Abstract

The current study presents an overview of the development of banking in India

from time to time specifically focused on the plastic cards usage trends since
these have been introduced in Indian banking sector. Various types of plastic
cards provided by banks in India like ATM cards, Debit Cards,Credit Cards
and Smart cards have been discussed. The study also highlights the role of
these cards as electronic payment tool to be used by customers and
discusses clearing and settlement process of these cards. Some future plans
made by various banks and institutions are also summarized in a way that it
depicts the picture of its future growth and prospects in India

Introduction

Indian economy has flourished with the advent of Liberlisation, Privatisation

and Globalisation. Banking sector is not an exception too. These reforms have
presented a challenge before Indian banking sector to shake hands with the
pace of new technology. However, mere technology upgradation or
introduction of innovative products cannot improve the state of affairs
until customers don't respond to it positively.

Hence, it becomes very necessary for the banks to offer the services or
products while taking into consideration the customers’ needs, preferences,
perceptions and convenience. Also, the banks' services are not just
confined to their particular branch customers only. Customer is now treated as
customer of banks as a whole, which means that he is now capable of
enjoying facilities such as anywhere, anytime banking (Kamesam, 2003).

This concept has enabled the bankers to establish long term connection
with their customers. Hence, Electronic banking is the new trend
significantly adopted by banking sector worldwide due to its wider scope for
the customers as well as banks at large. Various sophisticated products have
been launched by the banks which help them to meet the basic
requirements of their customers. With the entry of tech savvy private sector
banks and foreign banks, the competitive environment has started prevailing
in banking sector too.

No doubt, Public sector banks have large network of traditional branches to

approach their customers as compared to the private and foreign players.
However, with the help of information technology, it has now become possible
for banks to deliver products and services efficiently and to improve
customer base without opening new branches. Hence, these new private and
foreign players are trying to compete with them on the basis of adoption of
new technological services like plastic cards, PC banking, Electronic
Funds Transfer (EFT), Internet banking etc. to approach the maximum
customers inspite of having less physical branches .

Due to this reason, public sector banks are also likely to move towards
electronic banking, which ultimately leads the entire banking sector to the
remarkable improvement with respect to its efficiency, customer services,
productivity, profitability etc. Thus, Banks are now reengineering the way
in which their services can be reached to their customers by bringing in
flexibility in their "distribution channels"

Plastic Cards:
A Key Element of Electronic Banking Money is always regarded as an
important medium of exchange and payment tool. Initially barter system
was used as the significant mode of payment. Over the years, money has
changed its form from coins to paper cash and today it is available in formless
form as electronic money or plastic card
Hence, the major change in banks which has been brought in by
technology is through introduction of products which are alternative to
cash or paper money. Plastic cards are one of those types of innovations
through which the customers can make use of banking services just by
owning the card issued by bank and that too without restricting himself in
the official banking hours. Plastic cards as the component of e banking
have been in use in the country for many years now.
However, the card-based usage has picked up only during the last five years.
Payment by cards is now becoming a much preferred mode for making retail
payments in the country . Thus, plastic cards are such payment tool
which gives a customer an opportunity of non-cash payment of goods and
services and are designed to facilitate small value retail payments by
offering a substitute for bank notes and coins and thus to complement
traditional payment instruments. The role of various parties involved in
plastic cards payment

.[Link] or Cardholder: The authorized person holding the card

and can use it for purchase of goods and services also.
 [Link] issuing bank: The bank or institution which issues the card to its
eligible customers.

[Link]: Entities which sell the goods and services to the cardholder
and duly agree to accept the card for payment.

[Link] Card Association: The associations (VISA, Master Card, American

Express) which act as an intermediate between card issuing bank and
merchant's bank and authorize the transaction.

Automated Teller Machine (ATM)

Automatedteller machines played a vital role in the development of plastic
cards. In India, there is a continuous rise in the usage of ATMs by the
customers. According to a survey conducted by Banknet India in 2006, 95%
people prefer using ATMs to traditional mode of banking .Since 2000,
sufficient number of ATMs have been installed by various banks in India while
taking into consideration its popularity and usage among the customers.

At the early stage, customers could only use ATMs of that respective bank
where they are having account. But currently, this constraint has been
weeded out for the convenience of customers as they can use ATMs of
other banks also where they don't have any account. It is known as
interbank networks and banks charge extra fee termed as "inter-change fee" for
usage of this service.

Reserve Bank has encouraged the banks to join together in small clusters so that
their ATM networks can be shared. Currently, there are various such
ATM network clusters functioning in India . The number of ATMs shared
by these networks which indicates that National Financial Switch (NFS) is
sharing the largest number of ATM with its member banks while Mitr is
having least number of ATMs to be shared with its member banks.

Types of Cards
[Link] Cards
Debit card is a magnetically encoded plastic card issued by banks which
has replaced cash and cheques. It allows the customers to pay for goods and
services without carrying cash with [Link] some cases, debit card is
multipurpose which can also be used as ATM for withdrawing cash and to
check account balances. It is issued free of cost with the savings or
current account .
Debit card is one of the best online e-payment tool through which the amount of
purchase is immediately deducted from customer account and credited to
merchant's account provided if that much amount is available in customers
account.

It has overcome the delayed payment process of cheques, due to which

sometimes merchants have to suffer. To transact through debit card is easy
and authentic way in which a card is swiped through the terminal with magnetic
code reader and it records customer's bank and account number .Customer has
to enter the PIN code in the terminal in order to perform the transaction
through which the information is travelled to electronic network linked to
the merchant's bank with the bank that issued debit card to the customer.

If the transaction is approved then the customer account is duly debited and
merchant account is credited with that amount. The whole process is performed
instantaneously inspite the involvement of large number of parties. Hence, debit
cards are considered effective where customers value it as convenience and
merchants see it as lowering cost or enhancing sales.

[Link] Cards

The term "credit card" generally refers to a plastic card issued to a cardholder,
with a credit limit, that can be used to purchase goods and services on credit or
obtain cash advances. It is issued by banks holding the logo of one of the
bank card association private and foreign banks, many public sector banks
have also entered the Debit card segment leading to the increase in
acceptance and the total base.

Most banks now issue Debit cards in place of ATM cards and have already
converted all their ATM cards into Debit cards. The reason banks are so
eager to push debit cards is that it helps them cut costs significantly .Hence,
these days, only a few pure ATM cards can be seen prevailing in the market like
Visa, MasterCard, Dinners club etc. after proper verification of accountholders.
Unlike debit cards, credit cards also provide overdraft facility and customer can
purchase over and above the amount available in his account and thus regarded
as authentic payment tool .Interest charges are levied on the unpaid
balance after the payment is due.
Cardholders may pay the entire amount due and save on the interest that would
otherwise be charged. Equated Monthly installments (EMI) scheme is also
offered by some banks to the customers who make huge purchases so
that they can feel convenient while paying back the outstanding amount .

3 ATM Card

These cards are typically used at ATMs to withdraw money, transfer funds and
make deposits. ATM cards are used by inserting the card into a machine and
enter a PIN or personal number for security purposes. The system checks the
account for sufficient funds before allowing any transaction.

4 Charge Card

This card carries all the features of the credit card. A charge card allows the
customer to pay off the entire bill amount at the end of each billing cycle. A
high late payment charges need to be paid in case of default on the payment.

5 Add-On Card

An add-on card is an additional credit card within the overall credit limit. These
are issued in the name of family members like father/ mother/ spouse/ brother/
sister/ all children above 18 years of age. The main billing statement reflects the
purchase details of the add-on card. This card is emerging as a convenient mode
of payment in India.

The above-mentioned are the major types of cards commonly used. Apart from
these, other types are listed below:

5 Stored Value Card (Store Cards issued by any particular company to

make transactions at their places only.)
6 Gift Card
7 Digital Currency

The card can also be differentiated on the basis of technology some of which are
listed below:
  8 Magnetic Strip Card: Magnetic strip was introduced on cards in the
late 1970s. Magnetic strips contain data that can be read only through
physical contact or swiping action. Magnetic stripe cards have
PINs with them which have to be provided in order to authenticate the
transaction.

9 Smart Card: These cards contain a chip which is an integrated

circuit. Smart cards also contain magnetic stripes.
Smart Cards or Stored Value Cards is relatively new payments
technology. It is a plastic card, with or without magnetic stripe,
capable of storing, retrieving and manipulating data and used in variety of
applications.
It is also known as Electronic Money or E Purse issued by banks to its
customers having the size as of credit card. A customer needs not to have
currency in his pocket as value or amount is stored in the card itself by
transferring it from his account, due to this feature it is regarded as
electronicpurse.
The emergence of Smart Card arises in order to issue multipurpose cards
which function as credit cards, debit cards and ATM cards so that it
suits all types of customer base and their choice .These are
generally the reloadable cards in which money is loaded into it by
transferring the required amount from customers account via ATMs,
telephone or internet.

Benifts

1. Cashless living

Plastic money has not only made our lives easier but has also alleviated the
hassles that come with carrying currency. Some of the best credit cards allow us
to move around the world without worrying about carrying cash.

2. Better security

One advantage of using credit or debit cards is the decrease in robberies and
crimes. Hacking a card's PIN is difficult and necessitates the knowledge of
certain procedures. As a result, credit and debit cardholders can be reasonably
confident of the security of their funds.

3. Financial freedom

Credit cards allow a person to make a transaction and pay for it even when they
do not have the funds. It is incredibly beneficial especially when you are short
on cash. Credit cards also reduce the need to rely on others for financial
assistance in an emergency. You can use the credit card to fund your
requirement and later payback in instalments. Further, a credit card is easy to
get. All you need to do is meet your bank’s credit card eligibility criteria,
and the card is yours.

4. Ease of doing transactions

Credit cards and debit cards can help make online payments, fund transfers, and
other transactions with ease. It is incredibly simple to make payments with
plastic money from any location. Furthermore, several online businesses
provide discounts when paying using credit and debit cards.

5. Exciting deals and discounts

Every credit and debit card providers offers deals and discounts on shopping.
They can help you save more and earn cashback on purchases.

6. Saving on travel

Travelling can be expensive without plastic money. Credit and debit cards
provide lounge access and incredible deals on travel bookings. You cannot
enjoy the same benefits while using cash, making plastic money a must if you
are travelling.

Drawbacks of plastic money

1. Does not work everywhere

There may be certain venues and stores where only cash is accepted. For
example, buying products from a small merchant or buying vegetables or
newspapers.

2. Can land you in debt

If a person is not careful with plastic money, they can often overstep their
spending limit and spend more than they can repay. This can land them in debt.

If you are in the market for credit and debit cards and want to transition from
cash to plastic money, look no further than IDFC FIRST Bank. You will receive
unsurmountable benefits if you use cards from IDFC FIRST Bank. From
unlimited lounge access to huge discounts, the world is your playing field with
IDFC FIRST Bank. So, wait no more; get your card from IDFC FIRST Bank
today! Use our mobile banking apps to unlock the benefits of our manifold
cards.

Green Evolution of Plastic Cards

Eco-friendly Materials: In response to environmental concerns, payment card
issuers and manufacturers are adopting greener approaches .Initiatives are
underway to develop environmentally friendly options using materials like
recycled plastics, ocean trash, and compostable vegetables. These innovations
aim to reduce the carbon footprint associated with plastic cards, which on
average create 160-170 grams of CO2-equivalent emissions each
The Psychological Impact: The convenience of plastic money has its
drawbacks, particularly when it comes to overspending. Studies have shown
that people tend to spend more when using credit cards due to the absence of
"payment pain" and the lack of immediate payment .It is crucial for consumers
to be aware of their spending habits and possess financial knowledge to avoid
falling into substantial debt.

Case study
New Hampshire bank rolls out biodegradable debit cards
The Bank of New Hampshire this year became one of the first financial
institutions in the U.S. to offer biodegradable debit cards made of corn starch.

The debit cards are made from nonedible corn, which the Laconia, New
Hampshire, bank said can biodegrade within six months under ideal conditions.
It would take an estimated 400 years for traditional plastic payment cards to
decay

,the bank said.

In August the bank began producing all of its new and replacement Mastercard-
branded debit cards with eco-friendly versions equipped with EMV and
contactless technology. The $2 billion-asset Bank of New Hampshire, which
has 21 offices, plans to gradually convert its entire debit card portfolio to eco-
friendly cards using technology from Thales.

"Plastic waste is having a devastating impact on our environment," said Eric

Carter, senior vice president of digital solutions and innovation officer

2 Example : Ocean Bound Plastic (ROBP) Visa® Debit Cards

Are debit cards that are made from recycled ocean-bound plastic. This
means that the plastic that is used to make the cards has been collected from
beaches, waterways, and other coastal areas before it had a chance to enter
the ocean.

After planting 50,000 trees and supporting one of the largest post-fire
reforestation efforts in Colorado, FirstBank has introduced a new initiative to
underscore its “banking for good” philosophy: Recycled Ocean Bound
Plastic (ROBP) Visa® Debit Cards. In an effort to reduce ocean waste, the
bank partnered with Second Wave®, which uses recycled plastic sourced
from the sea.
Use of Plastic Money in India
In India, the use of debit and credit cards was not much common. The majority
of the transactions made through plastic money were only through ATMs.
However, the use of plastic money increased rapidly in the 2010s with the
introduction of online shopping.

The use of cards is said to have increased drastically in late 2016 after the
demonetization of 1000 and 500 rupee notes and after the first wave of COVID-
19. Because of these events, there was a sudden lack of cash and people tended
to rely more on electronic payments like e-wallets for which card details were
mandatory.

Future of Plastic Money in India

The use of plastic money as a form of payment is rising. India is one of the
fastest-growing economies in the world, and digital transactions have made e-
commerce safer and more convenient while also allowing for more relaxed
and convenient authentication.

It is anticipated that India’s payments industry will experience more growth,

innovation, and infrastructure construction along with stronger uptake of
cutting-edge technical advancements.

8 Conclusion
The plastic money in the form of cards has been actively introduced by banks in
India in 1990's. But it was not very popular among Indian consumer at the time
of its introduction. The change in demographic features of consumers in terms
of their income, marital status, education level etc. and upgradation of
technology and its awareness has brought the relevant changes in consumers'
preferences. These changing preferences have also modified their outlook and
decision regarding the acceptance and non-acceptance of particular product
and services in the market. Thus, the plastic cards are gaining popularity
among bankers as well as customers and getting accepted in the market place.
It can be well imagined from the discussion that no doubt, the plastic
cards market is growing at a large pace in India yet it has long way to go as it
lacks behind if compared to the usage trends of other countries. Hence, it has
become important that the payment system in India has to be modernized
enough to be at par with the systems prevalent in other countries, since
our domestic financial markets are increasingly getting integrated with
markets abroad (Country Survey-India, 2005). RBI is also taking important
steps in order to enhance its usage and popularity through initiatives like
regulating card market to maintain the security levels and to build up confidence
of bankers and customers. Despite the strong advances in e-payments, an
estimated 90 percent of personal consumption expenditure in India is still
made with cash (Country Survey-India, 2005), which indicates the tremendous
growth potential of this business. So this can be consideredas mere beginning
which indicates the bright future prospects of plastic card market in India. In
nutshell, we can say that the Indian banking sector is accepting the
challenge of information technology as all the groups of bankers have
now recognized it as essential requirement for their survival and growth in
future.

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