DEBIT CARDS OVERTAKING CREDIT CARDS IN INDIA

ACKNOWLEDGEMENT

Working on this project has been a good experience. I would like to thank a number of people

who helped me directly or indirectly for this project.

Firstly I would like to thank the University of Mumbai, for bringing out a topic like this which

enabled me to explore the whole banking sector environment. Then I want to express my

gratitude towards my college, BUNTS SANGHA’S S.M. SHETTY COLLEGE OF SCIENCE,

COMMERCE AND MANAGEMENT STUDIES, the Principal of my college Dr.Sridhara Shetty

and the Vice Principal Dr.Liji Santosh.

I am grateful to my Prof. KALPANA RAI MENON who guided me throughout the procedure in

preparing this project report.

I would like to thank my classmates, friends and family members who supported me in collecting

information and making my project better.

 SUMMARY

 Difference between Debit cards and Credit cards

 Advantages and disadvantages of Debit and Credit Cards
 Types of Debit cards and Credit cards
 Growth rate of Debit and Credit cards in Indian Banks
 OBJECTIVES

 1. To understand the change in use of debit and credit cards.

 2. To analyse change in sales of debit and credit cards.
 3. To study reason for change in sale.
 4.Trend in use of debit cards and credit cards
Sr. No. TOPICS Page.
No.

1. INTRODUCTION TO BANKING 1-6

INDUSTRY SCENARIO OF INDIAN BANKING INDUSTRY
2. 7-8
EVOLUTION AND GROWTH OF DEBIT AND CREDIT CARD
3. 9 - 10

4. WHAT IS A DEBIT CARD 11 - 12

5. TYPES OF DEBIT CARD 13 - 14

6. ADVANTAGES& DISADVANTAGES OF DEBIT CARD 15 - 23

7. WHAT IS CREDIT CARD 24 - 26

8. TYPES OF CREDIT CARD 27

9. ADVANTAGES & DISADVANTAGES OF CREDIT CARD 28 - 34

10. DIFFERENCE BETWEEN DEBIT AND CREDIT CARDS 35 - 36

11. OUTSTANDING CREDIT AND DEBIT CARDS IN INDIAN 37 - 40

MARKET

12. DEBIT CARDS OVERTAKING CREDIT CARDS IN INDIA 41 - 42

13. QUESTIONNAIRE 43 - 53

14. FINDINGS 54 - 55

15. SUGGESTIONS 56

16 WEBILOGRAPHY 57
 INTRODUCTION TO BANKING

The Indian banking can be broadly categorized into nationalized (government owned), private

banks and specialized banking institutions.The Reserve Bank of India acts a centralized body

monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks

in 1969 , the public sector banks or the nationalized banks have acquired a place of prominence

and has since then seen tremendous progress. The need to become highly customer focused has

forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of

products and services through the net has galvanized players at all levels of the banking and

financial institutions market grid to look anew at their existing portfolio offering. Conservative

banking practices allowed Indian banks to be insulated partially from the Asian currency

crisis.Indian banks are now quoting al higher valuation when compared to banks in other Asian

countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to

huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble

footed in approach and armed with efficient branch networks focus primarily on the ‘high

revenue’ niche retail segments.

The Indian banking has finally worked up to the competitive dynamics of the ‘new’ Indian

market and is addressing the relevant issues to take on the multifarious challenges of

globalization. Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive

players capable of meeting the multifarious requirements of the large customers base. Private

1
banks have been fast on the uptake and are reorienting their strategies using the internet as a

medium The Internet has emerged as the new and challenging frontier of marketing with the

conventional physical world tenets being just as applicable like in any other marketing medium.

The Indian banking has come from a long way from being a sleepy business institution to a

highly proactive and dynamic entity. This transformation has been largely brought about by the

large dose of liberalization and economic reforms that allowed banks to explore new business

opportunities rather than generating revenues from conventional streams (i.e. borrowing and

lending). The banking in India is highly fragmented with 30 banking units contributing to

almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the

government) continue to be the major lenders in the economy due to their sheer size and

penetrative networks which assures them high deposit mobilization. The Indian banking can be

broadly categorized into nationalized, private banks and specialized banking institutions.Indian

banking is the lifeline of the nation and its people.

Banking has helped in developing the vital sectors of the economy and usher in a new dawn of

progress on the Indian horizon. The sector has translated the hopes and aspirations of millions

of people into reality. But to do so, it has had to control miles and miles of difficult terrain,

suffer the indignities of foreign rule and the pangs of partition. Today ,Indian banks can

confidently compete with modern banks of the world.

Before the 20th century, usury, or lending money at a high rate of interest, was widely prevalent

in rural India. Entry of Joint stock banks and development of Cooperative movement have taken

over a good deal of business from the hands of the Indian money lender, who although still

2
exist, have lost his menacing teeth. In the Indian Banking System, Cooperative banks exist side

by side with commercial banks and play a supplementary role in providing need-based finance,

especially for agricultural and agriculture-based operations including farming, cattle, milk,

hatchery, personal finance etc. along with some small industries and self-employment driven

activities. Generally, co-operative banks are governed by the respective co-operative acts

of state governments. But, since banks began to be regulated by the RBI after 1stMarch 1966,

these banks are also regulated by the RBI after amendment to the Banking Regulation Act 1949.

The Reserve Bank is responsible for licensing of banks and branches, and it also regulates

credit limits to state co-operative banks on behalf of primary co-operative banks for financing

SSI units.4Banking in India originated in the first decade of 18th century with The General

Bank of India coming into existence in 1786. This was followed by Bank of Hindustan. Both

these banks are now defunct. After this, the Indian government established three presidency

banks in India. The first of three was the Bank of Bengal, which obtains charter in 1809, the

other two presidency bank, viz., the Bank of Bombay and the Bank of Madras, were established

in 1840 and 1843,respectively. The three presidency banks were subsequently amalgamated into

the Imperial Bank of India (IBI) under the Imperial Bank of India Act, 1920 –which is now

known as the State Bank of India.A couple of decades later, foreign banks like Credit Lyonnais

started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active

trading port, mainly due to the trade of the British Empire, and due to which banking activity

took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank,

which was established in 1865.By the 1900s, the market expanded with the establishment of

banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai

– both of which were founded under private ownership. The Reserve Bank of India formally

3
took on the responsibility of regulating the Indian banking sector from 1935. After India‟s

independence in 1947, the Reserve Bank was nationalized and given broader powers.As the

banking institutions expand and become increasingly complex under the impact of deregulation,

innovation and technological upgradation, it is crucial to maintain balance between efficiency

and stability. During the last 30 years since nationalization tremendous changes have taken

place in the financial markets as well as in the banking industry due to financial sector reforms.

The banks have shed their traditional functions and have been innovating, improving and

coming out with new types of services to cater emerging needs of their 5customers. Banks have

been given greater freedom to frame their own policies. Rapid advancement of technology has

contributed to significant reduction in transaction costs, facilitated greater diversification of

portfolio and improvements in credit delivery of banks. Prudential norms, in line with

international standards, have been put in place for promoting and enhancing the efficiency of

banks. The process of institution building has been strengthened with several measures in the

areas of debt recovery, asset reconstruction and securitization, consolidation, convergence, mass

banking etc.

Despite this commendable progress, serious problem have emerged reflecting in a decline in

productivity and efficiency, and erosion of the profitability of the banking sector. There has

been deterioration in the quality of loan portfolio which, in turn, has come in the way of bank ‟s

income generation and enchancement of their capital funds. Inadequacy of capital has been

accompanied by inadequacy of loan loss provisions resulting into the adverse impact on the

depositors‟ and investors‟ confidence. The Government, therefore, set up Narasimham

Committee to look into the problems and recommend measures to improve the health of the

4
financial system. The acceptance of the Narasimham Committee recommendations by the

Government has resulted in transformation of hitherto highly regimented and

overbureaucratized banking system into market driven and extremely competitive one.

The massive and speedy expansion and diversification of banking has not beenbe facing

increasing competition from non-banks not only in the domesticmarket but in the international

markets also. The operational structure of banking in India is expected to undergo a profound

change during the nextdecade. With the emergence of new private banks, the private bank sector

has 6become enriched and diversified with focus spread to the wholesale as well as

retail banking. The existing banks have wide branch network and geographicpread, whereas the

new private banks have the clout of massive capital, leanpersonnel component, the expertise in

developing sophisticated financialproducts and use of state-of-the-art technology.

Gradual deregulation that is being ushered in while stimulating the competitionwould also

facilitate forging mutually beneficial relationships, which wouldultimately enhance the quality

and content of banking. In the final phase, thebanking system in India will give a good account

of itself only with thecombined efforts of cooperative banks, regional rural banks and

development banking institutions which are expected to provide an adequate number of effective

retail outlets to meet the emerging socio-economic challenges during he next two decades. The

electronic age has also affected the banking system, leading to very fast electronic fund transfer.

However, the development of electronic banking has also led to new areas of risk such as data

security and integrity requiring new techniques of risk management.

Cooperative (mutual) banks are an important part of many financial systems. In a number of

countries, they are among the largest financial institutions when considered as a group.

Moreover, the share of cooperative banks has been increasing in recent years; in the sample

5
ofbanks in advanced economies and emerging markets analyzed in this paper, the market shareof

cooperative banks in terms of total banking sector assets increased from about 9 percent in mid-

1990s to about 14 percent in 2004.

The Reserve Bank of India act as a centralized body monitoring any discrepancies and

shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The

nationalized banks (i.e. government-owned banks) continue to dominate the Indian banking

arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223

banks are in the public sector and 51 are in the private sector. The private sector bank grid also

includes 24 foreign banks that have started their operations here. Under the ambit of the

nationalized banks come the specialized banking institutions. These co-operatives, rural banks

focus on areas of agriculture, rural development etc.

6
 INDUSTRY SCENARIO OF INDIAN BANKING INDUSTRY

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is

expected to remain the same in the coming years. Based on the projections made in the "India

Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts

that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets

of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000crores. That

will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in

2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during

the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95

and 2002-03. It is expected that there will be large additions to the capital base and reserves on

the liability side.

The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for

more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with

excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On

the other hand the Private Sector Banks are making tremendous progress. They are leaders in

Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned

they are likely to succeed in the Indian Banking Industry.

7
In the Indian Banking Industry some of the Private Sector Banks operating are IDBI Bank, ING

Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks

from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank,

Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express

Bank Ltd, Citibank are some of the foreign banks operating in the Indian Banking Industry.As

far as the present scenario is concerned the Banking Industry in India is going through a

transitional phase. The first phase of financial reforms resulted in the nationalization of 14 major

banks in 1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted

in a significant growth in the geographical coverage of banks. Every bank had to earmark a

minimum percentage of their loan portfolio to sectors identified as “priority sectors”. The

manufacturing sector also grew during the 1970s in protected environs and the banking sector

was a critical source. The next wave of reforms saw the nationalization of 6 more commercial

banks in 1980. Since then the number of scheduled commercial banks increased four-fold and the

number of bank branches increased eight-fold.

After the second phase of financial sector reforms and liberalization of the sector in the early

nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new

private sector banks and the foreign banks. The new private sector banks first made their

appearance after the guidelines permitting them were issued in January 1993. Eight new private

sector banks are presently in operation. These banks due to their late start have access to state-

ofthe-art technology, which in turn helps them to save on manpower costs and provide better

services

8
 EVOLUTION AND GROWTH OF DEBIT AND CREDIT CARD

The number of credit and debit card users in India is climbing fast, and rising affluence is likely

to erode Indians’ lingering reluctance to spend on credit. Indians have traditionally valued thrift

and frugality. But the spread of affluence in the wake of rapid economic growth is challenging

these values, at least for many middle-class and high-income families. One sign of this is the

phenomenal growth in the number of credit and debit cards in India—in the past three years, the

number of credit cards has more than doubled and the number of debit cards has almost

quadrupled. Credits cards are a relatively recent development. The VISA Company, for example,

traces its history back to 1958 when the Bank of America began its Bank Americard program. In

the mid-1960s, the Bank of America began to license banks in the United States the rights to

issue its special Bank Americards . In 1977 the name Visa was adopted internationally to cover

all these cards. VISA became the first credit card to be recognized worldwide.Credit cards are

relatively new to India. Andhra Bank and Central Bank of India introduced credit cards in 1981.

As of now there are about more than dozen major banks in Indian and foreign which have

entered this line of business, besides some non-banking institutions. Since the plastic money has

become as good as legal tender more people are using them in their day-to-day activities. The

attitude of people towards credit cards has changed. A phenomenal amount of money moves get

transacted nowadays through electronic transfer, credit cards and debit cards. The Indian credit

card market is in its growth phase, it recorded a growth of about 30 per cent a year. Debit cards

aregrowing at 40 per cent. The RBI data put total electronic transaction in the country at over

Rs.2,35,000crores in 2006-07. This increased to Rs.3,60,000crores in the first 10 months (April-

January) of 2007-08. At the end of April-January 2007-08, all of us together held about 27.5

9
million credit cards transacted Rs.47,476crores through these cards in 10 months of the year.The

Indian credit cards industry is still in a relatively nascent stage when compared to economies in

West Asia, a survey by Master Card International. According to the survey results, only 14 per

cent of Indians currently own a credit card. This is in sharp contrast to countries such as the

United Arab Emirates and Kuwait where 63 per cent and 50 per cent of respondents,

respectively, own a credit card. The results indicate that the high growth potential for the

payment card industry in India, In terms of the single most important factor influencing choice of

credit card, 30 per cent of Indians say they are influenced by the credit card brand, closely

followed by 23 per cent who choose a credit card depending on the credit limit. Interestingly, 8

per cent of cardholders say they are influenced by the card design, while only 5 per cent and 2

per cent cardholders say they are influenced by the interest rate and the bank staff

recommendations respectively.

10
 WHAT IS DEBIT CARD

A debit card (also known as a bank card or check card) is a plastic payment card that provides

the cardholder electronic access to his or her bank account at a financial institution. Some cards

may bear a stored value with which a payment is made, while most relay a message to the

cardholder's bank to withdraw funds from a payer's designated bank account. The card, where

accepted, can be used instead of cash when making purchases. In some cases, the primary

account number is assigned exclusively for use on the Internet and there is no physical card.

In many countries, the use of debit cards has become so widespread that their volume has

overtaken or entirely replaced cheques and, in some instances, cash transactions. The

development of debit cards, unlike credit cards and charge cards, has generally been country

specific resulting in a number of different systems around the world, which were often

incompatible. Since the mid-2000s, a number of initiatives have allowed debit cards issued in

one country to be used in other countries and allowed their use for internet and phone purchases.

Unlike credit and charge cards, payments using a debit card are immediately transferred from the

cardholder's designated bank account, instead of them paying the money back at a later date.

Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for

withdrawing cash. Merchants may also offer cashback facilities to customers, where a customer

can withdraw cash along with their purchase.A debit card is always tied to a checking account;

11
so they are also sometimes known as "checking cards." Any time you use a debit card to buy

something, money is deducted from your account — usually on the same day, if not immediately.

For example, if you have $1,000 in an account and spend $30 using a debit card, $30 is removed

from the checking account, leaving behind $970. With a debit card, you can really only spend the

money you have available to you. If you only have $970 left, spending any more than mayl result

in an overdraft charge.When you use a debit card for an in-person (not online) transaction, you

must use your personal identification number, or PIN, to approve the transaction. When you use

a debit card for a credit card-like transaction, you will normally have to sign a receipt (in the

U.S.). However, signature requirements are being phased out in favor of PINs, so soon there will

be no difference between the experience of using a debit card for a debit or credit transaction.It is

easy to apply for a debit card. Any bank or credit union that you have a checking account with

will issue you a debit card upon request.

12
 Types of Debit Cards

1. PIN-only cards:

PIN-only debit cards are linked to your bank account and can be used for cash

transactions and fund transfer, buy from retailers and pay bills online or by phone. The

card holder is required to enter a secure PIN for every transaction to establish identity

and maintain security.

2. Dual-use cards:

Dual-use debit cards are both signature- and PIN-enabled, and tied directly to your bank

account. You can verify your identity either by signing or entering your PIN.

3. EBT cards:

13
 Electronic Benefits Transfer (EBT) cards debit cards provided by a state or federal

government agency to users who qualify for food stamps, cash payments, or other

benefits. EBT cards can be used to make purchases at participating retailers or to

withdraw cash from an ATM, depending on the type of program.

4. Prepaid cards:

Prepaid cards are not linked to a specific account, but provide access to funds deposited

directly on the card by you or a third party. In effect, they work as a store-credit or gift

card.

14
 ADVANTAGES OF DEBIT CARD

1. Prepaid card

Debit card acts as a type of prepaid card. It is so, since it already has a sufficient amount

of cash balance in its holder’s bank account. It permits to carry on the value of the transaction

(i.e. purchases) to the extent of available balance in its holder’s bank account.

15
2. Nominal fee

Bank issuing a debit card charges an annual fee for the issuance and maintenance of card. This

fee charged is very nominal in nature. Generally, bank charges the fee on a per annum or

yearly basis. Such a fee gets automatically debited (deducted) from the debit-cardholder’s

bank account.

3. Alternative to cash

Debit card acts as an alternative mode of payment for executing various cash-related financial

transactions. It can be used for the purchases of goods and receipt of services. In its presence,

there is no need to carry a large amount of cash. Thus, it helps to avoid carrying huge amount

of cash while traveling and minimize risk of loss due to theft, damage, etc.

4. Immediate transfer of funds

Debit card ensures immediate transfer of funds in the merchant’s or dealer’s bank account.

Such a transfer of funds takes place almost instantly at the moment of purchases of goods and

receipts of services. With its use, there is no need to visit bank’s office premise and do a

manual transfer of cash in the merchant’s or dealer’s bank account.

16
 Thus, it saves precious time and gives ease, safety, and comfort to its holder in his or her’s

finance-related activities.

5. Instant withdrawal of cash

The debit card facilitates instant withdrawal of cash from any nearest ATM. This helps its

holder to avoid a personal visit to bank’s office premise and wait in a long time-consuming

queue.In short, it also acts as an ATM card to meet its holder’s cash-related needs, anytime and

anywhere.

6. Easy to manage

Debit card is very easy to carry, handle and manage while traveling to outstations or overseas.

Being small, thin, flat and having a negligible weight it easily fits in any pocket. It can be

handled very freely even with just two fingers. Managing it is also not a big problem.

A cardholder must just take enough care to see to it that:

17
a. Debit card is always covered with a thick plastic cover to avoid scratching of its sensitive

surface.

b. It doesn’t come in contact with contaminated water and heat.

c. It doesn’t get folded accidentally; this helps to prevent its breakage.

d. It is placed safely in a convenient location which one remembers. This helps to avoid it

getting misplaced and lost due to negligence.

7. Earns bonus points

Now-a-days, the competition among debit card providers (banks) is challenging. Today, most

banks offer bonus points to encourage their cardholders (customers) to make purchases using

their debit cards. Banks are able to offer such points to their cardholders as it’s merchants and

not them who actually run the reward program.

After every successful sale, a merchant gives the bank a small cut-off or percentage as a

commission. This commission is further shared or divided by the bank with its holder (as a

18
 reward) who did the original purchase. Thus, in return, it finally also helps the cardholder earn

bonus points on selected financial transactions executed by him or her via a debit card.

In this cycle, all, viz., bank, merchant, and cardholder are directly benefited. Bank offers an

incentive like this to improve the sale of the products in the ordinary course of business and

contribute in the economic growth.

8. Gifts on redeeming points

As we have seen above, debit card helps to accumulate bonus points through a reward

program. These points can be redeemed by the cardholder (within card’s expiration date) at

any merchant website and/or outlet that bank has already authorised. While redeeming

accurred points, cardholder gets an idea of its worthiness in terms of amount, and so he/she

proceeds to claim gifts nearly equal to that amount.

9. Cash back

In a cash back, cardholder gets a percentage of the total amount spent on purchases made

using his card. In other words, when a holder use his debit card to buy something then a

19
 percentage of entire moneyhe spent usually in a month is credited-back to his account once

every following month.

Consider for an example, a debit-cardholder spends 100 dollars three times a month on

shopping and the cash-back offer on shopping is 10 percent. In such a case, cardholder will get

back $30, which is 10% of $300 ($100 × 3) returned to his account in the coming month.

However, to avail this offer some minimal amount must be spent on some minimum number

of transactions at least once a month in a specific currency by eligible cardholders only.

For an instance, a cash back debit card provider may say in his terms as,

10. Free insurance coverage

Debit-cardholders also gets free insurance coverage. The bankers provide such insurance

facilities to attract new customers and to maintain their current customer strength.

They provide various types of insurances for free to their cardholders:

a. Insurance on loss of debit card,

b. Purchase insurance,

c. Personal insurance,

20
 d. Accidental insurance,

e. Travel insurance, and so on.

However, these types of insurances are given freely to cardholders depending on which type

of debit card they have possessed.

The cost of insurance premium is borne by the bankers who provide debit cards to their

customers.

11. Miscellaneous advantages

Miscellaneous advantages of debit card are as follows

 It helps to budget one’s expenses and do a responsible spending of own money within

account limits.
 Its holder uses his own money and not any borrowed (loaned) money. Unlike a credit

card, here, no interest is charged. Hence, its transactions are interest free.
 It is accepted internationally, by e-commerce websites, and almost everywhere by

merchants who display the logo of payment processing companies like VISA, Master

Card, American Express, etc. This ensures making successful payments anywhere in the

world with ease.

 It offers optimum levels of security. This greatly minimizes the chances of fraud, misuse

and theft of money.

 Overall, it enhances the banking experience of a cardholder.

21
 DISADVANTAGE OF DEBIT CARD

1.Disputed charges can be more difficult to resolve. Since money was spent out of your account

at the moment of purchase, you have more risk with a debit card than with a credit card if the

item is defective, misrepresented, or never gets delivered to you.

2. Some banks may charge you extra fees. There could be monthly service charges, over-limit

fees, per transaction costs, or penalties for dropping below a minimum required balance that

result from using a debit card.

22
3. You don't improve your credit score. Building up your credit score is an important

consideration for your financial future. Paying bills, such as credit card payments, on time is the

most effective way to increase your rating or to maintain a high credit score.

4. You can't take advantage of reward points. One of my favorite reasons for using a credit card

when making any large purchase is the opportunity to get travel reward points. There are many

different types of cards that offer a variety of great incentives, and I have an entire episode

devoted to rewards credit cards to prove it.

5. It gives you lower levels of fraud protection. If a thief gets your Personal Identification

Number, they could easily empty your bank account. Fraud certainly happens with credit card

use as well. However, most credit card companies put a hold an any account that shows unusual

activity.

6. And lastly, your potential liability for misuse is unlimited.This contrasts the low risk that

comes from misuse or theft of a credit card.

23
 WHAT IS CREDIT CARD

Unlike debit cards, credit cards are not connected to a checking account. Instead, they are

tied to a financial institution, such as a bank or credit company, that is in the business of

issuing revolving lines of credit to consumers. Whereas a debit card transaction is mainly

between the buyer and seller, a credit card transaction specifically involves a third party: the

institution who has loaned money to the buyer.

For example, if you use your credit card to buy $30 of groceries, you are not directly paying

the grocery store. Instead, the grocery store is paid $30 by the credit issuer. This is $30 that

you now owe the credit card issuer.

24
With a credit card, you are never limited by the amount of money you have in your

checking account, which can be one of the major cons to debit cards for many consumers.

Instead, you are limited by whatever the credit limit on the card is. If you are new to the

world of credit, a credit card company may only issue you a card with a $1,000 credit limit.

This means you only have $1,000 of revolving credit to use. Some card issuers increase

credit limits over time for those who build up a good credit history by paying off their

credit card each month (i.e., paying back their loan).

It is relatively harder to get a credit card than it is to get a debit card, especially for those

with no credit history or a poor credit history. When you apply for a credit card, the issuer

evaluates your creditworthiness to determine how risky it is to loan you money. If the

issuing company believes you are a poor credit risk, your application for a credit card will

be rejected.The credit card business got momentum in the sixties and a number of banks

entered the field in a big way. Credit card culture is an old hat in western countries. In

India, it is relatively a new concept that is fast catching on. The present trend indicates that

the coming years will witness a burgeoning growth of credit cards which will lead to a

cashless society. Credit has become an important vehicle of trade promotion. Credit cards

provide convenience and safety to the buying process.

One of the important reasons for the popularity of credit cards is the sea change witnessed

in consumer behaviour. Credit cards enable an individual to purchase products or services

without paying immediately. The buyer only needs to present the credit cards at the cash

counter and sign the bill. Credit card can, therefore, be considered as a good substitute for

cash or cheques.A Credit card is a card or mechanism which enables cardholders to

25
purchase goods, travel and dine in a hotel without making immediate payments. The

holders can use the cards to get credit from banks up to 50 days free of cost. The credit card

relieves the consumers from botheration of the carrying cash and ensures safety. It is a

convenience of extended credit without formality. Thus credit card is a passport to, “safety,

convenience, prestige and credit.”A credit card is a plastic card having a magnetic strip,

issued by a bank or business authorizing the holder to buy goods or services on credit. Any

card, plate or coupon book that may be used repeatedly to borrow money or buy goods and

services on credit is called credit card. A credit card is a card establishing the privilege of

the person to whom it is issued to charge bills. Most retail firms accept credit cards. Credit

cards allow consumers to make purchases without paying cash immediately or establishing

credit with individual stores.

They eliminate the need to check credit ratings and to collect cash from individual

customers. The issuing institution establishes the card’s terms, including the interest rate,

annual fees, penalties, the grace period, and other features. Credit card debt is typically an

unsecured debt. Repossession is not easily accomplished by the lender to ensure payment.

Banks have often priced the product assuming maximum risk exposure.A credit card is a

device which enables the holder to obtain goods on credit from specified supplies. The

holder of the card, in some cases, has to pay the yearly subscription and the suppliers also

have to pay commission on sales to the bank or the body issuing the card. The suppliers are

paid promptly and so are protected against bad debts, while the holder makes a single

monthly payment to cover all his purchases for that period. Credit cards are issued only

after the applicant’s credit worthiness has been accepted as satisfactory.

26
 Types of Credit Cards

1. The Standard Credit Card: These are general purpose credit cards with revolving

balance (i.e. credit is used up when purchases are made, and is open again once the bill is

paid). Standards cards are usually starter credit cards, usually for applicants with little or no

credit history who meet the minimum required criteria.

2. Reward Credit Cards: These cards offer several rewards programs in the form of cash,

points or discounts, and are intended to influence your spending. Reward cards usually

come with an associated annual fee and a lot of fine print; the key is to make sure the

rewards earned exceed the annual fee.

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 3. Secured Credit Cards: Also known as pay-as-you-go cards, their primary purpose is to

give people with bad credit history a chance to reestablish credit. The user first deposits a

"secure" amount (say $300-$3000), which makes for the credit line. The credit limit is

usually a percentage (50%-100%) of this amount. These cards come with an annual fee and

a high APR.

4. Charge Cards: Charge cards do not have a preset spending limit and balances must be

paid in full at the end of each month

Advantages of credit card

Convenience--Credit cards can save you time and trouble--no searching for an ATM or keeping

cash on-hand.

Record keeping--Credit card statements can help you track your expenses. Some cards even

provide year-end summaries that really help out at tax time.

Low-cost loans--You can use revolving credit to save today (e.g., at a one-day sale), when

available cash is a week away.

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Instant cash--Cash advances are quick and convenient, putting cash in your hand when you

need it.

Perks--From frequent flier miles to discounts on automobiles, there is a program out there for

everyone. Many credit card companies offer incentive programs based on the amount of

purchases you make.

Build positive credit--Controlled use of a credit card can help you establish credit for the first

time or rebuild credit if you've had problems in the past--as long as you stay within your means

and pay your bills on time.

Purchase protection--Most credit card companies will handle disputes for you. If a merchant

won't take back a defective product, check with your credit card company.

Balance surfing--Many credit card companies offer low introductory interest rates. These offers

allow you to move balances to lower-rate cards.

29
 Disadvantages of credit card

Overuse--Revolving credit makes it easy to spend beyond your means.

30
Paperwork--You'll need to save your receipts and check them against your statement each

month. This is a good way to ensure that you haven't been overcharged.

High-cost fees--Your purchase will suddenly become much more expensive if you carry a

balance or miss a payment.

Unexpected fees--Typically, you'll pay between 2 and 4 percent just to get the cash advance; also

cash advances usually carry high interest rates.

No free lunch--The high interest rates and annual fees associated with credit cards often

outweigh the benefits received. Savings offered by credit cards can often be obtained elsewhere.

Deepening your debt--Consumers are using credit more than ever before. If you charge freely,

you may quickly find yourself in over your head--as your balance increases, so do your monthly

minimum payments.

Homework--It's up to you to make sure you receive proper credit for incorrect or fraudulent

charges.

Teaser rates--Low introductory rates may be an attractive option, but they last only for a limited

time. When the teaser rate expires, the interest rate charged on your balance can jump

dramatically.

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Comparision chart

32
 Credit Card Debit Card

Credit cards are lines of credit. When you Any time you use a debit card to buy something,

use a credit card, the issuer puts money money is deducted from your account. With a

toward the transaction. This is a loan you debit card, you can really only spend the money
About
are expected to pay back in full (usually you have available to you.

within 30 days), unless you want to be

charged interest.

Connected Not required to be connected to a checking Checking or Savings Account

To account.

Monthly Yes No

Bills

Applicatio Somewhat difficult, depending on one's Easy, with basically no barrier to receiving a

n Process credit score and other details. debit card.

The credit limit set by the credit issuer. However much is in the bank account connected
Spending
Limits increase or stay the same over time to the card.
Limit
as a borrower's creditworthiness changes.

If a credit card bill is not paid in full, No interest is charged because no money is
Interest
interest is charged on outstanding balance. borrowed.
Charged
The interest rate is usually very high.

33
 Credit Card Debit Card

Credit cards in the U.S. are not very secure A PIN makes them secure so long as no one

in and of themselves because many still steals the card number and PIN, and as long as

Security use dated card security technology. you don't lose the card itself. If the card/info is

However, consumers are not held liable for stolen, debit cards are very insecure.

this poor security.

Low. Rarely held liable for fraudulent High. If someone steals your card and makes

activity. If you are, you are only held liable purchases, that money is removed from your

Fraud for a maximum of $50. bank account. Investigating this damage takes

Liability time. The longer you wait to report the fraud, the

more likely you will be held liable for your own

losses.

Responsible credit card usage and payment Does not affect credit history.

can improve one's credit rating. Credit

Credit
cards typically report account activity to at
History
least one of the three major credit bureaus

on a monthly basis.

Low. Some credit card companies allow to High "overdraft" fees. Possible to overdraw
Overdraw
overdraw amount over the maximum credit amount over the account limit.
Fees
line with a fee.

PIN In the U.S., this is uncommon, but PINs Usually

34
Credit Card Debit Card

are being phased in.

35
 DIFFERENCE BETWEEN DEBIT CARDS AND CREDIT CARDS

Debit cards and credit cards are accepted at the same places. Debit cards all carry the symbol of

one of the major types of credit cards on them, and can be used anywhere that credit cards are

accepted. They both offer convenience. The fundamental difference between a debit card and a

credit card account is where the cards pull the money. A debit card takes it from your banking

account and a credit card charges it to your line of credit.

Debit cards offer the convenience of a credit but work in a different way. Debit cards draw

money directly from your checking account when you make the purchase. They do this by

placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their

bank and it is transferred to the merchants account. It can take a few days for this to happen, and

the hold may drop off before the transaction goes through. For this reason, it is important tokeep

and to make sure you do not accidentally overdraw your account. It is possible to do that with a

debit card.

A credit card is a card that allows you to borrow money in small amounts at local merchants. You

use the card to make your basic transactions. The credit card company then charges you interest

on your purchases, though there is generally a grace period of approximately thirty days before

interest is charged if you do not carry your balance over from month to month.

36
In the past many people felt that you needed a credit card to complete certain transactions such

as rent a car or to purchase items online. They also felt that it was safer and easier to travel with a

credit card rather than carrying cash or trying to use your checkbook. However debit cards offer

the same convenience without making you borrow the money to complete the transactions.

It is better to use your debit card whenever possible, because it will prevent you from

accidentally falling into the credit card trap. When you can pay cash for most items, you are

doing better financially. Some rental car agencies and hotels may still request a debit card over a

credit card because they want to have a card where they can bill you for damages to their

property. Be sure to check with the hotel or agency before you travel to make sure you can use

your debit card instead of your credit card. Debit and credit cards offer more than a way to access

money without having to carry around cash or a bulky checkbook. Debit cards are like digitized

versions of checkbooks; a debit card is linked to your bank account (usually a checking account)

and money is debited (withdrawn) from the account as soon as the transaction occurs. Credit

cards are different; they offer a line of credit (i.e., a loan) that is interest-free if the monthly credit

card bill is paid on time. Instead of being connected to a personal bank account, a credit card is

connected to the bank or financial institution that issued the card. So when you use a credit card,

the issuer pays the merchant and you go into debt to the card issuer.Most debit cards are free

with a checking account at a bank or credit union.They can also be used to conveniently

withdraw cash from ATMs. Credit cards have the advantage of rewards programs but such cards

often require an annual fee to use. Financial responsibility is a big factor in credit card use; it is

easy to overspend and then get buried in overwhelming credit card debt at a veryhigh interest

rates.This comparison provides a detailed overview of what debit and credit cards are, their

types, associated fees, and pros and cons.

37
 Outstanding credit card in Indian market

In the following table, we can see the year wise growth of the credit card industry in India.

Growth of credit card in Indian banking

(Number in lakh)

Year Number* Net increase / Decrease Growth (%)

2001-02 60.68 --- ---

2002-01 76.08 15.40 25.38

2003-04 100.48 24.40 32.07

2004-05 129.47 28.99 28.85

2005-06 173.27 43.80 33.83

2006-07 231.23 57.96 33.45

2007-08 275.47 44.24 19.13

2008-09 246.99 -28.48 -10.34

Average growth score 23.20

38
From the above table one can observe that the credit card is a upward growth of 25 per cent to 34

per cent during 2001-02 to 2006-07. The highest growth rate reported on 2005-07 but in

FY2007-08, the rate of growth came down to 19.13 per cent which was below the average

growth scores of 23.20 per cent. Further, FY 2008-09, there was an unexpected sudden decline of

10.34 per cent and with many banks closing inactive and unproductive accounts in their credit

card portfolio. But during eight years commencing from 2001-2009 there was a growth of

around three time (307%). Further, the study indicates that the growth to some extent

willbeimpacted by the current financial turmoil and credit squeeze. Bankers will also become a

little more conscious while doing risk evaluation of card applicants upon expiration of the card,

banks did not renew for some customers and some canceled the cards voluntarily or by force due

to more default rate and credit losses of the banks. It could also be customer consolidation

because multiple cards becoming unmanageable by the users. The overall trend will remain

positive over the past periods. It is concluded that there was a growth of credit card business in

India and the need for credit does not diminish.

Outstanding debit card in banking industry

In the following table, we can see the year wise growth of the debit card in banking industry.

Growth of debit card in Indian banking

39
(Number in lakhs)

Year Number* Net increase Growth (%)

2003-04 181.02 --- ---

2004-05 349.13 168.11 92.87

2005-06 497.63 148.5 42.53

2006-07 749.86 252.23 50.69

2007-08 1,024.37 274.51 33.64

2008-09 1,374.31 349.94 34.16

Average score 50.78

The above table reveals that the growth of outstanding debit card in India for the past five years

around three times and the average score at the rate of 50.78 per cent. At present from 1st April

2009, the decision taken by the RBI to encourage paperless e-banking transaction, the customers

were allowed for free use of ATM-debit card without charge in any banks ATMs across the

country will increase further growth in future.

40
 DEBIT CARDS OVERTAKING CREDIT CARDS IN INDIA

For the credit averse Indian, it's all about spending money that he already has and not paying

interest for credit taken. And that's becoming increasingly apparent in the growth of debit cards

in the country.

In the four years since the debit card was first launched in Bangalore by Citibank, issuance has

been growing at an annual rate of 150 per cent. The debit card base, which is already at 4

million, is expected to surpass credit cards by December this year.

The country's credit card base, which is at 6 million, has been growing at an annual rate of 25-30

per cent.

The debit card base is going to see growth zoom when State Bank of India converts its one

million automated teller machine cards into debit cards in one shot in September this year. After

that, the bank will issue debit cards at the rate of 100,000 a month to other savings account

holders.

41
Punjab National Bank, which has 30 million accountholders will also begin issuing debit cards to

accountholders within the next 2-3 months. MasterCard, will be the exclusive issuer for both

banks.

Though foreign and private banks were the first ones off the block in issuing debit cards, the real

growth is expected to come from public sector banks.

Though debit card spends at present are much lower than spends on the credit card, issuers say it

is only a matter of time before they increase.

"Its too early to expect high spends on the debit card. We are still in the process of growing the

cardholder base. The spends will follow," says Sameer Vakil, vice-president & country manager

(South Asia), MasterCard International.

Total spends on debit cards have increased to Rs 3,500 crore and are already a third that of credit

card spends which are presently at nearly Rs 11,000 crore.

42
 QUESTIONNAIRE

1. Respondents were asked whether they know about Debit cards and credit

card. The results are as follows

43
2. Respondent were asked wether they use Debit cards. The result is as follows

44
3. Respondent were asked wether they use Credit cards.The result is as

follows

45
5. Respondent were asked about the frequently used cards . The results are

as follows

percentage

11% debit
credit
16%
both
47%
none

26%

46
5. Respondent were asked about who recommended them to use the cards.

The results are as follows

percentage

10% friends
advertisement
20% banker
50% shopkeeper

20%

47
6. Respondent were asked about the credit cards they used. The results are as

follows

percentage

visa card
25%
master card
amex card
45%
others

15%

15%

48
7.Respondent were asked about the number of debit card owned by them. The

results are as follows:

49
8. Respondents were asked about the number of credit card owned by them. The

results are as follows

50
9. Respondent were asked about the purpose of using the card. The results are as

follows

51
11. Respondent were Asked about the credit limit of their cards. The results are as

follows

52
12.Reasons of choosing these particulars banks by the respondents. The results are

as follows

53
 FINDINGS

1. Respondent taken for this study is those who are using the debit and credit cards in their daily

life.

2. The respondents believe that the debit and credit cards are the currency of modern India.

3. 90 percent of respondents own debit card and 60 percent owns credit cards.

4. People have less craze for credit card. Only 60 percent of the respondents have credit card.

5. The 52 percent respondents use the only debit cards, the 25 percent use only credit cards and

13 percent use both the cards.

6. The 38 percent respondents are advised by the bankers to use the cards, 25 percent are

influenced by the merchants and shopkeepers, and 5 percent are attracted by the advertisements.

7. The 32 percent respondents has maestro debit card, 28 percent master and 15 percent visa

debit cards owned by the different cards holders.

8. The 25 percent credit cards holders owned the visa cards, 15 percent owned the master card

and 10 percent owned the American express credit card.

9. Respondents mostly prefer the credit cards of HDFC bank than ICICI bank and SBI.

10. The reasons behind choosing these banks are the more facilities and the past relationship with

these banks.

54
11. The advantages of the debit cards and credit cards according to the respondents are easy to

carry, less time in money withdrawal, security in uses and mode of easy payments.

12. The different disadvantages of the debit and credit cards are more charges, limited credit

period, not use at everywhere, fear of losing the cards and insecurity in card processing.

13. Debit card is more beneficial according to respondents because easy payment and withdrawal

of money and security of the cards with password.

55
 SUGGESTIONS

1.Various offers and discounts should be provided on the cards uses so that all the users feel

satisfied with their card choice.

2.The interest charges on credit cards should be reduced so that people are encouraged to use it

in regular routine.

3. More facility should be provided to the cardholder in order to satisfy them completely.

4.The unnecessary formalities should be reduced in order to obtain the plastic money.

5.Advertisements should be given through TVs, magazines and hoarding to have maximum

reach because the respondents perceive these as important promotional tools.

56
 WEBILOGRAPHY

 http://www.asiatradehub.com/india/banks.asp
 http://www.debitcardprocessing.org/advantagesanddisadvantagesofdebitcards.html
 http://www.streetdirectory.com/travel_guide/151487/credit_cards/advantages_and_disadv

antages_of_credit_cards.html
 http://www.allbankingsolutions.comTop-Topicsdep1.shtml
 http://www.digit.in/forum/internet-www/161111-must-read-information-regarding-

indian-debit-cards.html
 http://www.diffen.com/difference/Credit_Card_vs_Debit_Card
 http://www.investopedia.com/terms/d/debitcard.asp

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