a certain amount, such as a couple of pence for an on-line newspaper. This has led to the concept of electronic cash, which cannot be traced to a particular buyer. Security is fundamental too electronic cash.

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Plastic Money - Current Market & Future Potential

ELECTRONIC CASH : E-cash is designed for secure payments over the Internet. E-cash has the privacy of the paper cash, while achieving the high security for safe trading on the Internet. With E-cash the possibilities are unlimited. A consumer can buy software or newsletter by E-mail, receive $ 5 owed by a friend or just order a pizza. Magdelera Yesil, CyberCash Vice President for marketing, believes that ability to spend small amounts of cash at electronic news stands is the key to unleashing the projected explosion in entrepreneurial electronic information publishing and commerce. Electronic magazines, newspapers and news services are prime products for the new money. E-cash can provide security in the following ways : Finality ~ there is no chance for the users to renege on a transaction as they might if they stopped payment on a cheque. Anonymity of payer and payee. Peer to peer transactions. Refundability if lost or stolen. However, ubiquity is needed for E-money to work worldwide. This means that various forms of E-money have to be made easy to use, secure and routinised so that usage will spread. The rise and growth of Internet and commercialization of the w.w.w. have provided strong motivational circumstances for E-money to grow, expand and flourish.

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Plastic Money - Current Market & Future Potential

OBSERVATIONS: Consumers will have

their doubts about how

secure E-cash is initially but they will become accustomed to it with time as they need to adjust to the new technologies. Consumers are used to having physical cash in their hand when purchasing. Primary research conducted shows that the majority of respondents think that a trial period is necessary for the consumers to get a feel of the new money and for them to build up confidence. An old Chinese proverb says, tell me I may forget, show me , I may remember, but involve and I will understand. With the E-cash client software, a customer withdraws E-cash from a bank and stores it on his local computer. The user can spend this digital money at any shop accepting E-cash without the trouble of having to transmit credit card details over the net. When using E-cash, the cash flows to its destination over the net. The lack of structure and open architecture of the Internet requires security measures to be taken against attempts by third parties to intercept the digital money. E-cash provides high security by applying public key digital signature techniques. Additional security features of E-cash include the protection of E-cash withdrawals from the account with the password that is known only to the user. Limits placed on the maximum balances of E-money devices and the duration of validity of balances or devices also serve to deter fraud as well as to contain any resulting losses. One of the unique features of E- cash is payer anonymity. When paying with E-cash, the identity of the payer is not revealed automatically. This way the payer stays in control of information about himself. ( E-cash

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Plastic Money - Current Market & Future Potential

home page). Smart cards can be used to store your E- cash allowing you to carry your E-cash with you. In many ways E-cash, which can be backed by any currency or other asset, represents the biggest revolution in currency since gold. Its diversity and pluralism is perfectly suited to the Internet. It could change consumers financial lives and shake the foundations of financial systems. (Business Week, June95) In a new report Internet Payments (from Jupiter), it is predicted that smart cards, E-cash and E-cheques will be used to pay for almost half of the dollar 7.3 bn in on-line commerce expected by the year 2000.( Nua Newsletter, Feb.97). The primary research conducted shows that 32% of the companies thought that the introduction of E-cash will contribute to consumers feeling more secure while trading on the Internet. 20% of the respondents believed that the E-money will still have an element of risk involved, too much to transfer value through the Internet. The general consensus is that security is a perception not a reality. BENEFITS vs RISKS Given that security is imperative to companies and consumers, why are they willing to risk doing business on the net when it seems clear that security problems prevail ? The primary research conducted shows that 80% of the respondents feel that the benefits of doing business on the net outweigh the risks involved. 32.5% of these were large scale companies with 50 or more employees and 46% were small companies with 10 or more employees.

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Plastic Money - Current Market & Future Potential

Consumer Perception

Confidence 11% Perception 4%

No Com ments 22%

Do Not Know 11%

Too Risky 19%

Yes 33%

These companies stated that the instant international communication, the easily accessible upto date information and relatively low cost far out weighed the risks involved when going on-line. However, the predominant view was that security is exaggerated and it is only consumers perceptions that stop them using the net for transactions and stop the net from realizing its true potential. If companies do not utilize the applications of the net they will be left behind in the fiercely competitive business environment.

Earlier the target was the corporate man and then the entertainment traveler. In addition to targeting the untapped portion of this segment, new issuers can also target women and first time credits. A first time

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Plastic Money - Current Market & Future Potential

credit could be a student or a married woman who never before had credit in her name.

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Plastic Money - Current Market & Future Potential

CONSTRAINTS TO INTERNET MONEY IN INDIA

High cost of setting up infrastructure. Limited subscriber base to internet. Presence of parallel economy.

NEW CARDS / SERVICES3

Test launch of Maestro - Citibanks debit card in Bangalore in Jan.98. Model Finance Corporation in a technological tie-up with Verifone launched a debitcard by the name Money Card in mid 97. Nanz supermarket in collaboration with Escorts finance have

introduced E-cash, to be used for payments at their outlets. Singh Motors, a petrol pump in Nehru place, Delhi, has installed a smart card based system for running a prepaid card. Defence Servicers Officers Institute (DSOI) in Delhi is replacing their existing liquor cards with Smart Cards. Maruti Udyog Ltd. Has issued smart cards to a selection of its employees as identification cards (ID) for accessing selected areas. Unicef is in the process of using Smart cards for maintaining records of village level water resources.
3

Times of India, Supplement. 43

Plastic Money - Current Market & Future Potential

SUGGESTIONS
The banks battle today is more with cash than with other banks. Considering the huge potential of the Indian market, it is in the interest of the issuers to educate the consumers about the benefits of holding credit card. The campaigns must also be convincing enough to clear the myth that credit cards increase spending. Focus should be on changing non-card related spending to card related spending. The issuers must focus on service and pricing and must recognize the importance of the billing and payment process to retain credit card holders. The credit cards schemes would be successful only if they meet the customers requirement of wider acceptability rather than fringe benefits like non-crisis credit or prestige proposition. Emphasis should be on offering a wider basket of services through credit cards enabling purchases for a wide variety of products along with ATM usage, backed by much more comprehensive merchant establishment network. The banks must also increase the number of card holders by reducing the initial-one time subscription fee. The banks should step up advertising that will help to build a brand image and create a higher brand recall like that of Citibank. With more and more people willing to adopt to credit cards, banks should undertake innovative strategies to increase card spends. Simultaneously, to cater to high net worth customers and those with niche needs, banks should provide more of premium plastic and CO-cards that piggyback on the existing infrastructure, but provide holders with exclusive addons.

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Plastic Money - Current Market & Future Potential

Future promotions could include : Telemarketing, direct sales, direct mail, promotional advertising through media, common ATM services between banks (to reduce cost of operations), schemes like card carnival and sales executives contests and a plethora of augmented services should be introduced to induce greater number of people to adopt to plastic money.

LIMITATIONS

The study is confined to Delhi only.

Most of the information is subjective data collected through personal interaction with people transacting in the plastic money market. As a result the personal biases of individuals could affect the study. However, to counter this the data has been verified from a number of different sources to give it a measure of authenticity. Study was constrained by limited availability of data. Not all banks could reveal their confidential marketing strategies and statistical information.

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Plastic Money - Current Market & Future Potential

BIBLIOGRAPHY

Singh Prasana, The Changing Brand Battle, A & M May97),Pg. 33 to 35. Splurging on PlasticGentleman (Sept. 97), Pg. 82 to 85.

(1-15

K.Suresh, Money Card : Wired for Money, A & M (16-31 Oct.97), Pg. 15. Edwin Sudhir R,Pick A Card, Any Card - And Relax The Sunday Time of India (19th Nov.97),19. Savitha G L,Playing the Cards Wrong The Sunday Times of India (19th Nov.97),19. Chandran Ramesh,Its a Plastic Paradise The Sunday Times of India (19th Nov.97),19. Internet The New Way to Pay The Times of India,(7th May98). Supplement.

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Plastic Money - Current Market & Future Potential

ANNEXURE

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Plastic Money - Current Market & Future Potential

A STUDY OF THE EXISTING MARKET IN PLASTIC MONEY IN INDIA AND ITS POTENTIAL IN 2001 A.D.
Dear Respondent, We would be grateful if you could spare some of your time to respond to the following questions. Needless to say, your response would be treated as confidential and would be used only for the purpose of the study. Thank you for your time. YEAR : 1997-98.

QUESTIONNAIRE
1. How many cards do you own ? (tick) 1___ 2___ 3___ 4___ More than four (specify)___ 2. Name the cards owned by you, according to the frequency of use. 1._____________ 2._____________ 3._____________ 4._____________ 5._____________ 3. How did you get to possess your card(s) ? (tick) a) Given by employer _____

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Plastic Money - Current Market & Future Potential

b) Bought it c) Joint card (gifted) d) Any other

_____ _____ _____

4. Name the bank through which your card was issued. Card Bank _______________________________________________ _______________________________________________ 5. Name the bank where you normally bank and do your transactions. ________________________________________________ 6. Rank the card possessed by you on the basis of experience with respect to the listed parameters.
5 Very Good 4 Good 3 Fair 2 Bad 1 Very Bad

a) Acceptability at places you frequent the most b) Credit limit c) Cash withdrawal facility d) Interest rates / charges paid e) Flexibility of repayment f) Ease of getting the card g) Additional benifits,discounts,incentives

______ ______ ______ ______ ______ ______ ______

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Plastic Money - Current Market & Future Potential

7. Rank the card using the above scale in order of their importance towards your selection of a card a) Acceptability at places you frequent the most b) Interest rate / charges paid c) Cash withdrawal facility d) Credit limit e) Flexibility of repayment f) Ease of getting the card g) Additional discounts, incentives, insurance coverage, other benefits. ______ ______ ______ ______ ______ ______ ______

8. Which of the following services offered along with the cards have been utilized by you ? (Evaluate according to frequency of use )
Very often 1 Often Rarely Never 2 4 5 Sometimes 3

a) Joint cards b) Merchandise offerings through mailers c) Incentive & discount schemes d) Insurance policies e) Travel related services f) Cash withdrawal facility g) Billing in hotels / restaurants

______ ______ ______ ______ ______ ______ ______

9. Rank the following services with respect to your preferences for them in selecting a card (using the following scale).
Very Imp. 1

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Plastic Money - Current Market & Future Potential

Important 2 Uncertain 3 Not Imp 4 Irrelevant 5

a) Joint cards b) Merchandise offerings through mailers c) Incentive & discount schemes d) Insurance policies e) Travel related services f) Cash withdrawal facility g) Billing in hotels / restaurants

______ ______ ______ ______ ______ ______ ______

10. How often do you use your card(s) in a month ? (please tick) a) 0 - 2 b) 3 - 5 c) 6 - 8 d) 9 -11 _____ _____ _____ _____

e) 12 & more _____ 11. What is the average amount spent by you during a month through your card ? (please tick) a) less than 1000 _____ b) 1001 - 2000 c) 2001 - 3000 d) 3001 - 4000 _____ _____ _____

e) 4001 & above _____ 12. Normally you51

Plastic Money - Current Market & Future Potential

a) utilize revolving credit facility and pay interest on outstanding b) keep outstanding amount as low as possible c) pay monthly bills in full 13. Are you familiar with the concept of a) Credit Card c) Debit Card d) Smart Card _____ _____ _____ b) Charge Card _____ _____ _____ _____ (please tick)

14. Are you likely to switch more of your spending from cash to cards ? (please tick) a) Yes c) No _____ _____ b) Not sure _____

15. If yes, which card would you go in for ? ____________________ 16. Please provide the following details about yourself : a) Name ________________ b) Age ________________ c) Occupation (please tick) i) Business _____________ ii) Service _____________ iii) Student _____________ If in service, please give following details a) Private sector __________ b) Govt. service __________
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Plastic Money - Current Market & Future Potential

d) Annual Income i) 50,000 - 100,000 _________ ii) 100,001 - 150,000 _________ iii) 150,001 - 200,000 _________ iv) 200,001 - 250,000 _________ v) 250,001 - 300,000 _________ vi) 300,001 & above. _________ 17. What other services would you want from your card in the future ? ___________________________________________________ ___________________________________________________ ___________________________________________________

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Plastic Money - Current Market & Future Potential

ANALYSIS
This study was designed to provide an insight into the existing market for plastic money and its future potential. METHODOLOGY : Confining our study to the geographical limits of Delhi, we chose a sample of 100 people - 50 card holders and 50 noncard users, using the probability sampling technique where every individual fulfilling the above criteria had an equal chance of being selected for the survey. Following are some of the facts that were revealed through the survey :

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Plastic Money - Current Market & Future Potential

COMPARISON OF CARDS
Acceptability Credit Limit MASTER 4 DINERS 4 AMEX 4 VISA 3.58 CANCAR D 1.5 Cash Withdrawl DINERS 4 MASTER 3.5 VISA 3.31 AMEX 2.8 CANCARD 1.5 Interest Flexibility of Ease of Additional Rates repayment getting card benefits VISA 3.08 AMEX 2.8 MASTE R 2.77 DINERS 2.2 CANCA RD 2 VISA 3.8 MASTER 3.7 AMEX 3.2 DINERS 2.8 CANCARD 1.5 AMEX 4.2 MASTER 4.08 VISA 4 DINERS 4 CANCARD 4 AMEX 4.2 DINERS 3.2 MASTER 2.8 VISA 2.5 CANCARD 1.5

CANCARD 5 MASTER 4.65 VISA 4.42 DINERS 4.2 AMEX 3.8

COMPARISON OF SERVICES
Merchandise offerings CANCARD 5 DINERS 4.4 MASTER 4 AMEX 4 VISA 3.58 Joint Cards CANCAR D 5 MASTER 4.65 VISA 4.42 DINERS 3 AMEX 3 Incentive & disc CANCARD 5 DINERS 4 VISA 3.5 MASTER 3.31 AMEX 2.6 Insurance Policy CANCAR D 5 DINERS 4.2 AMEX 4.2 VISA 3.08 MASTER 2.77 Travel Services VISA 3.8 DINERS 3.8 MASTER 3.7 AMEX 1.8 CANCARD 1.5 Cash Billing in Withdrawal Hotels/Rest MASTER 4.08 VISA 4 AMEX 4 CANCARD 3 DINERS 2.6 MASTER 2.8 VISA 2.5 DINERS 2 CANCARD 1 AMEX 1

ACKNOWLEDGEMENT
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Plastic Money - Current Market & Future Potential

We would like thank Dr. Chawla for his invaluable help in providing us direction for pursuing our research study. Also, we would like to thank Prof. Rajat Kathuria for his continued guidance throughout the project. We would also like to extend our gratitude to Prof. K.K.Jindal for his advice and support from time to time. We wish to express our appreciation to all those with whom we interacted and whos thoughts and insights helped us in furthering our knowledge and understanding of the subject. For the same, our gratitude goes out to Mr. Sanjay Chaudhri (Manager Sales - HKB), Mr. R. Bhaskaran (Hongkong Bank - Credit Card Sales Officer), Mr. Shailesh (Master Card International - Manager Sales), Mr. Manoj Verma (Citi Bank - Sr. Manager Credit Card Division), Mr. Praveen Singh (Bank of Baroda - Manager Credit Card Division), Mr. Milan Mehra (American Express Bank), Mr. Neeraj Swaroop ( Bank of America ) and Ms. Savita Chawla (Standard Chartered Bank - AM Card Services). Finally we would also like to record our thanks to all the respondents who spared their valuable time to answer the questionnaire for our survey.

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Plastic Money - Current Market & Future Potential

CONTENTS
Page No.
ACKNOWLEDGEMENT 1. INTR0DUCTION 2. ORIGIN 3. TYPES OF CARDS ON OFFER 4. TRANSACTING PROCEDURE 5. TERMINOLOGY 6. MARKETING AND PROMOTIONAL SCHEMES 7. COMPARISONS 8. RISKS IN THE BUSINESS 9. ANALYSIS - OBSERVATIONS AND INFERENCES 10. CARDS TOMORROW - SECURITY 11. PHENOMENA ABROAD 12. CONSTRAINTS TO INTERNET MONEY IN INDIA 13. NEW CARDS/SERVICES 14. SUGGESTIONS 15. LIMITATIONS BIBLIOGRAPHY ANNEXURE 1 3 5 8 9 12 17 24 28 34 36 41 41 42 43 44

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