INTRODUCTION

Oxford Dictionary and Thesaurus defines credit card authorizing purchase of goods on
credit. Credit cards are innovative instruments in the area of financial services offered
by commercial banks. Credit is a method of selling goods or services without the buyer
having cash in hand. A credit card is only an automatic way of offering credit to a
consumer. Today, every credit card carries an identifying number that speeds shopping
transactions. Imagine what a credit purchase would be like without it, the sales person
would have to record your identity, billing address, and terms of repayment. According to
Encyclopedia Britannica, the use of credit cards originated in the United States during
the 1920s, when individual firms, such as oil companies and hotel chains, began issuing
them to customers." However, references to credit cards have been made as far back as
1890 in Europe. Early credit cards involved sales directly between the merchant offering
the credit and credit card. Around 1938, companies started to accept each other's cards.
Today, credit cards allow you to make purchases with countless third parties.

MAJOR BANKS ISSUING CARD IN INDIA

The major credit card issuers in India are as follows:

1.
2.
3.
4.

11.
12.
13.
14.

HDFC credit card

HSBC bank card
ICICI credit card
Indian Overseas Bank card

5.
6.

ABN AMRO credit card

Andhra Bank card
Axis Bank Credit cards
Bank of Baroda credit card or
BOB credit card
Bank of India card
Barclays Bank credit card.

15.
16.

7.
8.
9.
10.

Canara Bank card

Central Bank of India card
CITI Bank card
Corporation Bank card

17.
18.
19.

Stand Chart credit card

State Bank of India credit card
(SBI credit card)
Syndicate bank card
Union Bank card
Vijaya bank card

HISTORY OF CREDIT CARDS

To retrace the history of the credit card, we have to begin at the dawn of the 20th century.
At the time, people paid for almost everything with cash, from a bottle of milk to a
doctors bill. Stores tried to build customer loyalty by offering their customers individual
store credit accounts. These allowed customers to buy things on credit and later receive a
bill from the store. However, you could only use the stores credit card at that specific
store.
The modern idea of a credit card, where you can charge purchases at many different
stores, did not come about until 1950. The event that spurred the idea was at a sacred
time which has change the way of carrying money when a man named Frank X.
McNamara, the head of the Hamilton Credit Corporation, was dining with a couple
friends who would play an important role in the history of the credit card. One was
Alfred Bloomingdale, the grandson of the founder of Bloomingdales department stores.
The other man was Ralph Schneider, McNamaras attorney. At the end of the meal,
McNamara pulled out his wallet to pay and found he didnt have any cash. McNamara
couldnt just walk to an ATM to withdraw money, Instead he had to phone his wife to
retrieve his cash. Determined to create a more permanent solution to this problem,
McNamara came up with the idea of people using only one credit card at many different
stores, restaurants, and gas stations. Previously, stores interacted directly with their
customers through store credit accounts. Stores gave customers credit to buy goods and
later the transaction would be settled by those particular customers.
McNamaras idea required that a middleman provide individuals with credit and
individuals repaid that middleman. McNamara and his two friends, Bloomingdale and
Schneider, pooled their money together to become that middleman in the credit
transaction. They formed a company in 1950 and called it the Diners Club. In order to
make money from these charge cards, the Diners Club charged stores a 7% fee on all
transactions and charged customers a $3 annual fee. While modern credit card companies
make money by charging interest on debt, that idea wouldnt come about until much later.
Merchants werent initially thrilled about the Diners Clubs credit card idea. It directly
undercut their individual store credit cards. And why should they have to pay the Diners
Club simply for selling a product or service? Even with these qualms, the idea of a
universal credit card took off. In only its second year, the Diners Club made a profit of

$60,000. McNamara had started a company that would reshape the way customers make
purchases. But he didnt seem to think it was anything special or lasting, and decided to
sell his shares in the company to his two partners for $200,000.
Today, over 175 million Americans have credit cards, and each card carrier owns an
average of five credit cards. The idea of paying for everyday purchases with plastic has
now become the norm, and its cash that is becoming obsolete. While technology
continues to advance, theres no telling just how long credit cards will be around, but
Frank McNamara will always be remembered as the father of the credit card.

EVOLUTION AND GROWTH OF 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 Indiain 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 are growing at
40 per cent. The RBI data put total electronic transaction in the country at over Rs
2,35,000 Crores in 2006-07. This increased to Rs 3,60,000 Crores 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 million credit cards transacted Rs 47,476 Crores through these cards in 10
months of the year.
The Indian credit cards industry is still in a relatively recent 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.

REVOLUTION OF CREDIT CARD IN INDIA

The word credit comes from Latin, meaning "trust". Credit was first used in Assyria,
Babylon and Egypt 3000 years ago. In India credit cards was introduced in the 70s by the
foreign bankers. Credit card is a commercial bank product is one of the most profit giving
sectors of all commercial bank in India, it is also known as plastic money or smart card.
Credit card as a product is beneficial to all issuing bank, customers, vendors, and the
government. By and large it is beneficial to the society as whole.
Indian consumers are embracing the developed world culture of using plastic money.
There has been an excellent growth in the credit cards issuance and wage in India during
the last decade. The number of credit card users in India has reached 11.8 million as
against 3,00,000 in 1990, which accounts for a transaction stand of Rs 1,10,000 million

against Rs 9,200 million in 1990. The credit card industry is growing at a rate of 25-30%
per annum and offers unparallel profit potential and margins. Credit card business is
considered to be the most lucrative banking business in India today. According to
estimates, the total potential cards base stands at 12 million and is likely to touch 25
million by 2016. Indias total online transaction is estimated 14% of with credit cards.
Most of the banks till now have been focusing on the big cities of India with little focus
on small cities and towns which also provide good opportunities for credit card issuance.
The credit card revolution in the country is due to the presence of 5 multinationals banks
and they have account for nearly 70-75% of the cards market despite having a limited
branch network. At present, the public sector banks account for nearly 80% of the
banking business in India, but their collective share of credit card market is not more than
25-30%. But new entrances like ICICI Bank and State Bank of India are turning things
around with their technological progress and significantly vast network.
Banks at present are now seeking to retain and expand their card base by offering balance
transfer facilities, rewards programs, innovative offers and products, launching cobranded cards in association with other banks or companies etc.
The traditional avenues for card spend in India was travel and entertainment. Banks are
now trying to exploit the non-traditional areas like utility bill payments, medical and
insurance premium payments and online Bands income from credit cards can be divided
mainly into four components namely, annual fee, revolving fee, interchange fee and other
fees. Revolving fee is basically interest charge for revolving credit and currently
constitutes a major portion of income from credit card operations. For the top five
players, around 65% of credit card holders use the revolving facilities as on year ended
2002. The use of revolving facilities is expected to increase due to decrease in the interest
rate charged to card holders when it drops down from the current 2.95%-2%, making it
more lucrative.
With increasing card acceptance and usage, banks are also getting a large portion of their
revenue from consumer transactions rather than through annual fees, Annual fees as a
percentage of total income from credit cards has declined from a significant 30% a couple

of years back to around 10% now. These features are more or less common throughout
the globe in credit card industry at large, be it is USA, UK, INDIA or any other country.

Credit Card System in India

The concept of credit card was first introduced in India by the end of 70s through
Citibank followed by Bank of Baroda (BOB Card) and Central Bank of India. Now all
the foreign banks and some private banks are having credit card in their product chart.
Citibank, standard Chartered bank and American Express Bank are the leading foreign
banks which are offering the product. Master card and Visa card are the two international
plastic card brand which most of the banks are using throughout the world, India is no
exception.
In India the using of credit card gains its momentum in the early 90s with the liberation
of the economy. As different ranges of foreign goods are flourishing the Indian market the
need of financing come to fore front. Their credit card plays its role. In the early 90s there
were only few banks offering credit card but by 2001 all the foreign banks and many
private banks are offering credit card along with the leading, nationalised banks. It is
estimated that the credit card volume is increasing around 45% per annum in average for
last 15 years and volume of transaction increased by 25% per annum on an average in last
15 years in India.
Citibank used to have about 1 lakh credit cards in 1990, which crossed 30 lakhs by the
year 2000. The popularity of credit card in India not only restricted in metropolitan cities
it is also attractive in major cities and towns. Most of the large and medium size shops,
petrol stations, hotels, restaurants, hospitals etc are accepting credit cards from their
customers to boost up sale. Credit card in India is extremely useful to the huge middle
class people who use to increase the purchasing power through that plastic card. Different
types of credit card available in India are stated below.
1. Proprietary card e.g. Dinners, Amex.
2. Charge card e.g. Dinners, Amex.

3. Co-Branded card e.g. Citi India Oil.

4. Affinity card e.g. HSBC Tolly Club.
5. Corporate card e.g. TISCO credit card.
6. Personal card e.g. Mr. XYZ.
7. Mini card e.g. ICICI Mini credit card etc.
The main credit provides in the world are = Visa and Master. Various banks tie up either
with Visa/Master or both, to provide credit for a particular period to the cardholder.
To obtain credit card, one has to apply in a prescribed format of the particular bank. Bank
after scrutinizing the credit worthiness of the applicant, issue him a credit card.
Incidentally, the applicant need not be an account holder of the bank to be eligible to get a
credit card. The bank issues the card allowing him a credit limit within which the
cardholder has to limit his expenses. The credit period varies from 5 days to maximum of
48 days depending upon the date of utilizing the card and the date of the bill. The card
holder has to pay an annual fees which are varies from bank to bank. Most of the banks
issuing credit cards also provide minimum balance payment of 5%. This enable the card
holder to pay the dues comfortably and for the balance amount of the due interest is
charged on a predetermined rate.
At the moment in our country credit cards are provided by Citibank, Standard Chartered
Bank (SCB), HSBC Bank, SBI, ICICI, Allahabad Bank, Bank of Baroda, Andhra Bank,
Canara Bank etc. Credit cards are also issued by American Express Bank, Diners Club by
Citibank, in 2002, HDFC Bank and ABN Amro Bank launch the product with a big bang.
Apart from the many other nationalized banks, private banks, foreign banks and financial
institute do issue credit card in India.

The Popularity of Credit Card

Credit cards were first promoted to travelling salesmen (more common in that era) for use
on the road. By the early 1960s, more companies offered credit cards, advertising them as
a time-saving device rather than a form of credit. American Express and MasterCard
became huge successes overnight.
By the mid-'70s, the U.S. Congress begin regulating the credit card industry by banning
such practices as the mass mailing of active credit cards to those who had not requested
them. However, not all regulations have been as consumer friendly. In 1996, the U.S.
Supreme Court in Smiley vs. Citibank lifted restrictions on the amount of late penalty
fees a credit card company could charge. Deregulation has also allowed very high interest
rates to be charged.

Characteristics of the Indian Market

In 1951, the first bank credit card appeared in New York's Franklin National Bank for
loan customers. The idea, though, had already been experimented with in various forms
much before. In India, Andhra Bank was the first to introduce credit cards in 1981.
The credit card market in India is about 3 million with a value turnover of around
Rs.2500 crores. The market is expected to grow by 30% p.a. This would still be a very
low penetration of a potential market of 60 million cardholders. The credit card business
is a low-margin, high volume business.
Thus, given the low income per card and the high initial investments by the bank, large
volumes in terms of cards issued and the transactions financed are required to make the
operations profitable.

Big players in Indias credit card industry

ICICI Bank leads the pack with a 30 percent market share and has issued 5 million credit
cards by the end of March 2006. Before March 2008, ICICI Bank is the largest credit
card provider in the country with 9 million credit cards, has shown a growth of around

20-22 per cent, lower than the average growth of 30 percent it has seen in the past three
years. HDFC Bank (after merger with Centurion Bank of Punjab) has become the second
largest credit card issuer in India beating Citibank and SBI-GE Money in the race. HDFC
Bank now has a base of 4.3 million credit card customers while CITI India has around 3.4
million and SBI-GE Capital have around 3.6 million customers at the end of Financial
Year 2008. HSBC credit card base 3.5 million by 31 March 2008. ICICI Bank, HDFC,
HSBC, SBI and Citibank have over 80 per cent share of the Indian credit card industry.

Types of Credit Cards

Just as there are too many credit card companies to count, there seems to be just as many
different credit cards, all claiming to offer you the best possible deal. Since no two people
are alike, not all programs and incentives will work the same for everyone. Finding the
one that works best for you is likely a key to maintaining responsible credit card use. One
of the more recent additions to the credit card world is the low-interest credit card. These
cards offer a significantly lower interest rate. Also, most of these cards are also balancetransfer cards. They offer you the option of transferring a balance from a higher interest
rate card and, for a specified period of time, your transferred balance will be at either 0%
interest or something quite low.
Since credit cards have gotten to be such a lucrative business, many corporations have
jumped on the bandwagon. Even airlines now offer credit cards to customers that will
come with a certain amount of frequent flyer miles attached to them, depending on your
balance and purchases. If you do a fair amount of travelling, this can be a real bonus.
Along these same lines, reward credit cards are growing in popularity. Competition is
stiff and many card companies are now offering you many different reward or incentive
options for using their card. Once you accumulate enough points, the rewards will keep
coming in. These can be anything from travel insurance to small appliances and anything
in between. If you use a card regularly, finding one that has a reward program can really
pay off.
Another form of credit card is the instant approval card. Again, many of these
applications come by e-mail. These cards offer you the opportunity to apply for a card

and receive instant approval, meaning no wait time. Once you fill out the application, a
quick background check will be done and you will have your approval almost
immediately. Other cards can take up to two weeks to process and approve your
application. Although you can get instant approval, this does not always mean you can
get instant credit. Some companies will supply you with a temporary credit card number
and allow you to begin making purchases immediately, while other will not due to an
increase in credit card fraud potential.
Different types of credit cards offer several different options, depending on what your
needs are. Some are geared toward individual consumers, while others are set up in ways
that work best for small business needs. To know what type of credit card fits your needs,
let's review a few of your options.

CLASSIFICATION OF CREDIT CARD

Before we apply for a credit card it is always better to know what type of credit card is
best suited to our profile. Catering to different types of consumer needs, credit card
companies issue several types of credit cards. Each type has its own benefits. They can be
classified as follows:

Based on Franchise / Tie-up

1. Proprietary Card: Cards that are issued by the banks themselves without any tie-up,
are called proprietary cards. A bank issues such cards under its own brand. Examples
include SBI Card, CanCard of Canara Bank, Citicard.
2. Master Card: This is a type of credit card issued under the umbrella of MasterCard
International. The issuing bank has to obtain a franchise from the MasterCard
Corporation of the USA. The franchised cards will be honoured in the MasterCard
network.

3. VISA Card: This type of credit card can be issued by any bank having tie-up with
VISA International Corporation, USA. The banks that issue such cards are said to have a
franchise of VISA International. The advantage of a VISA franchise is that one can avail
the facility of the VISA network for transactions.
4. Domestic tie-up Card: These cards are issued by a bank having a tie-up with domestic
card brands such as CanCard and Indcard are called Domestic cards

Based on geographical validity

1.

Domestic Card: Cards that are valid only in India and Nepal are called domestic
cards. They are issued by most of the banks in India and all transactions will be
in rupees.

2. International and Global Card: Credit cards with international validity are
called international cards. They are issued to people who travel abroad
frequently. They are honoured in every part of the world except India and Nepal.
The cardholder can make purchases in foreign currencies subject to RBI sanction
and FERA rules and regulations.
Based on issuers category
1.

Individual Card: These are the non-corporate credit cards that are issued to
individuals. Generally, all brands of credit cards are issued to individuals.

2.

Corporate Card: They are credit cards issued to corporate and business firms.
The executives and top officials of the firms use them. They bear the names of the
firms, and the bills are paid by the firms.

Based on mode of credit recovery

1. Revolving Card: This type of credit card is based on the revolving credit
principle. A credit limit is fixed on the amount of money one can spend on the
card for a particular period. The cardholder has to pay a minimum percentage of

the outstanding credit which may vary from 5 to 10 percent at the end of a
particular period. Interest varying from 30 to 36 percent per annum is charged on
the outstanding amount.
2. Charge Card: A charge card is not a credit instrument, it is a convenient mode of
making payment. This facility gives a consolidated for a specific periods and bills
are payable in full on presentation. There is neither interest liability nor no per-set
spending limits.

Based on status of Card

1.

Standard Card: Credit cards that are regularly issued by all card-issuing banks
are called standard cards. With these cards, it is possible for a cardholder to
make purchases without having to pay cash immediately. They however, offer
only limited privileges to cardholders. Some banks issue standard cards under the
Brand name Classic cards, which are generally issued to salaried people.

2.

Business Card: Business cards also known as Executive cards, are issued to
small partnership firms, firms of chartered accountants, tax consultants and
others, for use by executives on their business trips. They enjoy higher credit
limits and more privileges than the standard cards.

3. Gold Card: The gold card offers high value credit for elite. It offers many
additional benefits and facilities such as higher credit limits, more cash advance
limits that are not available with the standard or the executive cards.
Innovative card
In addition, credit cards which have evolved into a variety of innovative cards over the
years are also issued by banks.
1. ATM Card: ATM cards allow customers to access their accounts at any time-24
hours a day, every day of the year, through Automated Teller Machines.

Customers can withdraw cash, transfer funds, find out their account balance and
perform other banking and financial transactions with the help of ATMs.
2. Debit Card: A debit card, like an ATM card, directly accesses a customers
account. It is a hybrid of ATM and credit card. The card directly debits a
designated savings bank account. Whereas in the case of credit cards, a grace
credit period of 20 to 50 days for making the payment is available, no such credit
period is allowed under debit cards. These cards can be used either at merchant
locations who have this facility to buy goods and services or at ATMs. Presently,
ATM-Cum Debit cards issued by Indian banks are in use.
3. Prepaid Card: Prepaid cards are also known as Stored Value Cards. These
cards are with stored value paid in advance by the holder. The card issuer and the
service provider are identical. They are also called Limited Purpose Prepaid Cards
which can be used for a limited number of well -defined purposes. Its use is often
restricted to a number of identified points of sales within a specified location
4. Private Label Card: These cards are uniquely tied to the retailer issuing the card
and can be used only in that retailers stores. A bank, on the basis of a contractual
agreement with the retailer extends credit under this type of card.
5.

Affinity Group Card: These are credit cards designed for a collection of
individuals with some form of common interest or relationship, such as
professional, alumni, retired persons organizations, sports teams, schools, or
service organizations. This credit card carries the logo of the affiliated
organization on the card design and brings special benefits and discounts on
products from that company. In case the affiliated company is a charity or nonprofit organization, a part of the credit card expenses go into the affiliate
organization's account. For example: The Help Age India Credit Card issued by
ICICI bank.

6.

Smart Card: A smart card is a credit card sized plastic card with an embedded
computer chip. The chip allows the card to carry a much greater amount of
information than a magnetic strip card. The telecom industry, was perhaps the
pioneer in smart cards, the most prominent being Subscriber Identity Module

(SIM) cards in the GMS digital cellular network. Using special terminals
designated to interact with the embedded chip, the card can perform special
functions. This is essentially a prepaid card.
7. Chip Card: A chip card is a plastic card with an embedded integrated circuit or
as microchip as opposed to magnetic strips on a conventional card. The chip can
be used on existing debit and credit cards as well as on emerging products like
stored value cards. Inserting the card in a pin-pad effects the transaction, and the
value on it reduces accordingly. It is re-loadable and disposable. The idea is to do
away with the trouble of carrying cash. The chip card also scores over the
magnetic card, in that it can retain 50 to 60 of the latest transactions, which can be
produced on demand. It is also considered more durable and secure since the
cardholder alone can access it through a Personal Identification Number (PIN).
8.

Co-branded card: The Times Card, a co-branded credit card, is the first of its
kind, from a publishing house in the Asian subcontinent. This is a co-branded
credit card of Times of India Group and Citibank MasterCard. The co-branding
concept caught the credit card industry the world over during the last five years.

Other types of credit card

1. Special purpose Card: The 80s saw the development of special purpose cards. A
host of special purpose cards were issued by departmental stores, airlines, oil
companies. For instance, the International Bank of Asia in Hong Kong launched
the first women only card, My card in the year 1988. A highly encouraging
membership and increasing potential of such special purpose cards are called
Ladys card in Malaysia. In 1990, the Green card was launched in the U.K and
Europe to promote contributions towards the protection of the environment.
HDFC issued My City credit cards used in particular city with special discount
offer for oil and petrol and also an offer for cash back. AXIS Bank also offers
special purpose credit cards like Gift card, Travel currency card and Remittance
card.

2. Add-on card: An add-on card is more of an additional Credit card that the
customer can apply in the name of their family members (father, mother, sister,
brother, spouse, children), within the overall credit limit. Family members
applying for Add-on cards have to be 18 years and above. All the payments for the
services made from Add-on card(s) is done by the original cardholders. Most
banks allow for at least two Add-on cards.
3. Photo card: If a card comes with the imprinted photo, then it is a Photo card.
This type of card is considered safer as it is easier to identify the credit card user.
It also serves as more identity card.
4.

Power card: It is a comprehensive credit card product that enables banks and
financial industry to enter into issuing and acquiring business of Credit Cards.
The basic advantage of this efficient tool is to improve productivity and control
the risks involved in day-to-day activities of any financial institutions in credit
cards. The product is 24 7, multi language, multi currency, multi-bank and multi
country.

5.

Regular credit card: This is the most basic type of credit card. It has a low
credit limit and the most basic status among various credit cards. Credit card
companies can club various other reward programs like travel rewards, cash back
offers to enhance its value and appeal to customers.

6. Silver credit card: Silver credit cards have higher eligibility criteria than regular
credit cards. They bring more benefits to the customers, and have higher credit
limits than regular credit cards.
7. Gold credit card: Gold credit cards have a higher status and credit limits than
silver credit cards. Needless to say these types of credit cards have higher income
requirements as their eligibility criteria. In addition to the regular benefits, banks
extend special privileges to their gold credit card holders.
8. Platinum or Titanium credit card: These types of credit cards bring more
benefits to credit card holders than regular, silver or gold card. These credit cards
generally have platinum or titanium hue and are issued to a select class of clients

who have excellent financial background and good income levels. Platinum credit
cards have personal concierge services, in addition to exclusive platinum benefits.
9. Signature credit card: A league of its own, the Signature Credit Cards usually
have no pre-set spending limits, personal concierge service, signature travel, and
lounge and membership benefits. Offered to a very elite group these credit cards,
requires an excellent financial status. On June 9, 2007 ICICI bank introduced the
Visa Signature Card and became the first credit card issuer in India to launch a
premium credit card. This has a joining fee of Rs.25,000/- and an annual fee of
Rs.2,500/-. The exclusivity of this signature card is exemplified by the statement.
10. Credit cards by invitation only: The earliest of the elite, no one can apply for
these card. For example, the American Express Black Credit Card, popularly
called the Centurion Card, is issued by invitation to the most exclusive and elite,
to those who spend a certain minimum amount (which can run into crores of
rupees). These cards have huge annual fees and minimum spending levels. In fact,
these credit cards are so exclusive, that they have an aura of mystery surrounding
them and are considered status symbols.
11. Reward card: There are cards which offer rewards for specific kinds of
purchases. For example, the Airline Reward Card offer rewards on air travel, Cash
back card offer cash rewards on every card purchases, Fuel Reward Card offer
rebates on petroleum and other fuel purchases from specified outlets and preferred
partners. Similarly, Hotel Reward Card give rebates on hotel stay and related
expenses and Health Rewards Card give benefits on medical expenses, health
treatments and related activities. The rewards offered by credit card companies in
alliance with various brands and stores, make them more attractive for the credit
card holders.
12. Student credit card: As the name implies, these credit cards are especially
designed for students and help them start their credit card journey. These bring
lots of rewards especially suited for students, which help them save time, money
and enjoy their student life. They are a first step towards building credit history. A

good credit history goes a long way in creating a relationship with banks helping
to secure much needed loans and credit in the future.
13. Special feature credit card: Credit cards can also be grouped on the basis of
their features. For example, based on their introductory interest rates, credit cards
can be low introductory interest credit cards, or 0 (zero) Interest credit cards. The
Zero introductory interest credit cards provide interest free credit (0%) for a
specified time period, which is called the introductory period. Similar is the case
with credit cards that come without any annual fee what so ever and are called no
annual fee credit cards.
14. Balance transfer credit card: Credit card companies provide lucrative offers
with 0 per cent introductory interest or low introductory interest charges on
balance transfers. This allows credit card holders to transfer the outstanding
balances on their existing credit cards to a credit card with low or zero interest on
balance transfers. This brings them a lot of savings in the interest rates. The
balance transfer credit cards may charge a balance transfer fees for every such
operation.
15. Kisan Credit Card (KCC): The Kisan Credit Card Scheme aims at providing
need based and timely credit support to the farmers for their cultivation needs as
well as non-farm activities and cost effective manner to bring about flexibility and
operational freedom in credit utilization. The Kisan Card is for a period of 3 years
subject to an annual review. It was launched in 1998-99 by the Government of
India in consultation with the Reserve Bank of India and National Bank for
Agricultural and Rural Development is a huge hit with the farmers in India.
According to the RBI, presently there are about 66.56 million Kisan Credit Cards
in use across India, which have been issued by various banks.
16. Secured credit card: Secured credit card is a type of credit card secured by a
deposit account owned by the cardholder. This deposit is held in a special savings
account. The cardholder of a secured credit card is still expected to make regular
payments, as with a regular card, but should they default on a payment, the card
issuer has the option of recovering the cost of the purchases paid to the merchants

out of the deposit. The advantage of the secured card for an individual with
negative or no credit history is that most companies report regularly to the major
credit bureaus. This allows for building of positive credit history.

How credit card work

Credit cards are the convenient transactions medium in many situations. The modern
world has made it possible to order merchandise by telephone or over the Internet.
However, it is impossible to transmit cash or checks through phone or internet. If the
person had to send a check by mail every time he/she ordered something over the phone,
his/her transaction would be not faster than if he/she ordered by mail. By giving his/her
credit card number over the phone/internet, the merchant need not wait for his/her check
and can send the merchandise immediately.
Secondly, the advantage of using a credit card as a medium of payments is that the
merchants can easily recognize and authenticate the card. If a customer presents a check
for payment, the merchant must worry about whether or not the customer actually has
sufficient funds in his or her account to complete the payment. For frequent customers
and local banks, it is not too difficult to build sufficient trust between merchant and
customers to allow checks to work as well. But many merchants are reluctant to take outof-town checks because of the difficulty of tracking down customers whose checks are
returned by the bank. Even calling the customers bank to verify the availability of funds
does not guarantee that the merchant will be paid.
Checks usually take some days to clear through the banking system and be debited from
the customers account. Even if the customers balance was sufficient at the time that the
merchant accepted the check, it may not be able to cover the transaction once the check
finally reaches the bank. In order to promote the widespread acceptance of credit cards,
the issuing banks guarantee payment to the merchant as long as he or she follows the
procedures established for transaction approval. Before computer networks, this meant
checking the customers signature against the one on the card and looking up the card
number in a book of invalid card numbers (stolen cards, closed accounts, non-paying
customers, etc.). Now, approval happens in seconds by computer link. Because the

merchant is guaranteed payment on any approved transaction, accepting a credit card is

less risky than accepting a check from a customer whose creditworthiness is unknown.
When the customer(credit card holder) present a credit card (say, a Visa/Master card), the
merchants staff usually swipes the card through a machine that reads information from
the magnetic stripe on the back end of the card, then types the amount of the purchase on
the machines keypad. The machine contacts (by telephone line) the Visa computers,
which route the call to the bank that issued the card, which then verifies the existence of
the account, that the card being used has not been reported as stolen, and that the
transaction would not put the customer over his or her credit limit. On confirmation based
on the above mentioned process, the transaction concludes with customer (credit card
holder) signing the credit slip as an acknowledgment of the transaction.
1. Cardholder: The holder of the card used to make a purchase; the consumer.
2. Card-issuing bank: The financial institution or other organization that issued the
credit card to the cardholder. This bank bills the consumer for repayment and
bears the risk that the card is used fraudulently. American Express and Discover
were previously the only card-issuing banks for their respective brands, but as of
2007, this is no longer the case. Cards issued by banks to cardholders in a
different country are known as offshore credit cards.
3. Merchant: The individual or business accepting credit card payments for
products or services sold to the cardholder.
4. Acquiring bank: The financial institution accepting payment for the products or
services on behalf of the merchant.
5. Independent sales organization: Resellers (to merchants) of the services of the
acquiring bank.
6. Merchant account: This could refer to the acquiring bank or the independent
sales organization, but in general is the organization that the merchant deals with.
7. Credit Card association: An association of card-issuing banks such as Discover,
Visa, MasterCard, American Express, etc. that set transaction terms for merchants,
card-issuing banks, and acquiring banks.

8. Transaction network: The system that implements the mechanics of the

electronic transactions. May be operated by an independent company, and one
company may operate multiple networks.
9. Affinity partner: Some institutions lend their names to an issuer to attract
customers that have a strong relationship with that institution, and get paid a fee
or a percentage of the balance for each card issued using their name. Examples of
typical affinity partners are sports teams, universities, charities, professional
organizations, and major retailers.

CREDIT CARD OPERATION CYCLE

The credit card operation comprises the following steps as follows:
1. Credit purchases: A Cardholder purchases goods/services and gives the credit
card.
2. Processing of credit card: A Merchant establishment delivers goods after taking
an authenticated credit card and noting the number and taking signatures on
certain forms.
3. Raising of bill: The Merchant establishment raises the bill for the purchase and
sends it to the credit card issuing bank for payment.
4. Marking payment: The issuing bank pays the amount to the merchant
establishment.
5.

Bill to cardholder: The issuing bank raises bill on the credit cardholder and
sends it for payment.

6. Card Payment: The credit cardholder makes the payment to the issuing bank.

Advantages of credit card transaction

1. More Sales: Studies show that credit card customers spend 2 1/2 times more than
customers who only carry cash.
2.

Impulse Buying: Credit cards give customers freedom to spend for previously
unplanned purchases.

3. More Expensive Merchandise: Credit cards entice customers to purchase more

expensive merchandise than they had originally planned to buy.
4.

Competitive Weapon: Credit card customers are often less conscious of slight
price differences and will seek out businesses that offer credit card payment
options.

5.

Enhanced Advertising: Since customers are more likely to shop at businesses

where they have credit card acceptance, they tend to look for and read those ads
first.

6.

Steadier Sales: Credit smoothes out business peaks. Cash shoppers buy heavier
on paydays and just before holidays; credit card customers buy whenever the need
arises.

7. Customer Loyalty: Research shows customers who spend more on credit tend to
return to the same business again.
8.

Faster to use : To make a purchase, the card owner just waves his card over the
RFID reader, waits for the acceptance indicator - and goes on his way. American
Express, Visa and Mastercard have all agreed to waive the signature requirement
for contactless credit card transactions under $25.

9. Highly secure data transmission standards used: Contactless cards make use of
the most secure encryption standards practical with current technology. 128-bit
and triple DES encryption make it nearly impossible for thieves to steal your data.
10. Free Credit Period: Firstly the Credit Card offers you a free credit period (of
5055 days) from the date of the billing cycle which helps you to purchase on
credit without any hassle of carrying cash, thus making your shopping much
easier.
11. Online Shopping: The Credit Card helps you to buy products/services online or
over the phone thus helping you to purchase anywhere 24x7.
12. Advantage of various Branding offers: Most importantly credit cards offer
various discounts & schemes which are associated with entertainment, travel,
shopping etc. Issuing Credit Card Banks tie up with the reputed brands to sell
products/services at attractive rates which you can buy through your credit cards.
To check offers running on your credit card.
13. Borrowing cash through credit cards: You can also withdraw cash through
ATMs at any time.
14. Reward Points: Credit Cards also offer reward points on purchases which you
can accumulate and redeem later with cash backs & attractive gifts etc.

15. Advantage from the view point of economy as a whole: From the point of the
economy as a whole credit card is having a tremendous positive impact by way of
providing employment, enhancing the spending, boosting up consumerism etc.
Which are proved in acceleration of the economic growth, in India, since 1991
considered till date, which is to be the golden period of credit card business in the
country It goes parallel with the business and economic development. It reduces
the dependence on paper currency.

Disadvantages:
I.
II.
III.
IV.

I.

To the issuing banks

To the customers
To the merchants
To the economy as a whole

Disadvantages to the issuing banks

It is basically an unsecured consumer loan so there is a possibility of bad debt
generation of non-performing asset (NPA). On an average about 1% to 2% of the

total business is found to be NPA.

A lots of manpower is needed which involves a lot of cost.
Huge promotion is needed which is expensive.
In credit card business, it is always a cut throat competition. At present in India
there are about 50 banks which have entered into this business directly and many

others are involved indirectly.

Credit card fraud is a big problem to most of the bankers throughout the world.

Disadvantages to the consumers

Credit card does not comes free. They need to pay annual fees, joining fees and

interest on the late payments.

It provokes the customers to spend more than the means. It is found in Indian

II.

context that most of the customers are using revolving credit facilities which
indicate that the payment is deferred by the card holder by sacrificing payment of

interest due to shortage of fund.

Customers are also exposed to credit card fraud.

III.

Disadvantages to the merchants

A part of the revenue goes to the banker who is providing with the credit card

acceptance facilities. It is as high as 1% to 4% of the sale proceeds.

In isolated cases the credit card fraud also affects the merchants. 2% to 3% loss

due to fraud.
The merchants membership fees are also very high and are affordable, only if the
increase in sales is substantial.

IV.

Disadvantage from the point of economy as a whole:

Again, from the point of economy as a whole, perhaps the only drawback of the
credit card business is the possibilities of various credit card frauds in the
economy which leads to misuse of money and ultimately generates black money
in the country.

ECONOMIC AND SOCIAL IMPACT

Credit card and Employment Generation.

Credit card and Pursuing Power.
Credit card and Currency.
Credit card as Economy barometer.

Credit card and Employment Generation

From the discussion with the credit card bankers, it is found that about 10% of their
employees are engaged in credit card operation. Again, it is understood that about 10
times people are indirectly employed due to credit card business by way of business
outsourcing by the banks for marketing credit cards, recovering debts through direct
selling agents or DSA. Again, a lot of indirect employment is generated in the merchants
establishments which accept credit cards. Credit card business and Employment
generation can be shown in the following table 1 and is depicted in Fig 1.1 in relations to
Indian economy. At present there are about 35 lakhs of people directly engaged in credit
card business in India which was about 1 lakh in 1990. It shows how credit card business
helps the nation in its economic upliftment by providing job opportunities to take part in
the economic development of the nation. Moreover there are about another 10 times

people who are indirectly employed in the business. The employment opportunity is not
only increasing but also growth rate is increasing over the last decade. So credit card is
also serving a socio-economic purpose of the nation, to play a key role in enhancing
national employment, wealth and social justice.

Credit card and Purchasing Power

The credit card business gives a lot of enhancement to the purchasing power of the
clients. Generally a credit limit of Rs 15,000/- to Rs. 5,00,000/- is allowed which
increases the purchasing power of the consumer. The economic impact of this enhanced
purchasing power is huge which is about 4 to 5 times in India as per multiplier theory, as
applied by bankers,
The social and economic impact of the credit card can be discussed with following
example and assumptions: Present year active credit cards in India

: Rs 99, 00,000

(Ninety-nine Lakhs)
Average credit limit Rs. [(15,000 + 5, 00,000) / 2]

: Rs. 2, 57,500

Utilization (20%) on average Rs. [(.2 x 2,57,500)]

: Rs. 51,500

Total Credit Card Business

: [(Rs. 51,500 x

99,00,000)]
Total impact on economy

: [(Rs. 4 x 51,500 x

99,00,000)]
Assuming at least the money will circulate 4 times in a year.

Credit Card and Currency:

Credit card is working as they currency note and serving the economy as a whole. As a
substantial business transaction is done through credit card so the need for legal paper

currency is reduced, which save a lot of government fund and is having a huge economic
impact on the countrys financial status and the society as a whole.

Credit Card as An Economic Barometer

As credit card is a tertiary sector business, more it grows better is the position of the
economy. In India it is seen that credit card membership is growing at the rate of 42.12%
on an average from 1996 to 2007, which shows a healthy sign for Indian Economy.
In USA the credit card culture is maximum in the world and it is the biggest economy of
the world. Hence it can be concluded that more the dependence on credit card by the
nation more advanced it is, the gradual growth of credit cards in India shows that the
economy is going stronger and stronger (CMIE Report).
Most of the Merchants are of the opinion that credit card do boost up sales by 15% to
50% from case to case which is a barometer of economic growth.

Types of Credit card usage

1. Build a good credit rating: Pay your credit card bills on time, stay well within your
credit limits and be careful not to take on too much debt with too many cards and you
will begin to establish an excellent record on your credit reports from all three credit
reporting agencies. That information, in turn, is used to calculate your credit score -- a
number that tells potential lenders how likely you are to repay your debt. Use your cards
to boost your credit score and you'll not only qualify for zero and low-interest rates on
competing cards but you may also be eligible for a better deal on your mortgage and auto
insurance.
2. Protect your big purchases: If you buy something that's damaged or defective and
you used a credit card, you have the right to withhold payment under the Fair Credit
Billing Act. You do need to make a good-faith effort to solve the dispute with the
merchant. But if you can't, your credit company will investigate the problem. If after
contacting the merchant you are unable to settle and the card company sides with you, the

charge won't be added to your bill. Purchases made with debit cards are not covered
under the Fair Credit Billing Act. In addition, some cards offer extended warranties and
other protections for large purchases made on the card. Check with your credit card
company.
3. Make online shopping safer: The Fair Credit Billing Act also covers online
purchases, making a credit card the best way to pay in cyberspace. If you're worried
about security, many credit card companies offer a one-time use account number for large
online purchases that keeps your real account number off of the Web.
4. Use your card for a low-interest loan: Robert Manning, research professor of
consumer finance at the Rochester Institute of Technology and author of "Credit Card
Nation," once used a low interest rate credit card to buy a car. The fixed-rate on the card
was better than what banks were offering on auto loans and he didn't have any of the
application hassles.
5. Avoiding Fraud: Debit cards and checks are some of the worst ways to pay for
anything. Sticking with credit cards or cash can save you a lot of money. Pretty much
anything you do involves risk. When you carry around Rs 5,000 in your pocket, there is a
risk that you might lose it or get robbed. When you give a credit card to a waitress, there
is a risk that she might steal the number. When you write a check at the grocery store,
there is a risk that someone might take your personal information and use it to steal your
identity. When you carry your ATM card with you, there is the chance that you it might
get stolen, lost, someone might watch you type in your pin and then steal it, etc.
6. Keeping Records: Credit cards are one of the easiest ways to track your spending.
When coupled with a program like Microsoft Money or Quicken, you can easily see
where your money is going and keep track of how your spending is changing from month
to month. Some companies are adding management features into their accounts so you
can categorize charges online and view the totals for each category even without
downloading them to your computer.
7. Cash Back and Rewards Points: Most credit cards have some type of rewards
program. Generally these will give you 1% of the total of your purchases back in cash,
points toward airline tickets, gift certificates for stores, etc. When looking for a credit

card, compare these reward programs. Some only give you the equivalent of 0.05% back.
8. Other Benefits: Most cards have a bunch of other benefits that are buried in the fine
print and people generally dont take advantage. For example, most VISAs have a 70
extended warranty plan. If you buy something with a 1 year warranty and it fails 18
months after the purchase, the credit card company will replace or repair the device for
youeven though the original warranty has expired. Some cards offer a service where
they will keep track of all of the warranties on all of your appliances and home
electronics. A number of cards give you theft protection if you have an item (that was
purchased on the card) stolen within a certain period of time. Other cards give you travel
insurance in case you die or are dismembered (the term they actually use) on a flight paid
for with your credit card. Many have insurance that can be used in lieu of the additional
insurance car rental companies try to sell you when you rent a vehicle. Some cards
(particularly American Express) offer roadside assistance, travel planning, international
travel emergency assistance and even personal concierge services.

Benefits Derived from Credit Card

The benefits obtained from the use of credit cards are discussed from the point of view of
(a) Customer
(b) Seller
(c) Commercial banks
(d) Central bank
(e) Government
(f) Economy

(a) Benefits a customer avails through a credit card

1. He/she can use it at any time on credit.

2. He/she need not carry cash for making purchases.
3. Any ticket reservation can be done by using credit card even during night when
banking facility is not available.
4.

Credit card can be used through computers and to purchase mail order business.

5. At any point of time, the customer will be able to know the available credit even
after purchases.
6. Credit card can be used even for withdrawing cash through Automatic Teller
Machine up to a certain limit.
7. The holders of credit card are given insurance cover by the banks.
8. It can be used for tax payment and electricity bills.

(b) Benefits of use of credit cards by buyers to sellers

1. Sales can be affected throughout the year.
2. With increasing sales, the turnover of the seller increases.
3. The seller can go for competitive price as he can get credit from the bank.
4.

Due to credit card facility, he can attract customers from far off places also.

5. Durable goods can be sold easily through credit card.

6. Bad debts can be avoided as the bank arranges for payment under credit card.
7. Sellers extending sales through credit card can also extend additional credit to
customers as they can receive payment in instalment through the credit card.

(c) Commercial banks with the availability of credit card facility

1.

More customers may avail the banking facility.

2. There may be less cash withdrawals from the bank corresponding to the extent the
customers use credit card for their purchase.
3. The bank, by extending credit to customer, retailer, wholesaler and manufacturer
is able to earn interest on the credit.

4. 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.
5. 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 are reduced.
6. The profit of the bank will also increase due to the extension of credit to different
parties.

(d) Central bank

As the Banks issue the credit cards, consumers use the same and merchant
establishments accept the card and the following benefits flow:
1. A better control on the banking system is evolved by the Central bank.
2.

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.

3.

Central bank is able to take instantaneous action on the economy, as credit card
provides information regarding purchases and sales in the country.

4. The activity of Non Banking Financial Companies will also be reduced as the
credit card facility is extended to commercial banks. So, the Central bank need
not control NBFCs.
5. By extending credit card facility to agriculturists, agricultural finance is improved
and this relieves the farmers from the clutches of money lenders.

(e) Government
From the point of view of a Government, use of credit cards by consumers
will help in the following ways:

1. Whenever any sale is made, it is properly billed. That means sales tax and
commercial tax due to the government will not be evaded.
2.

It prevents the growth of unaccounted money as all transactions are recorded.

3. It improves the revenue of the government due to increase in production by

the manufacturers.
4. Government employees can also avail credit card facility against their
salaries.
(f) Economy
From the national economy point of view one can view the flow of the
following merits due to use of credit cards by consumers:
The economy is benefited when sales increase due to the improved activity in
primary, secondary and tertiary sectors. Transport system will improve with movement of
goods to different places. Exports will improve, which will increase the earnings in
foreign exchange. Employment opportunities may increase not only in production sector
but also in the service sector.
Features of credit card
Salient features of the modern credit cards
1. Owner Identification: A credit card identifies its owner as the one who is entitled
to purchase goods and services without physical money and is eligible for credit
from establishments. For this purpose, the card issuer enters into a tie up with
various Member Establishments.
2.

Credit Limit: The issuer for the purpose of convenience and scrutiny sets up a
credit limit for its card holders, and a floor limit for its Member Establishments.
The convenience and safety factors add value to these cards.

3. Wide usage: Bank credit is the most widely used payment device issued by
banks. It is based on the system of revolving credit whereby a credit limit is
sanctioned to the customer and can be availed in part or in full. Once the

outstanding balance is paid, the maximum credit limit is restored for further use.
Special credit cards can also be used to obtain cash.
4. Technology dependent: The credit card business is typically a high volume low
valued business, with the potential to break-even only beyond a certain volume of
cards issued. The dependence on technology is inevitable to keep the operating
cost to the minimum.
5. Annual percentage rate (APR) : It is the interest rate applied to a remaining
balance carried beyond the grace period. APRs vary depending on the different
types of balances e.g. balance transfers or purchases. A higher APR is charged on
balance transfers and cash advances than for purchases. APRs can be fixed or
variable.
6. Grace Period: The grace period is the amount of time a card holder is given to
clear his/her bills to pay for the balance and when it is not due within the grace
period, a finance charge is applied for purchase. If the card holder carried a
balance from the previous month, he/she may not have a grace period for his/her
new purchases. In addition, balance transfers and cash advances typically do not
have a grace period. When balances don't have an applicable grace period, interest
is applied right away.
7. Incentives and Rewards: Some credit cards offer rewards and incentives for
using their credit card. Some of them are cash back, points to redeem, and
discounts.
8. Annual fee: Some credit card companies charge an annual fee for using the card.
Because of stiff competition, some are waiving it for new buyers.
9. Cash Advance Fee: Majority of the credit card companies charge a one time fee
for cash advances in addition to the interest rate which will accrue from the day in
which cash advance is drawn. Most of the card companies offer an introductory
cash advance and balance transfer rates for a specific amount of time.

Facilities and Services

Besides providing credit, the credit card organization extends some additional
facilities to attract customers. Some of the facilities offered by banks are given below:
1. Risk coverage: Depending on the type of card issued, some banks ensure the card
holder a fixed percentage on the value of a particular sum for covering the risk.
2. Emergency cash withdrawal: Banks allow card holders to cash till the limit of
ATMs in all leading metropolitan cities.
3. 24 hour service: The revolutionary phone banking service ensures that the banks
extend 24 hour customer service to assist the card holder, all 7 days a week.
4. Travel privileges: Banks provide travel assistance to their card holders by
offering a wide range of services linked to airline and hotel bookings, discounted
holiday packages, car rentals and more.
5. Credit line increase: Temporary credit line is provided by banks depending on
the ability of the cardholder to pay the bank based on the card holders financial
resources and past spending and payment patterns. This credit line is increased by
25% for 3 months.
6. Service over phone: Credit card holders of selected banks can use their cards to
pay for personal expenses where credit cards are not yet accepted.
7. Purchase protection: This facility protects the purchases against damage or loss
caused due to fire and theft at no extra cost. The card holder can claim the value
of the product damaged or lost from the Insurance Company. This protection is
available for a period of 90 days from the date of purchase of the product using
the card.
8. Supplementary cards: These cards are issued to the family members of
cardholders. A cardholder of any bank can obtain maximum of two supplementary
cards at the prevailing card fee for the immediate family members.
9. Hotels discount facility: Card holders can obtain membership in clubs at leading
hotels at a special privilege. The facility also earns score points on every rupee

charged i.e. every time the cardholders dine or stay at the hotel. Specifically, 25
points for every 1000 spent plus an extra 10% points credited to the card holders
account if the card is used along with the hotel club card. These points can be
exchanged for a wide range of services such as airline tickets, hotel stays and
consumer products ranging from a microwave oven to vogue sunglasses. The
cardholder can also earn points by using the services of select airlines that have a
tie-up with the respective bank.
10. Newsletters: Bimonthly newsletters offering the cardholders an exciting range of
prizes, special discounts, privileges are spent free of cost. For example,
complimentary subscription to business world / business today magazine is sent to
all card holders of SBI card. This is accompanied by a companion of select
business articles and opportunities to apply for certain mutual funds using the
credit card. Exclusive offers that include dining programs at selected restaurants, a
handpicked Mail order merchandise catalogue, a collectors series of books and
magazines and many more are sent to cardholders periodically by some banks.
11. Joint credit card and ATM facility: Foreign and Indian banks alike have
introduced a joint credit card so that the card holder can access personal (savings /
current) accounts with the bank through the ATMs.
12. Personal Accident Insurance: Credit card issuers have introduced a free
insurance cover to the cardholder against loss of life due to accidents.
13. Leveraged investment facility: This facility enables the cardholders to subscribe
to designated equity or debenture issues in the primary market and schemes
floated by mutual funds.
14. Photo card option: Credit cards are now being issued with the photographs and
signature of the card holders digitally imprinted on the front of the card. These
cards offer easier recognition and extra security.
15. Online payment: Credit card facilitates online payment of bills, dues, and to
make purchases such as books, rail and flight tickets.

CREDIT CARDS FRAUD

Credit card fraud is a wide-ranging term for theft or fraud committed using a credit card
or any similar payment mechanism as a fraudulent source of funds in a transaction. The
purpose may be to obtain goods without paying, or to obtain unauthorized funds from an
account. Credit card fraud is also an adjunct to identity theft. The cost of credit card fraud
reaches into billions of dollars annually.Stolen cards can be reported quickly by
cardholders, but a compromised account can be hoarded by a thief for weeks or months
before any fraudulent use, making it difficult to identify the source of the compromise.
The card holder may not discover fraudulent use until receiving a billing statement,
which may be delivered infrequently.
Types of card fraud
Cardholders fraud
The most common type of fraud against credit cards is cardholders falsifying applications
to get higher credit limits than they can afford to pay, or to get multiple cards that they
cannot afford to pay off. Those who intend to defraud generally use the multiple-card
approach. They give false names and financial data on several (sometimes as many as
hundreds) of applications. Often, the address of a vacant house that the criminal has
access to is given, making it difficult to track the criminal's real identity

Third party frauds

The simplest way for a third party to commit fraud is for them to get their hands on a
legitimate card. There is a large black market for credit cards obtained from holdups, break-ins and muggings. Perhaps one of the cruelest methods of getting a card is
a Good Samaritan scams. In such a scam, credit cards are stolen by pick-pockets,
purse-snatchers.
Merchants fraud
There are many urban rumours of merchants imprinting a card multiple times while
the cardholder is not looking, and then running through a bunch of charges after the
cardholder leaves. We do not know of any case where this is an official policy of a
merchant, but this is certainly one technique a dishonest cashier could use. The
cashier can then take home a bunch of merchandise charged to his account. Although
some people are afraid of this happening in a restaurant, where a waiter takes our
card away for a while, it's actually less likely there, since there is not anything the
waiter can charge against our card and take home.
Acquirer and issuer fraud
The place to make really big bucks in fraud is at the acquirer or issuer, since this is
where we can get access to large amounts of money. Fortunately, it's also fairly easy
to control things here with audit procedures and dual control. People working in the
back offices, processing credit slips, bills have a big opportunity to "lose" things,
introduce false things, artificially delay things, and temporarily divert things. Most of
the control is standard banking staff, and has been proven effective for decades, so
this isn't a big problem. A bigger potential problem to the consumer is the possibility
of an employee at the issuer or acquirer selling PANs to crooks. This would be very
hard to track down, and could compromise a large part of the card base.

Stolen card fraud

When a credit card is lost or stolen, it remains usable until the holder notifies the
bank that the card is lost most banks have toll-free telephone numbers with 24-hour
support to encourage prompt reporting. Still, it is possible for a thief to make
unauthorized purchases on that card up until the card is cancelled. In the absence of
other security measures, a thief could potentially purchase thousands of dollars or
rupees in merchandise or services before the card holder or the bank realize that the
card is in the wrong hands.

Compromised accounts
Card account information is stored in a number of formats. Account numbers are
often embossed or imprinted on the card, and a magnetic stripe on the back contains
the data in machine readable format. Fields can vary, but the most common include
Name of card holder, Account number, Expiration date, Verification/CVV code.
Many Websites have been compromised in the past and theft of credit card data is a
major concern for banks. Data obtained in a theft, like addresses or phone numbers,
can be highly useful to a thief as additional card holder verification.

Mail/Internet order fraud

The mail and the Internet are major routes for fraud against merchants who sell and
ship products as well as Internet merchants who provide online services. The
industry term for catalogue order and similar transactions is Card Not Present
(CNP), meaning that the card is not physically available for the merchant to inspect.
The merchant must rely on the holder to present the information on the card by
indirect means, whether by mail, telephone or over the Internet when the cardholder
is not present at the point of sale.
Skimming

Skimming is the theft of credit card information used in an otherwise legitimate

transaction. It is typically an "inside job" by a dishonest employee of a legitimate
merchant, and can be as simple as photo copying of receipts. Common scenarios for
skimming are restaurants or bars where the skimmer has possession of the victim's
credit card out of their immediate view. The skimmer will typically use a small
keypad to unobtrusively transcribe the 3 or 4 digits Card Security Code which is not
present on the magnetic strip.
Carding
Carding is a term used for a process to verify the validity of stolen card data. The
thief presents the card information on a website that has real-time transaction
processing. If the card is processed successfully, the thief knows that the card is still
good. The specific item purchased is immaterial, and the thief does not need to
purchase an actual product; a Website subscription or charitable donation would be
sufficient. The purchase is usually for a small monetary amount, both to avoid using
the card's credit limit, and also to avoid attracting the bank's attention. A website
known to be susceptible to carding is known as a cardable website.
Credit Card Hijacking
Credit Card Hijacking is the term used when a persons credit card information is
used for undesired charges for goods or services where the credit card owner has
trouble reasserting control. This can be occur in the following are the three major
forms.
(i)

The first form of credit card hijacking is basically identity theft,

which is the deliberate assumption of another person's identity.

(ii)

The second form of credit card hijacking, which most people have
fallen victim to, is the continued charging of a persons credit card
for a subscription to goods or services no longer desired by the
credit card owner.

(iii)

Third form of hijacking is negative option billing is a business

practice of sending goods automatically and billing the recipient

unless the recipient is proactive in declining the goods before they

are sent.
Friendly fraud
Friendly fraud has been widespread on the internet, affecting both the sale of
physical products and digital transactions. To combat digital transaction fraud,
prepaid cards have been offered as an effective alternative to ensure customer
payment. South Korean software developers such as Nexon implemented a prepaid
system in 2007 to combat friendly fraud, selling prepaid cards in stores such as
Target.
Internet fraud
The term "Internet fraud" generally refers to any type of fraud scheme that uses one
or more online services - such as chat rooms, e-mail, message boards, or Web sites to present fraudulent solicitations to prospective victims, to conduct fraudulent
transactions, or to transmit the proceeds of fraud to financial institutions or to others
connected with the scheme.
Phishing
Phishing is the criminally fraudulent process of attempting to acquire sensitive
information such as usernames, passwords and credit card details by masquerading
as a trustworthy entity in an electronic communication. Communications purporting
to be from popular social websites. Phishing is typically carried out by e-mail or
instant messaging, and it often directs users to enter details at a fake website whose
URL and look and feel are almost identical to the legitimate one. Phishing is an
example of social engineering techniques used to fool users, and exploits the poor
usability of current web security technologies.

PREVENTION OF CARD FRAUD

The following are the important credit card fraud prevention steps:
Ask for and check other identification
Examine the signature on the card
Compare signatures
Check the security features of the credit card
Check the credit cards embossing
Check the presented card with recent lists of stolen and invalid credit card
numbers
Call for authorization of the credit card
Destroy all carbon copies of the credit card transaction to ensure that no one can
steal the credit card information and help prevent future credit card fraud.
Its also very important to be sure that merchants staff is educated about credit
card fraud, Merchant establishments can use the points above as a to do list for
dealing with credit card transactions. Considerable time and money in controlling
credit card frauds.
Some of the other methods used in prevention of frauds are:
a. Maintaining details of fraudulent application files, preferably in an automated
environment.
b. Establishment of Credit Information Bureau which provide the credit card
history of individual borrowing through credit reports.
c. Education of cardholders on the card frauds and creating awareness about
measures to prevent frauds.
d. Designing systems to monitor cardholders activity and identity of unusual
spending behaviour like Personal Identification Numbers (PIN).

RBI MEASURES FOR FRAUD PREVENTION

The Central Bank has finally woken up and has recommended measures to prevent

Credit Card Frauds or at least minimize the same. RBI has recommended the
following measures to be taken by every credit card issuers.
Mandatory SMS facility for Online Transactions over Rs 5,000
However, some banks like ICICI are sending the SMS for every Online
Transaction and it is a good move with effect from 1st September, 2009.
Separate Password protection for all Online Transaction. CVV is not enough;
the hacker will need a password as well.
MasterCard Secure Code for Online Transactions
Secured Transaction mechanism for customers doing business on IVR
Interactive Voice Response Systems.
RBI measure in internet security.
All these measures have to be fully implemented by each and every
credit card companies operational in India under the guidelines of
RBI.