VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

Impact of Plastic Money on Banking Trends in India

Dr. M. M. Satam
Head, Department of Economics.
PEs Modern College of Arts, Science & Commerce,
Shivajinagar, Pune 411 005.
Abstract:
Due to the technological revolution in financial sector, the payments in banking system have undergone a
tremendous change. The Number of innovative products for making payment has developed after the privatization
and globalization. Customers have showed their preference over the usage of the plastic money generally over a
period of time in the banking process. Plastic money is an alternative to the cash or the standard money. Plastic
money is referring to the credit cards or the debit cards that we use to make purchases .Various other types of
plastic cards provided by banks in India are ATM cards, Smart cards. The current study presents an overview of the
development of banking in the plastic cards usage trends since these have been introduced in Indian banking sector.
The study also highlights the role of these cards as electronic payment tool to be used by customers and discusses
the penetration of these cards in replacement of cash and paper money. The factors for adoption of plastic money in
replacement of cash and paper money have been identified which shows the preference of the customers for plastic
cards over the cash and paper money. Some future plans made by various banks and institutions for avoiding the
frauds arisen due to the credit and debit cards are also been discussed in a way that it depicts the picture of its
future growth and prospects in India.
Keywords: Plastic Money, Plastic cards, ATM (Automated Teller Machine), Debit card, Credit card, Electronic
Banking, Information Technology

Introduction: Indian economy has flourished with the advent of Liberalization, Privatization and
Globalization. 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. Without a sound
and effective banking system in India it cannot have a healthy economy. The banking system of
India should not only be hassle free but it should be able to meet new challenges posed by the
technology and any other external and internal factors However, mere technology up gradation
or introduction of innovative products cannot improve the state of affairs until customers dont
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. 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 as

NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 1

VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

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
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.
OBJECTIVES OF THE STUDY
The objectives of the study are as follows1) To study the development of banking industry in plastic cards usage trends.
2) To analyze the factors for adoption of plastic money this replaces the paper or cash money.
3) To determine the penetration of plastic money in day to day life over the paper or cash money.
4) To study the future plans made by various banks and institutions for avoiding frauds raised
due to plastic cards.
RESEARCH METHODOLOGYT
Secondary data is collected through reference books, research papers, articles, and websites.
PLASTIC MONEY: SIGN OF MODERNIZING ECONOMY
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 (Ramasamy et. al., 2006). 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
NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 2

VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

up only during the last five years. Payment by cards is now becoming a much preferred mode for
making retail payments in the country (Report on trend and progress of banking in India 200607, RBI). 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
I. Customers or Cardholder: The authorized person holding the card and can use it for purchase
of goods and services also.
ii. Card issuing bank: The bank or institution which issues the card to its eligible customers.
iii. Merchants: Entities which sell the goods and services to the cardholder and duly agree to
accept the card for payment.
iv. Bank Card Association: The associations (VISA, Master Card, and American Express)
TYPES OF CARDS
Credit 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 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 (Mishra, 2007). 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 (Vardhaman, 2008). Clearing and
settlement through credit card is a simple and reliable process in which bank plays a crucial role.
Smart Card
A plastic card containing a computer chip and enabling the holder to purchase goods and
services, enter restricted areas, access medical, financial, or other records, or perform other
operations requiring data stored on the chip. Smart card is currently introduced by BRTS which
stands for Bus Rapid Transit Services in Gujarat in India.
NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 3

VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

Charge Card
A charge card carries all the features of credit cards. However, after using a charge card you will
have to pay off the entire amount billed, by the due date. If you fail to do so, you are likely to be
considered a defaulter and will usually have to pay up a steep late payment charge.
Amex Card
Amex stands for American Express and is one of the well-known charge cards. This card has its
own merchant establishment tie-ups and does not depend on the network of MasterCard or Visa.
Master Card and Visa
MasterCard and Visa are global non-profit organizations dedicated to promote the growth of the
card business across the world. They have built a vast network of merchant establishments so
that customers world-wide may use their respective credit cards to make various purchases.
Debit 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 them.
In 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
(Mishra, 2007). 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 merchants 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.
There are currently two ways that debit cards transactions are processe
1. Online debit (also known as PIN)
2. Offline debit (also known as signature debit)
ATM Cards
These cards are typically used at automatic teller machines (ATMs) to withdraw cash, make
deposits, or transfer funds between accounts. ATM card is used by inserting the card into an
automatic teller machine and enter a personal identification number, or PIN, for security. The
system checks the account for adequate funds before permitting any transaction.
ADVANTAGES OF PLASTIC MONEY

NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 4

VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

Purchasing Power: Credit or Debit cards made it easier to purchase things. Now we dont
have any need to carry hard cash in a large amount. Plastic money is accepted everywhere,
anytime.
Time Saving: Through a credit card or debit card you can purchase anything from anywhere
without spend money on fare or cash transition. Just provide your card details to seller store or
companies and finalize your order. Now you dont have need to worry about time wastes. Use
internet for minimum time consuming.
Extra Safety: While you are not carrying cash, how can it be lost? But if your card has lost,
just contact to your bank or financial institution, which provide you cards. It will block the
account and nobody can draw a single coin without your permission. So it is 100% safe without
any tension.
DISADVANTAGES OF PLASTIC MONEY
Shops Using Other Vendors: There are numerous shops which accept credit cards of a
specific company only. In this situation the cash is the only way of payment for those who use a
credit card of another company.
Less Global Availability: There are many cases where various companies do not permit their
cards to be used in areas where they have a regional dispute with.
Worn out Magnetic Strip: The magnetic strip of a credit card can get worn out due to massive
use. If such a condition happens while travelling, and this is the only way of cash that the
consumer has, then he or she has to wait till the time they receive a new card, which can take a
minimum of 48 h.
Increased Debt and High Interest Rates: Credit Card provider financial institutions and
companies charge high interest rates (may be 10% to 25%) on extra money if you fail to pay off
up to the fix date of the month. This interest is their earning, for which they give you extra
buying limits then your money. This is not a good idea that you owe loan on high interest rates
and spend it in unnecessary things or purchasing. This is complete money wastages.
Fraud: Credit cards can be stolen. A thief may be use them directly or to get their information
(which is required in money exchange). In todays technical intelligence it is also possible to get
a clone of any credit card or debit card, which works like original and they can be give you a
heavy financial loss. So be aware from credit cards fraud as they are like stolen your money from
your pocket without your information.
NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 5

VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

Steps taken by the other countries towards cashless transactionAs per a recent Washington post article, in Sweden, only 3% of transactions involve cash. Credit
and Debit cards are dominant in Sweden payment system. Not only in Sweden, but in most of the
developed countries, above 90% of transactions are cashless. Mobile payment is bringing new
way of cashless payment system. Other prominent countries are Norway, Austria, Finland etc.
In the United States today, only 7 percent of all transactions are done with cash, and most of
these transactions involve very small amounts of money.
Another method that can be used to make financial identification more secure is to use
implantable RFID microchips.
Reserve Bank of India Pitches for Cashless Society
With the Indian economy expanding rapidly at more than 7.5 per cent per annum and the middleclass budding, several financial firms believe and predict that the use of plastic money in India
will become very popular. However, according to the recent estimates by the Reserve Bank of
India (RBI), the use of cashless transactions through credit card usage among Indians is actually
falling. The Reserve Bank of India (RBI) has prepared a road map to provide card swipe
machines to more than one crore retail businesses in the next three years to promote electronic
transactions for ushering in a less-cash society in the country. According to the road map
prepared by the central bank for cash-less transactions, all schools and colleges in the country
will also be equipped to handle plastic transactions. According to an RBI estimate, only six lakh
retail traders accept credit card in the country. Steps are being taken to make the facility
available to at least one crore retailers by 2015.The government and its financial institutions will
initially bear the cost of each card swap machine made available to retailers.
The rise in consumerism generated by economic reforms began in 1990s has also sparked robust
demand for plastic cards. The arrival of malls, multiplexes, online shopping stores and shopping
complexes encourage the customers to make use of plastic cards. The modern day, Indian
customers find it easier to make physical payment (credit card or debit card payments) rather
than carrying too much cash contributing to the growth of plastic money in the country. The
prevalence of intensifying competition has further fuelled the usage of plastic cards in the
country like never-before. It benefits the consumer through enhanced product offerings at a
lower cost and that too with lucrative deals delighted with rewards scheme, loyalty bonus points,
NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 6

VOLUME-I, Special Issue: March-2015

ISSN (Online): 2350-0476, ISSN (Print): 2394-207X

INTERNATIONAL JOURNAL OF MULTIFACETED AND MULTILINGUAL STUDIES

promotional campaigns etc. But some customers are not able to utilize cards effectively due to its
complex nature and they dont actually know how to operate it for specific purpose. Thus, the
banks should give them some training regarding its usage. The banks can also provide them
facility to use plastic cards on trial basis so that they can become more confident while using
their own cards. Cost has also remained an issue in case of credit cards. The interest levied on
outstanding amount is very high which sometimes takes the customers in debt trap ultimately
discouraging the potential customers to make use of it. However, all these hurdles will diminish
over time and positively influencing trends are expected to continue in the near and far-future.
Also, the growth of plastic cards in future would depend upon the capacity building of the banks
to meet the challenges and make use of the opportunities profitably. However, the kind of
technology used and the efficiency of operations would provide the much needed competitive
edge for success in plastic cards business. Furthermore, in all these customers interest is of
paramount importance.
References:
1) Khandelwal Ani K (2006), Doing Business in India: The Big Picture Bankers Prespective,
US-India Business Summit, Retrieved March 20, 2008 from www. buyusa.gov/india/en/327.ppt
2). Mandeep Kaur and Kamalpreet Kaur (2008), Development of Plastic Cards Market: Past,
Present and Future Scenario in Indian Banks, Asia-Pacific Business Review, Vol. IV, No.4, pp.
62-74, ISSN: 0973- 2470
3). Manivannan P (2013), Plastic Money a way for cash Less Payment System, Global
Research Analysis, Vol. II, No. I.
4). Mishra Gaurie (2007), Indians Get Elastic with Plastic Money, The Economics Times,
Retrieved April 02, 2008 from http:// economictimes.indiatimes.com/ articleshowl2382580.cms
5). Ramasamy S R, Guru K B, Nair M and Vaithilingam S (2006), Development of E-

NATIONAL SEMINAR ON SERVICE SECTOR IN INIDA: TRENDS AND CHALLENGES

Page 7