FUTURE PROSPECTS OF PLASTIC MONEY IN INDIAN

BANKING SYSTEM
Author:
Dr. Ramola Premalatha J
Assistant Professor
Department of Commerce,
VIT University, Vellore - 632014
Co Authors:
P.G. Suresh K.C. Arun Kumar S. Harish Venkatram
15BCC0041 15BCC0097 15BCC0119
B.com (2nd Year) B.com (2nd Year) B.com (2nd Year)
Dept. of Commerce Dept. of Commerce Dept. of Commerce
SSL, SSL, SSL,
VIT University, VIT University, VIT University,
Vellore 632014. Vellore 632014. Vellore 632014.

Abstract

Due to the technological advancement in monetary sector, the payments in banking industry
have undergone a remarkable transformation. The innovative products for creating payments
have been developed subsequent to the privatization and globalization. Customers have
showed their preference over the usage of the plastic money typically over a period of time
within the banking process. Plastic money is a substitute to the cash or benchmark money.
Plastic money refers to the credit cards or the debit cards that we tend to use to form
purchases .Other different kinds of plastic cards provided by banks in India are ATM cards,
Smart cards. This study presents a summary of the event of banking within the plastic cards
usage trends since these are introduced in Indian banking sector. The study conjointly
highlights the role of those cards as electronic payment tool to be employed by customers and
discusses the penetration of those cards in replacement of cash and paper money. The study
is carried out by taking a survey of 100 respondents by Convenient Sampling Technique from
the city of Vellore by using a structured questionnaire and interview technique. The factors
that influence for adoption of plastic money in substitution of cash has been identified which
reflects the preference of customers towards plastic cards over paper money. Some future
plans developed by different banks and institutions for avoiding the frauds arisen owing to
the credit and debit cards also are mentioned in way that it depicts the image of its future
growth and prospects in India.
Key words: plastic money, banking, benchmark money, information technology etc.
INTRODUCTION
The advent of Liberalization, Privatization and Globalization in Indian economy has been
predominant. These reforms have offered a test before Indian banking sector in adoption with
the new pace of technology. An innovative and efficient banking system always contributes
for the healthy economy in India.

Indian banking system should not limit itself from being problem free but should be capable
of facing the newer challenges imposed by advanced technology and any other factors. The
advancement of technology in banking sector solely doesnt influence the improvement of
current affairs unless customers respond to them positively. Therefore, the banks should
consider the needs, preferences and convenience of the customers before offering any new
services or products.

Customer doesnt limit himself as a customer of a particular branch but acts as a customer of
whole banking system, where he is capable of enjoying all the facilities anywhere and
anytime (Kamesam, 2003). This concept prolongs the relationship between customers and the
banks for long term. Electronic banking considerably is a new advancement in banking sector
widely adopted due to its wider scope for customers and banks internationally. Further large
number of new products and services has been introduced to satisfy the customers needs and
preferences. The development of private sector banks and foreign banks has led to
competition among the banking sector since their advancement in technology is rapid. The
large number of people in India are dependent on the traditional public sector banks which
maintain a strong base of customers when compared with private and foreign banks. By the
advancement in Information Technology in the country it is now easier to convey different
products and services resourcefully without the need of opening new branches.

Therefore, the newer private and foreign banks takes on the traditional public banks through
their advanced technology in banking affairs like Internet banking, Electronic Funds Transfer
(EFT), plastic cards, Digital money etc., to expand the scope of their banks rapidly among
traditional customers of Public banks. This ultimately led public banks to adopt and
implement the services with consistent innovation to compete with private and foreign banks.
This competitive environment among the banks in the banking sector has shown outstanding
development with respect to innovative services, productivity, efficiency etc.

In traditional sense the banks were majorly concerned with the deposits from customers and
lending money to the customer at the given rate (Anisha, 2015). The modern age in the
banking sector has shown continuous change in the whole system by advancement in
information technology. The newer private and foreign banks in the banking system have
introduced many innovative products and services with minimum cost and satisfying
customer preferences. From then for the next decade the development in banking sector has
shown significant improvement in all its fields majorly through information technology and
advancement in computer applications. This development in the banking sector has replaced
the traditional banking through its advanced products and services which have wider scope in
satisfying the customers preferences like Electronic banking products and services like Debit
Cards, Credit Cards, Internet banking, Electronic Fund Transfer (EFT), Smart cards etc.

This competitive environment in banking sector has led to remarkable development in the
banking sector i.e 18% since 2006 which is 6 times more than last decade (Khandelwal,
2006). The country has far superior economic and financial conditions than any other country
in the world. Traditional public sector banks still hold a strong base of 80% of the market
while the newer private and foreign banks hold the smaller percentage of market (Union
Budget 2016-17).

CASH STILL THE PREFERRED CHOICE PRIOR TO

DEMONETISATION
Cash being accepted universally still remained a preferred choice, inspite of people using
other services as well.

Wide range of innovative services are changing the mode by which Indian consumers use
their financial need. But still cash remains most prioritised medium. The ATMs account to
88% of aggregate amount and around 94% of aggregate amount of debit card transactions,
when compared, transactions at point of sale (PoS) terminals reflect for only 12% of volume
and 6% of total value of transactions (RBI report, April 2016).

But the growth in ATMs and PoS machines has kept its pace. Between the years of October
2013 and October 2015, the amount of ATMs raised around 43% while PoS machines raised
at 28%. By the end of December 2015, the number of ATMs were 0.19 million and there were
1.2 million PoS machines. This rate is considerably low when compared to previous years
(RBI report, April 2016).

RISE IN PLASTIC MONEY POST DEMONETISATION

There was a major increase in usage of plastic money after demonetisation. The
unavailability of cash made customers to adopt the new payment modes. There was around
37.4% increase in the usage of plastic money in travel-related expenditure alone, further more
than 57.9% travellers preferred booking through online medium leading to huge decrease in
offline agent booking through cash (Yatra.com report, December 2016).

The usage of plastic money is not limited to travel-related expenditure; the amounts of
donations taken in educational and medical sectors are also reduced to minimum or nil since
the unavailability of hard cash in huge amounts. Further even if the 100% cashless economy
is impossible the major part of benchmark money is reduced and economy started moving
towards digitalisation (Anuradha, 2017).

RECENT INNOVATIONS IN PLASTIC MONEY

Even with competition among the banking sector, by the end of June, 2011 the amount of
credit cards in circulation has declined over 7%. Further even if there was a rise in amount of
debit cards the rate of increase during the period of June, 2011 is 25% which is considerably
low compared to previous years (RBI report, 2011).

With the sudden shift in the trend due to demonetisation the banking firms realised the past
mistakes of offering cards to customers without estimating their creditworthiness. Several
advancements have taken place by major banking firms prioritising the plastic money.
Banking firms mainly private undertook various innovative product and services post
demonetisation.

ICICI being the first to take the initiative and started marketing its new kind of cards named
Prepaid card where the customers are required to open using a fixed deposit with minimum
of Rs.50000 with different maturity periods and further a linked credit card would be offered
for usage of 80% of the fixed deposit as credit. Followed by ICICI bank, the IDBI introduced
a combo card naming it IDBI magic card which depicts the features and uses of both credit
and debit cards. More recent advancement was made by HDFC bank where three kinds of
premium cards are newly introduced namely, Regalia, Superia and Platinum Edge
concentrating mainly on travel expenditure with wide range of benefits such as Free access to
airport lounges, free air tickets etc., All of these cards at the time of its lunch were widely
unsuccessful and is now in gradual progress towards increasing users.

MAJOR ADVANTAGES OF PLASTIC MONEY

1. COST INCURRED FOR PRINTING CURRENCIES: The benchmark money is
medium of exchange and has a value, but in addition to that the RBI spends about
2500 crores on printing of 17 billion currencies of different denominations. Further,
the more the cash is printed the more cost of printing of cash takes place. One 2000
rupees note takes about Rs.3.57 which is a lot if observed in huge printing process in
India.
2. 24/7 BANKING HOURS WITH MINIMUM COST: The services of plastic card
are not bound to any particular time. We can avail services throughout the day even
during non banking hours. This also helps in saving money and time of travelling to
branch office every time for all transactions. All your transactions can be efficiently
maintained by self.
3. TRACKING THE ACCOUNT AND PAYING BILLS ON TIME: On usual case the
bills are to be paid to service provider or the bank. But with this advancement it is
easy to pay bills online basis which makes is more reliable for paying in time. All the
transactions of the plastic cards are clearly on account and SMS verification is done
every time for every single transaction.

MAJOR DISADVANTAGES OF PLASTIC MONEY

1. NO UNIVERSAL ACCEPTANCE: The plastic cards dont hold its usage in global
market. The preference depends upon various companies; few accept cards and few
dont due to various reasons like regional conflicts of particular cards. So, the
acceptance of card is not sure all the time leading to loss to time if the company fails
to accept the card during shopping etc.,
 2. SUSCEPTIBLE TO DAMAGE: The present generation prioritizes the plastic cards
and considers as a matter of prestige. The plastic cards are carried out by people in
wallets etc., but since its a plastic it is susceptible to damage. Due to constant usage
magnetic strips of the card gets damaged which makes card unacceptable.
3. TOO MUCH OF CREDIT: The plastic money provides the freedom of credit
depending upon the creditworthiness of the person. But in most of the cases people
become too reluctant of their credit credibility and buy more of products forgetting
the future consequences of paying the bill. This freedom of credit by plastic money
lets the person into troubles during the payment of credit bills.
4. FRAUD AND MISUSE: The credit/debit cards are constantly under a risk of theft. A
person might get away with theft if he knew that his card has been stolen instantly, but
in certain cases the person doesnt realize that the card has been stolen which in turn
makes him liable for the products bought by the thief through his card. In many cases
people end up paying bills for something which they havent bought or used.

RESERVE BANK OF INDIAS VISION 2018 (LESS-CASH

INDIA)
RBI has various visions which included less-cash India by 2018. This predominantly
concentrates on the payment and settlement systems in India. The main motive of this vision
is to promote the payments systems in more secure, safe and for universal availability using
technological applications, which exhibits faster processing, convenient state, and keep tracks
of all the information that accompany payments.

All the modes of electronic payments have shown significant rise in terms of usage and also
of usage quantity. During the years between 2013-16 there was a greater usage of Real-time
gross settlement (RTGS) and National Electronic Funds Transfer (NEFT) among all segments
of people. The consistent increase in banking firms providing mobile banking applications,
internet banking and also advancement in E-commerce in the country has increased the value
of transactions through this cashless medium. Not only mobile banking applications but also
the card transactions in both ATM as well as Point of Sale (POS) has also been increasing
significantly.

In order to achieve the Vision 2018, various new policies are framed and implemented by the
RBI focussing on the electronic payments which in turn reflects the trends of people usage of
electronic payments. The vision is further carried out by all banks, payment system operators,
users, etc which is expected to exhibit the less-cash India by 2018.

LITERATURE REVIEW
Anisha Bisht (2015) in his thesis Analysis of use of plastic money: A Boon or a Bane
showed the awareness and usage of plastic money among various segments of people.
Stratified random sampling method was used for data collection which included students,
professionals, government officials, house makers and senior citizens. The study reflected
that people in major prefer plastic money mainly for its convenience and easy accessibility.
The major problem is unavailability of cards to all the users and also lengthy formalities to
procure card from financial institutions.

Sushma Patil (2014) in her research paper Impact of plastic money on banking trends in
India reflected the overview of development of plastic cards in Indian banking sector. The
study reflects the importance of plastic cards as electronic payment method used by the
people and also shows how much impact these plastic cards have in replacing the benchmark
money. The study is carried out using by non probabilistic convenience sampling method
from a city of Mumbai by using structured questionnaire. The study concludes in a way that
plastic cards will replace hard cash in near future.

Supriya Singh (2014) in her research paper Impersonalisation of electronic money:

implications for bank marketing examined variance among the impersonality of
plastic/online money and also customers wish to maintain personal banking relationship. The
explanation involves usage of sociology of money, incurring of data and communication
technologies and self-service advancements. The study confirms that the activity-centered
social marketing strategy is adopted by bank-marketing professionals. This adopted strategy
provides a secure fit between the payment activities, services and other transactions with
regard to different aspects.The major conclusion is that adoption of this strategy will increase
trust in banks.

Subani and Hasan (2011) in their research paper Plastic Money/Credit Cards Charisma for
Now and Then (A Thin Line between Easy Money and Risky Money) examines how user
friendly the plastic cards are in the case of affordability is concerned among various segments
of people. Further the study authenticates how useful and charismatic the plastic cards are in
case of their determination of income among family and friends. The study confirms that the
adoption of cards have a charismatic appeal among friends and family and also revealed that
it has its own usability and affordability.

Martyn Gould (1993) in their research paper Plastic Card Crime and Fraud Prevention
completely deals with the various ways of frauds that effect the productivity of banking
sector. It discusses various Plastic Card Fraud awareness programs for the people to
understand what makes fraud? And what precautions can never let fraud? The article
concludes that the amount of frauds directly influences the number of users since the
certainty of loss of any policy would not get on.

OBJECTIVES

The objectives of the study are as follows-

1. To study the development of plastic money in banking sector usage trends.

2. To determine the factors for adoption of plastic money over benchmark 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 more secure
plastic cards.
RESEARCH METHODOLOGY
The Research study is Exploratory in nature. The Study is been carried out by taking a survey
of 100 respondents by non-probabilistic convenience sampling method from a city of Vellore
by using structured questionnaire and interview technique. The sampling frame that is used is
within the boundaries of Vellore Municipal Corporation. Secondary data is collected through
reference books, research papers, articles, and websites.