The commercial banks extend different functions to customers. The most important in the modern days are credit card facilities to customers. These facilities are not extended to not only customers in the urban areas or cities but also to customers residing in rural areas. Agriculturist are enjoying the facility of credit card and the card extended to them are called as green card.
A credit card is given by the banker to the customer in which the name of the customer is embossed in block letters. The name of the bank and the date of issue and expiry are also mentioned on the face of the card. The reverse side of the card will bear the specimen signature of the customer. A list of vendors or sellers will be gibe by the banker to the customers. A credit card is a thin plastic card, usually 3 1/8 inches x 2 1/8 inches in size that contains identification information such as signature or picture or both and authorizes the person named on it to charge for purchases or services to his account. In addition to this, the card can be used in automated teller machines for withdrawing cash and the machine stores the information and also transactions through electronic date processing system.
2 Origin of Credit Cards In India:
The usage of Credit Cards in India is less when compared to the usage of credit cards in China, Taiwan and Malaysia. It picked up only in the last 10 years until then the Indian looked it as a luxury. The idea of owning a credit card has had its roots in the minds of millions of Indians. They started viewing the card as a convenient substitute to carrying cash. The change in mindset is clear from the growth, both in terms of absolute numbers and growth rates. The industry has grown at the rate of 30% and strongly counts for steady years to come.
Credit Cards in India:
According to Visa International an average Indian cardholder uses his card 9.3 times, spending about Rs.23, 000 per year. A number of card owners do not use their cards and almost 20-23% cards are inactive. In India, two players dominate the credit cards industry. Visa and Master Cards and 15 out of 17 banks provide credit card services through Visa or Master Cards.
The importance of having a pie in the credit cards segment was not lost on any bank, and most banks started their credit card operations. Currently, there are more than 20 banks offering credit cards, but the market share of the top five exceeds 75%. Credit card is a low margin, high volume business. The initial investments required by a bank are very high. The income per card is low, thereby requiring large volumes in terms of cards issued and the transactions finance to make the operations profitable. Another reason for the inability of players to upstage the well-entrenched ones is lower patronage by the merchant and business outfits.
The bigger businesses and merchants are already acquired by the existing players, so far new banks, braking into this business and convincing a merchant is increasing because the banks are shifting towards lower end merchants. Secondly, because of competition in acquiring business, new categories of merchants are coming up. The foreign banks have a dominant share due to various reasons like having been in the field for decades, sound operational and financial strength, strong brand recognition etc. They were catering to the upper segments and charged high annual fees. Later, with aggressive entry of SBI, ICICI Bank and HDFC Bank, the rules of the game changed. The cards were positioned in manners which gave an impression that the cards can be acquired by people from not only the upper class, but also the middle income categories. This was the strategy followed by SBI-GE as a result of which it is the third largest issuer of credit cards today. It positioned itself in a segment as to be of mass appeal and at the same time reinforced a clean and dependable image of the bank.
The new private banks like ICICI and HDFC are also aggressively increasing their share. They adopted a strategy of reaching lower down the income strata by lowering down their eligibility norms. Of course, the credit limits are set at lower levels as compared to the foreign banks. As a result of this strategy, the credit cards base is widening day by day with the increase of base in B-grade cities.
3 Types of Credit Cards or Types of Cards:
1. Charge Card 2. Debit Card 3. Deferred Debit card 4. Affinity card 5. Standard card 6. Classic card 7. Gold card 8. Platinum card 9. Best Platinum credit card 10. Fleet Platinum credit card 11. Next card Platinum credit card 12. Titanium card 13. Secured card 14. Smart card
1. Charge card in this card, the cardholder has to make full payment of the charge by the due date. Unlike other credit cards, here dues are not allowed to carry forward. It is meant for people who spend responsibly.
2. Debit Card: A debit card is different from credit card. Debit card is issued by a bank. The following are the differences between credit and debit cards:
3. Deferred debit card: When a debit card carries the benefit of the credit card, allowing the payment after certain period, it is called deferred debit card.
Credit Card Debit Card
1 It is issued by an agency such as Master or Visa
1. A debit card is issued by a bank in which the customer has an account.
2. A credit card allows certain period for making payment for the purchases made which may vary from 30 to 45 days.
2. The bank account in a debit card is debited immediately the moment the card is used. They have no credit period.
3. The credit worthiness of the customer is based on income eligibility criteria on the basis of which the credit card is issued.
3. There are no such income criteria but the credit balance, maintained in the account is the criterion. 4. A credit card holder has a ceiling limit for his purchases and also for his cash withdrawals through ATM.
5. A debit card holder has his purchases restricted to his credit Balance.
6. Credit card can be used for withdrawing money only from ATMs.
7. A debit card can be used even for withdrawing money from the bank and hence it is account holders mobile
8. When the purchase are made by using The Credit Card, the retail seller swipes the card over an electronic terminal at his outlet, and enters the personal identification number (PIN) and the transactions are recorded by the card issuing authority.
9. Any use of debit card by a similar method will be immediately recorded by the bank and the account of the customer is debited. Thus, it is an online transaction.
10. Loss of credit card should be reported to the issuing agency.
11. Loss of debit card should be reported to The issuing bank.
4. Affinity card A card offered by two organizations of which one is a lending institution and the other a non-financial group. Here, schools, non-profit groups, airlines, petroleum companies issue affinity cards. These cards carry special discounts.
5. Standard Card It is a normal credit card which carries limit on transactions, according to the credit worthiness of the card holder.
6. Classic card A credit card issues by Visa, carrying the logo of Visa.
7. Gold card A higher line of credit is given than a standard card. The income eligibility for getting this card is higher. Gold card is given to very rich customers or persons with high social status.
8. Platinum card In order to distinguish credit cards belonging to certain companies, platinum credit cards are issued. Some companies use these to denote their best premium credit card.
9. Best Platinum credit card Companies which set highest standard in customer service issue these cards. There is lowest interest rate for the outstanding, and the cards will have no annual fee or application fee and can be applied online in seconds.
10. Fleet Platinum credit card
It is a zero liability guarantee for purchases. It protects the credit card holder from any unauthorized use.
11. Next card platinum credit card This is given to those with a good credit and it offers a low introductory rate.
12. Titanium card: A card which has a higher credit limit than a platinum card.
13.Secured card: A credit card is given to a card holder who has Savings deposit which will take care of his outstanding balance, in case of his default on payment.
14. Smart card: The revolution in Information Technology is responsible for the invention of Smart card. The development in semiconductors has advanced so much that computing power that was available in a computer matching a room size in the early days, is now available on a visiting card-sized plastic. Kit is an embedded micro-chip card and it can store 1280 times more data than the magnetic strip card. The can store data for more than 10 years and can be read or written for more than 1 lakh times. For example: Visa is converting 22 million Brazilian debt and credit cards to Smart cards. Sim card in the mobile phone is an example for the use of Smart cards in the telecom sector. There are 3 types of Smart cards. 1. Storage/memory cards 2. Intelligent cards and Storage 3. Hybrid cards. • Storage card has an inherent monetary value associated with it.‗ • Intelligent card acts as a store-house of information. • Hybrid card contains a micro processor chip and a magnetic strip and bar coding.
Benefits of Credit Cards Benefits derived from credit card
The following persons derives benefits from the credit card system: (1) Customer (2) Seller (3) Wholesaler (4) Manufacturer (5) Commercial banks (6) Central bank (7) Government
i. A customer can make purchases at any time
ii. One need not carry cash for making purchases
iii. In case of losing credit card, one can immediately inform the bank and prevent misuse by others iv. One can take benefit of lower prices by purchasing goods before the hike in prices.
v. During inflation period, credit card benefits customers as the payments are made after one month from the date of purchase.
vi. Railway ticket or Air ticket reservation can be done by using credit card even during night when banking facility is not available.
vii. Credit card can be used even through computers and purchases can be made by sitting at home. viii. More customers will come forward to avail banking facility
ix. At any point of time, the customer will be able to know the available credit even after purchases.
x. Credit card can be used even for withdrawing cash through ATM (Automatic Teller Machine) up to a certain limit.
xi.The holders of credit card are given insurance cover by the banks.
The benefits to seller are as follows:
i. Sales are affected throughout the year.
ii. With increasing sales, the turnover of the seller increases.
iii. The seller can go for competitive price as he can get credit from the bank.
iv.Due to credit card facility, he can attract customers from far off places also.
v. Durable goods can be sold easily through credit card.
vi.Bad debts can be avoided as the bank arranges for payment under credit card.
vii. Sellers extending sales through credit card can also extend additional credit to customers as they can receive payment in installment through the credit card.
i. The wholesaler will be getting more orders from the retailer as the sales will go up due to credit card.
ii. The wholesaler will be dealing products of different manufacturers due to credit extended by them iii. The wholesaler will also be given credit by the banks.
iv. The wholesaler will be able to place orders throughout the year and hence can get trade credit
as well as cash credit from the manufacturers.
i. With orders continuously received from the wholesalers, the manufacturer can increase his production.
ii. Due to large scale production, the cost of production will come down and the manufacturer will be able to sell at a lower price.
iii. Since the orders are received throughout the year, there will be continuous production even for goods which are seasonal in nature. Example: Manufacture of umbrellas.
iv. The manufacturer will also diversify his production due to the goodwill he has enjoyed due to increased production.
v. The profit of the manufacturer will also increase and he will extend a higher commission to his wholesalers.
(5) Commercial banks Due to credit card facility
i. More customers will avail the banking facility.
ii. There will not be cash withdrawals from the bank as most of the customers use credit card for their purchase.
iii. The bank, by extending credit to customer, retailer, wholesaler and manufacturer is able to earn interest on the credit.
iv. The credit facility is extended only in the books of accounts and there will be no cash withdrawals. The account of the customer is debited for the purchases while the account of the seller is credited. Both the parties are given credit and the bank enjoys interest on the loan.
v. All the transactions in the country are done through the banking system, as a result of which, the role of money lenders and other financiers is reduced.
vi.The profit of the bank will also increase due to the extension of credit to different parties.
(6) Central bank: It is a national bank that provides financial and banking service for its country government and commercial banking system and issues currency. Central bank for India is Reserve Bank of India.
i. A better control on the banking system is evolved by the Central bank.
ii. During inflation, the Central bank can control the price level by instructing the head office of commercial banks to reduce the quantum of credit extended to customers under credit card. This will reduce the demand and thereby prices will come down.
iii. Central bank is able to take instantaneous action on the economy as credit card provides information regarding purchases and sale in the country.
iv. The activity of Non Banking Financial Companies will also be reduced due to the credit card facility extended by commercial banks. So, the Central bank need not control NBFCS.
v. By extending credit card facility to agriculturists, agricultural finance is improved and this relieves the farmers from the clutches of money lenders.
(7) Government: Whenever any sale is made, it is properly billed. That means sales tax; commercial tax due to the government will not be evaded.
ii. It prevents the growth of unaccounted money as all transactions are recorded.
iii. It improves the revenue of the government due to increase in production by the manufacturers. Excise duty will be paid to the government.
iv.Government employees can also avail credit card facility against their salaries.
(8) Economy: Economy gets benefited in all its different sectors like primary, secondary and territory sectors. . Transport system will improve with movement of goods to different places. Exports will improve, increasing the earnings of foreign exchange. Employment opportunities will increase not only in production centers but also in the service sector. Marketing will develop with increasing advertisements. Stiff competition will bring out good products for the benefit of consumers. Credit card which was considered to be a luxury has become one of necessity. It was considered to be used only by higher income group. But today, with development in banking and trading activities, fixed income group or salaried class has also started using the same. There may be the criticism that it induces far more purchases or makes people Spend-thrift. This may be so in the initial stage, but when once a customer gets used to the credit card, he/she will know how to use the same in a discretionary manner.