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Apart from the efforts from my end, the success of this project depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to J P Morgan India and the people who have been instrumental in the successful completion of this project.

I would like to show my greatest appreciation to Mr. Mohan Kumar. I cant say thank you enough for his tremendous support and help. I feel motivated and encouraged every time I attend his meeting. Without his encouragement and guidance this project would not have materialized.

The guidance and support received from all the team members including Ajay & Sachin who contributed and are contributing to this project, was vital for the success of the project. I am grateful for their constant support and help.


This is to certify that the Project work titled CREDIT CARD INDUSTRY IN INDIA

is a bonafide work carried out by Mr. SELWYN PEREIRA (Roll No LPGD/AP10/0782) a candidate for the Post Graduate Diploma examination of the Welingkar Institute of Management under my guidance and direction.

SIGNATURE OF GUIDE: NAME: Mr. Mohan Kumar DESIGNATION: AVP ADDRESS: J P Morgan India Private Limited Paradigm Towers, Mindspace, Malad West, Mumbai 400064

DATE: 29th AUGUST 2011 PLACE: Mumbai

TABLE OF CONTENTS Sr.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Contents Introduction to Credit Cards Characteristics of the Indian Market Different Types of Credit Cards and Features How Credit Card works Bank Credit Cards and Consumer Behavior Customer Analysis Competitive Landscape in India Recent events in the industry Advantages of credit card transaction Marketing of Credit card Types of Credit card usage Advertising & Promotion Credit Card Advertising Rules and Laws Methods and tools used in credit card industry to detect fraud Ways to Avoid Credit Card Fraud Smart Cards A window to the future Growth in the electronic payments sector Quantitative market research Uses of Smart Cards Disadvantages Of A Smart Card Conclusion & Recommendations Page Number 8 15 15 25 48 51 55 56 60 65 67 70 75 77 81 83 88 95 108 118 119

Introduction to Credit Cards

As far back as the late 1800s, consumers and merchants exchanged goods through the concept of credit, using credit coins and charge plates as currency. It wasn't until about half a century ago that plastic payments as we know them today became a way of life. Early beginnings In the early 1900s, oil companies and department stories issued their own proprietary cards, according to Stan Sienkiewicz, in a paper for the Philadelphia Federal Reserve entitled "Credit Cards and Payment Efficiency." Such cards were accepted only at the business that issued the card and in limited locations. While modern credit cards are

mainly used for convenience, these predecessor cards were developed as a means of creating customer loyalty and improving customer service, Sienkiewicz says. The first bank card, named "Charg-It," was introduced in 1946 by John Biggins, a banker in Brooklyn, according to MasterCard. When a customer used it for a purchase, the bill was forwarded to Biggins' bank. The bank reimbursed the merchant and obtained payment from the customer. The catches: Purchases could only be made locally, and Charg-It cardholders had to have an account at Biggins' bank. In 1951, the first bank credit card appeared in New York's Franklin National Bank for loan customers. It also could be used only by the bank's account holders. The Diners Club Card was the next step in credit cards. According to a representative from Diners Club, the story began in 1949 when a man named Frank McNamara had a business dinner in New York's Major's Cabin Grill. When the bill arrived, Frank realized he'd forgotten his wallet. He managed to find his way out of the pickle, but he decided there should be an alternative to cash. McNamara and his partner, Ralph Schneider, returned to Major's Cabin Grill in February of 1950 and paid the bill with a small, cardboard card. Coined the Diners Club Card and used mainly for travel and entertainment purposes, it claims the title of the first credit card in widespread use. Plastic debuts By 1951, there were 20,000 Diners Club cardholders. A decade later, the card was replaced with plastic. Diners Club Card purchases were made on credit, but it was technically a charge card, meaning the bill had to be paid in full at the end of each month.

According to its archivist, American Express formed in 1850. It specialized in deliveries as a competitor to the U.S. Postal Service, money orders (1882) and traveler's checks, which the company invented in 1891. The company discussed creating a travel charge card as early as 1946, but it was the launch of the rival Diners Club card that put things in motion. In 1958 the company emerged into the credit card industry with its own product, a purple charge card for travel and entertainment expenses. In 1959, American Express introduced the first card made of plastic (previous cards were made of cardboard or celluloid). American Express soon introduced local currency credit cards in other countries. About 1 million cards were being used at about 85,000 establishments within the first five years, both in and out of the U.S. In the 1990s, the company expanded into an allpurpose card. American Express, or Amex as it often is called, is about to celebrate its 50th credit card anniversary. Closed-loop system The Diners Club and American Express cards "functioned in what is known as a 'closed-loop' system, made up of the consumer, the merchant and the issuer of the card," Sienkiewicz writes. "In this structure, the issuer both authorizes and handles all aspects of the transaction and settles directly with both the consumer and the merchant." In 1959, the option of maintaining a revolving balance was introduced, according to MasterCard. This meant cardholders no longer had to pay off their full bills at the end of


each cycle. While this carried the risk of accumulating finance charges, it gave customers greater flexibility in managing their money. Bank card associations "The general-purpose credit card was born in 1966, when the Bank of America established the BankAmerica Service Corporation that franchised the BankAmericard brand (later to be known as Visa) to banks nationwide," Sienkiewicz writes. In 1966, a national credit card system was formed when a group of credit-issuing banks joined together and created the InterBank Card Association, according to MasterCard. The ICA is now known as MasterCard Worldwide, though it was temporarily known as MasterCharge. This organization competes directly with a similar Visa program. "The new bank card associations were different from their predecessors in that an 'open-loop' system was now created, requiring interbank cooperation and funds transfers," Sienkiewicz says. Visa and MasterCard still maintain "open-loop" systems, whereas American Express, Diners Club and Discover Card remain "closed-loop." Visa and MasterCard's organizations both issue credit cards through member banks and set and maintain the rules for processing. They are both run by board members who are mostly high-level executives from their member banking organizations. As the bank card industry grew, banks interested in issuing cards became members of either the Visa association or MasterCard association. Their members shared card program costs, making the bank card program available to even small financial institutions. Later, changes to the association bylaws allowed banks to belong to both associations and issue both types of cards to their customers.

Credit card processing evolves As credit card processing became more complicated, outside service companies began to sell processing services to Visa and MasterCard association members. This reduced the cost of programs for banks to issue cards, pay merchants and settle accounts with cardholders, thus allowing greater expansion of the payments industry. Visa and MasterCard developed rules and standardized procedures for handling the bank card paper flow in order to reduce fraud and misuse of cards. The two associations also created international processing systems to handle the exchange of money and information and established an arbitration procedure to settle disputes between members. Other issuers join the party Although American Express was among the first companies to issue a charge card, it wasn't until 1987 that it issued a credit card allowing customers to pay over time rather than at the end of every month. Its original business model focused on the travel and entertainment charges made by business people, which involved significant revenue from merchants and annual membership fees from customers. While these products are still in its tool chest, the company has developed numerous no-annual fee credit cards offering low introductory rates and reward programs, similar to as traditional bank cards. Another relatively recent entry into the card business is Discover Card, originally part of the Sears Corporation. According to Discover, its first card was unveiled at the 1986 Super Bowl. Discover Card Services sought to create a new brand with its own merchant network, and the company has been successful at developing merchant acceptance. A 2004 antitrust court ruling against Visa and MasterCard -- initiated by the

U.S. government and the Department of Justice -- changed the exclusive relationship that Visa and MasterCard enjoyed with banks. It allows banks and other card issuers to provide customers with American Express or Discover cards, in addition to a Visa or MasterCard. The future While the plastic card has been the standard for a half century, recent developments show alternative forms of payment rising to prominence, from online services such as PayPal to credit card keyfobs to chips that can be implanted into cell phones or other devices. But with the sheer volume of devices in use around America whose sole purpose is to read a flat piece of plastic with a magnetic stripe, the "card" in "credit card" is unlikely to pass from the scene any time soon. The Shape of Credit Cards Credit cards were not always been made of plastic. There have been credit tokens made from metal coins, metal plates, and celluloid, metal, fiber, paper, and now mostly plastic cards. First Bank Credit Card The inventor of the first bank issued credit card was John Biggins of the Flatbush National Bank of Brooklyn in New York. In 1946, Biggins invented the "Charge-It" program between bank customers and local merchants. Merchants could deposit sales slips into the bank and the bank billed the customer who used the card.


Diners Club Credit Card In 1950, the Diners Club issued their credit card in the United States. The Diners Club credit card was invented by Diners' Club founder Frank McNamara and it was intended to pay restaurant bills. A customer could eat without cash at any restaurant that would accept Diners' Club credit cards. Diners' Club would pay the restaurant and the credit card holder would repay Diners' Club. The Diners Club card was at first technically a charge card rather than a credit card since the customer had to repay the entire amount when billed by Diners Club.

American Express issued their first credit card in 1958. Bank of America issued the Bank Americard (now Visa) bank credit card later in 1958.

The Popularity of Credit Cards

Credit cards were first promoted to traveling 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.

Different Types of Credit Cards and Features

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 key to maintaining responsible credit card use. Types of Credit Cards 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 balance-transfer 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 traveling, 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 in the mail, some even 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. Business Credit Cards A business credit card offers the business owner the opportunity to keep business and personal expenses separate. The credit card may offer special business rewards and saving opportunities that go above and beyond what the individual credit card owner may have. Since money management is essential in successfully running a business, the card may offer an expense management service that will allow you to keep track of the outgoing money. You can obtain additional credit cards for employees who may need them for travel expenses and such as well as have a higher credit limit than you normally would on an individual credit card. Student Credit Cards Many credit card companies will issue student credit cards that have lower credit limits and fewer incentives to help keep their spending in check. Still, take note. Many college students graduate with a credit balance that averages between $3,000 and $7,000 and with interest rates, this can be a real problem when trying to pay them off. Prepaid Debit Cards Prepaid debit cards are one type of credit card that has grown significantly in recent years. With prepaid debit cards, you have actually prepaid and set the credit limit by depositing money onto the debit card. Depending on how much you have deposited into


the debit card's account depends on how much credit limit you want on that card. This is a great way to have the convenience of a credit card without the chance of charging more than you can afford to pay off. Credit Cards For Bad Credit It is possible, even with bad credit to obtain a credit card. These cards will come with some restrictions not typically found on other types of credit cards. Your credit limit will be lower and your interest rate higher. Some may require you to have a secured credit card, meaning you have to maintain a savings or some other type of account that will cover the expenses on the credit card. Once you have established that you will be responsible, some, if not all, of your restrictions may be lifted. Cash Back Credit Cards Many credit cards will now offer you cash back incentives for using their credit cards. Depending on how much your balance is and how often you use the credit card, you can earn cash back for your purchases. Some companies offer 1% off your balance while others, like Sears, will offer you cash off purchases made in their store. Either way, if you are planning on using a credit card, finding one that will offer you a cash incentive is a smart choice. There are 11 major types of credit cards being provided by banks and financial institutions in India. These cards provide a wide variety of financial benefits to holders. Following are various types of credit cards available in India: Premium Credit Cards Cash Back Credit Cards

Gold Credit Cards Airline Credit Cards Silver Credit Cards Business Credit Cards Balance Transfer Credit Cards Co-branded Credit Cards Low Interest Credit Cards Lifetime Free Credit Cards Rewards

There are some additional credit cards that are available in India as well. Rewards credit cards available in India can be subdivided into six categories Points, Hotels and Travels, Retail, Auto and Fuel. Premium Credit Cards There are 32 various premium credit cards available in India : ABN AMRO MakeMyTrip Go Credit Card ABN AMRO Platinum Credit Card ABN AMRO Titanium One Credit Card American Express Kingfisher First Credit Card American Express Platinum Credit Card Axis Bank Visa Platinum Credit Card Bajaj Allianz Super Value Titanium Credit Card Citibank Platinum Credit Card Deutsche Bank Landmark Platinum Credit Card

Deutsche Bank Miles & More Platinum Credit Card Deutsche Bank Miles & More Signature Credit Card Deutsche Bank Platinum Credit Card HDFC Bank Platinum Plus Credit Card HDFC Bank Titanium Credit Card HDFC Bank Visa Signature Credit Card HSBC Platinum Credit Card ICICI Bank Ascent American Express Credit Card ICICI Bank Platinum Credit Card ICICI Bank Platinum Identity Credit Card ICICI Bank Platinum Premiere Credit Card ICICI Bank Thomas Cook Titanium Credit Card ICICI Bank Titanium Credit Card ICICI Signature Credit Card Jet Airways Citibank Platinum Credit Card Kotak Mahindra League Platinum Credit Card Kotak Mahindra Royal Signature Credit Card SBI (State Bank of India) Platinum Credit Card Standard Chartered Emirates Platinum Credit Card Standard Chartered Emirates Titanium Credit Card Standard Chartered Platinum Credit Card Standard Chartered Super Value Titanium Credit Card Yatra Barclaycard Platinum Credit Card


Gold Credit Cards There are 40 gold credit cards available in India :

ABN AMRO Smart Gold Credit Card American Express Gold Charge Card American Express Gold Credit Card American Express HPCL Credit Card Axis Bank Gold Credit Card Axis Bank Gold Plus Credit Card Axis Bank Secured Credit Card Barclays Bank Gold Credit Card BOBACRD Gold MasterCard Credit Card BOBACRD Gold Visa Credit Card Cancard Visa International Gold Credit Card Citibank Cash Bank Credit Card Citibank Gold Credit Card Deutsche Bank Landmark Gold Credit Card Deutsche Bank Smart Gold Credit Card HDFC Bank Gold Business Credit Card HDFC Bank Gold Credit Card

HDFC Womans Gold Credit Card HSBC Gold Credit Card ICICI Bank Airtel Gold Credit Card ICICI Bank Big Bazaar Gold Credit Card ICICI Bank Gold American Express A Credit Card ICICI Bank HPCL Gold Credit Card ICICI Bank Orchid An Ecotel Credit Card ICICI Bank Solid Gold (MasterCard) Credit Card ICICI Bank Solid Gold (Visa) Credit Card ICICI Bank Toyota Credit Card ICICI Bank Travel Smart Credit Card IndianOil Citibank Gold Credit Card Jet Airways Citibank Gold Credit Card Jet Airways CitiBusiness Credit Card Kotak Mahindra Fortune Gold Credit Card Kotak Mahindra Trump Gold Credit Card NEXTGEN BOBCARD Gold Credit Card


Reliance Gold Credit Card SBI Gold and More Credit Card SBI UBI (United Bank of India) Gold Credit Card Standard Chartered Gold Credit Card Standard Chartered Rotary Credit Card Times Card from Barclaycard and Times of Money

Cash back India Credit Cards - There are 20 different cash back credit cards available in India and these cards offer a host of lucrative financial rewards to the cardholders. HSBC Gold Credit Card - Following are some salient features of HSBC Gold Credit Card: There are 0% fuel surcharge facilities available at all outlets. Renewal fees is INR 2,000. There is balance transfer option. Regular interest rate is 3.1% per month. There is a maximum of 10% cash back offered on travel bookings. Cash advance fee is 2.5%. Minimum cash advance fee is Rs. 250. Credit limit is high.

Issuer is VISA. There are no joining fees. Issuing bank is HSBC. Citibank Cash Back Credit Card Following are some facts about Citibank Cash Back Credit Card:

There is a maximum of 30% cash back. This offer is available at some selected outlets in India.

Cash advance fee is 2.5% per month. Minimum cash advance fee is INR 250. Cardholders always receive cash back benefits upon swiping the card at a particular outlet.

Card issuer is VISA. There is a fuel transaction waiver. The rate is 2.5% and offer is valid only in petrol pumps of Indian Oil.

Issuing bank is Citibank. There are no joining and renewal fees. There is 0% fuel surcharge facility that is available only at Indian Oil outlets. Regular interest rate is 3.19% or 38.28% per annum.


ABN AMRO Titanium One Credit Card - Following are main features of ABN AMRO Titanium One Credit Card: There is a maximum of 2% cash back that is available on regular purchases. Renewal fee is INR 2,000. There is a maximum of 5% cash back that is available on payments of utility bills. Regular interest rate is 3.5% per month. There is 0% fuel surcharge facility that is available at all outlets. Cash advance fee is 2.5%. Minimum cash advance fee is INR 300. There is balance transfer option. Issuer is MasterCard. Credit limit is high. Issuing bank is ABN Amro. Joining fee is INR 500.

Following are some other cash back credit cards that are available in India: Deutsche Bank Landmark Platinum Credit Card SBI Gold and More Credit Card ABN AMRO One Credit Card

SBI (State Bank Of India) Silver and More Credit Card HDFC Bank Gold Credit Card LG SBI Credit Card HDFC Womans Gold Credit Card Axis Bank Visa Platinum Credit Card HDFC Bank Platinum Plus Credit Card Taj Epicure Diners Club Credit Card HDFC Bank Platinum Plus Credit Card Kotak Mahindra Trump Gold Credit Card HDFC Bank Value Plus Credit Card ICICI Bank Ascent American Express Credit Card Standard Chartered Super Value Titanium Credit Card ICICI Bank Platinum Identity Credit Card Bajaj Allianz Super Value Titanium Credit Card

How credit cards 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 out-of-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. Who all are Involved? Besides the Credit Card Holder and the merchant, there are quite a few intermediaries involved in a typical credit-card transaction process. The Visa and MasterCard organizations are cooperative ventures owned by the banks that issue their cards. In addition to the organizations themselves, there are two banks involved in most creditcard transactionsthe acquiring bank that handles the merchants credit-card account and the issuing bank that issued the card to the Card Holder(unless both the banks are same).

In order to make the transaction flow faster as well as smooth, these three companies cooperate in passing information very quickly. The cardholders issuing bank has up-todate information on the customers account status. However, it would be difficult if each merchant had to figure out which bank issued the card and call a specific phone number for each bank (as there are many banks that issue credit cards). To make the process less complicated, Visas computers and the card issuers computers work together so that the merchant can communicate only with the Visa network, which then routes the request to the appropriate bank to transmit account information. The Visa network also coordinates the transfer of funds from the issuing bank, which pays for the merchandise and extends credit to the customer through the acquiring bank, which holds an account in the merchants name. The settlement process has become much faster with the advent of electronic processing system. Win Win Situation Each of the banks as well as the Visa or MasterCard organization involved spends lots of money on the computers, information management systems and the personnel that operate its credit-card services. The Visa and MasterCard organizations are mainly funded by membership dues and fees paid by the banks that make up the organizations. There are mainly two ways; the banks can get the revenue from credit-card transactions:


First, the acquiring bank charges a fee to the merchant in the form of a discount on credit-card transactions. For example, if the customer (credit card holder) needs to pay Rs.100 on any item, the merchant receives only a credit of Rs.98 or so. The acquiring bank keeps about two percent of the transaction amount, some of which is shared with the issuing bank through an interchange fee that is paid by the merchants bank to the cardholders bank. The second source of revenue is the fees and interest charges that issuing banks collect from their cardholders. These revenues depend not on the number or size of transactions, but on the number of cardholders paying annual fees and on the volume of cardholders balances that are not paid off within the grace/free credit period on or before interest begins to be charged. The acquiring bank gets revenue by withholding about two percent of the value of each transaction, the issuing bank gets revenue by the interchange fee it receives from the acquiring bank and through any charges it collects from cardholders. The Visa and MasterCard networks receive money from dues and fees paid by all of the banks that belong to their systems. It is a win-win situation for credit card holders also as there is no need of carrying cash and at the same time the customers can enjoy the free credit (grace) period. Online Credit Card Transactions


It seems natural that online commerce would be done with credit cards. No physical paper needs to be passed unlike cash or checks. We simply type our credit card number into the merchant's World Wide Web (WWW) page payment form and wait for our purchase to be shipped to us. The only thing that needs to pass between the merchant and the buyer is the credit card number. The problem is, it's not that simple. People have some legitimate fears about giving their credit card number out over the Internet. It is an open network without any basic security provisions built in. Unless a secure server is involved, one that uses SSL or S-HTTP for transporting data, data passes between the browser and the server unencrypted. Because of these fears, methods are being developed to make purchasing products online more secure. The first attempt at making online credit card transactions secure was to take the transaction off-line. Many sites will allow you to call in your credit card number to a customer support person. This solves the problem of passing the credit card number over the Internet, but eliminates the merchant's ability to automate the purchasing process. An employee needs to be available 24 hours a day to take phone calls from buyers. Also, many potential customers that visit the net only have one phone line. This means they need to log off the Internet in order to actually make a purchase. The next method that was developed, which is currently used by many sites, is hosting the WWW site on a secure server. A secure server is one that uses a protocol such as SSL or S-HTTP to transmit data between the browser and the server. These protocols encrypt the data being transmitted, so when you submit your credit card number through their WWW form it travels to the server encrypted. This method does help ease


people's fear, but it still does not go far enough for many people to feel comfortable using their credit card online. It was apparent that for online commerce to flourish a truly secure means of making payment needed to be developed. This report describes three systems for secure credit card transactions online which should meet this need. Two of these fully operational, First Virtual's and CyberCash's payment systems, and one, the SET protocol, is currently being developed by MasterCard and Visa. I examine how credit card transactions are handled by each system, and discuss their advantages and disadvantages from both a buyer's and a merchant's viewpoint. First Virtual Holdings First Virtual was one of the first Internet payment systems to be available to the public, becoming fully operational in October of 1994. A main goal of this company was to create an Internet payment system that was easy to use. Neither buyers nor sellers are required to install new software, (though automated sale processing software is available). If you have access to Internet email, you can sell or buy over the Internet using the First Virtual System. The First Virtual payment system is unique in that it does not use encryption. A fundamental philosophy of their payment system is that certain information should not travel over the Internet because it is an open network. This includes credit card numbers. Instead of using credit card numbers, transactions are done using a First VirtualPIN which references the buyer's First Virtual account. These PIN numbers can be sent over the Internet because even if they are intercepted, they cannot be used to


charge purchases to the buyer's account. A person's account is never charged without email verification from them accepting the charge. Their payment system is based on existing Internet protocols, with the backbone of the system designed around Internet email and the MIME (Multipurpose Internet Mail Extensions) standard. First Virtual uses email to communicate with a buyer to confirm charges against their account. Sellers use either email, Telnet, or automated programs that make use of First Virtual's Simple MIME Exchange Protocol (SMXP) to verify accounts and initiate payment transactions. The following steps occur during a sale when using the First Virtual payment system: 1. Merchant requests buyer's First VirtualPIN (usually through a form on a WWW page). 2. Merchant can then check whether the VirtualPIN actually belongs to a real First Virtual account that is in good standing. Merchants can verify accounts by using the following programs; Finger, Telnet, email, or the FV_API utility.

Note - Verifying the account is an optional step in the sale process.

3. The merchant then initiates a payment transaction through First Virtual. This payment transaction is initiated by sending the following information either by email, Telnet, or a SMXP enabled program to First Virtual;
o o o

Buyer's First VirtualPIN Merchant's First VirtualPIN The amount and currency of the sale (Not everything is processed in dollars!)


A description of the item for sale

4. First Virtual generates an email request to the buyer to confirm the sale. This email request contains the following sale information:
o o o

The merchant's full name The amount of the sale A description of the item bought

5. Buyer confirms sale by sending a YES response to back to First Virtual


A buyer can also respond NO, to state that they are unsatisfied with the item and are unwilling to pay, or FRAUD, to state that they never made the purchase and someone must have stolen their VirtualPIN.

If a buyer does not respond in a reasonable time, their account is suspended.

6. First Virtual sends a transaction result message to the merchant, indicating whether the buyer accepted the charges. 7. After a waiting period, (91 days after buyer's credit card has been charged), the amount of the sale minus transaction fees are directly deposited into the merchant's account.

Note - The 91 day waiting period is in place to protect First Virtual from buyers who dispute the charge on their credit card and have the credit card company chargeback First Virtual for all or part of the sale.

Merchant assumes all risk!

The First Virtual payment system has several advantages and disadvantages over other payment systems used on the Internet.


Neither buyer or seller needs to install any software in order to use the system. Buyers are virtually 100 % protected from fraud. No charges are processed against their account without their confirmation.

Purchases are essentially anonymous. The merchant is never given the buyer's name from First Virtual.

It is extremely easy to become a merchant, or seller, under First Virtual. First Virtual does not screen merchants, nor do they require merchants to have a special business accounts established with a bank. All a person needs to sell merchandise, services, data, etc.. over the Internet is an ordinary checking account.

First Virtual has very low processing fees compared to other Internet payment schemes or even straight credit card processing.


Merchant assumes all risk! Extremely long waiting period between when a sale is made and when payment is deposited in the merchant's account.

CyberCash CyberCash has been servicing credit card transactions over the Internet since April 1995. It has strong ties to the current credit card processing infrastructure, through Bill Melton, a founder of Verifone, as one of its fathers. The use of their payment system


has grown tremendously over a year. CyberCash claims that they process thousands of transactions a day, they can send payment transactions to 80% of the banks in America, and to have distributed over 400,000 copies of CyberCash Wallet software to buyers who use their system. It is important to note that CyberCash is not a credit card processing company. Unlike First Virtual, they do not transfer funds into the merchant's account. CyberCash sells safe passage over the Internet for credit card transaction data. They take the data that is sent to them from the merchant, and pass it to the merchant's acquiring bank for processing. Except for dealing with the merchant through CyberCash's server, the acquiring bank processes the credit card transaction as they would process transactions received through a point of sale (POS) terminal in a retail store. The CyberCash payment system is centered around the CyberCash Wallet software program, which buyers use when making a purchase. This program must be downloaded and installed on the buyer's machine before they can make a purchase. This program handles passing payment information, encrypted, between the buyer and the merchant. Once a potential buyer has obtained the CyberCash Wallet and installed it, there are still a few steps to take before it can be used. First, a buyer needs to create a persona or wallet ID which is a string of characters which identify the wallet, and a password. These are then registered with CyberCash. Buyers are allowed to create more than one wallet ID, each with its own password. Secondly, they must bind at least one credit card to the wallet. Binding a credit card entails entering pertinent credit card processing information such as credit card number, expiration date, shipping address and phone

number. This information is then registered with CyberCash. Buyers can bind multiple credit cards to the wallet. Once the wallet ID is established, and at least one card has been bound, the buyer is ready to start purchasing. To be able to accept payment using the CyberCash system, merchants must do two things. First, the merchants must install the CyberCash Internet Payment Software (SMPS). This software allows the merchant to interface with both the CyberCash buyer, or Wallet software, and CyberCash's servers. Secondly, the merchant must establish a merchant account with an acquiring bank that supports Internet transactions using CyberCash's Secure Internet Payment System. CyberCash can only communicate with banks they have an agreement with.

Steps to a credit card purchase using CyberCash's payment system: 1. The buyer indicates that they want to purchase an item from the merchant's WWW site by clicking on the CyberCash pay button. 2. The merchant's SMPS software sends an invoice to the buyer's CyberCash Wallet software.

The CyberCash Wallet is registered as a helper application to the buyer's WWW browser. It is invoked by the browser whenever it downloads a file with the MIME content encoding of application/x-cybercash.

3. The buyer selects a credit card from the ones bound to their wallet and clicks



4. The Buyer's CyberCash Wallet then digitally signs and encrypts the invoice and credit card information with the key assigned to that Wallet-ID. The encrypted packet is then sent to the Merchant's SMPS software. 5. The merchant software adds information to the payment packet requesting that either the credit card payment be authorized or authorized and captured.

Under normal credit card operating procedures, i.e.. a merchant using a POS terminal, the merchant only receives authorization when the sale actually happens, and then that night sends all the credit card payments to the acquiring bank to be captured.

CyberCash is working on allowing batch capture processing and may have it in place by the time you read this.

6. The merchant's SMPS software digitally signs and encrypts the payment packet with their CyberCash key. The packet is then sent to the CyberCash server.
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The merchant never sees the customers credit card number. The payment packet is encrypted twice before arriving at CyberCash's server, once by the buyer's software and once by the merchant's.

7. CyberCash's server moves the packet to a machine that resides behind their firewall and off the Internet. CyberCash then decrypts the message and checks to make sure that the merchant has not tampered with the original invoice agreed upon by the buyer. 8. The credit card information, with the merchant's request (authorize or authorize and capture), is encrypted using hardware that banks use for encrypting financial


data. This information is sent over dedicated lines to the merchant's acquiring bank. 9. The merchant's acquiring bank then processes the merchant's request as it would any other credit card transaction. It forwards the request through the card associations network to the card issuing bank.

Discover and American Express cards are not associated with an issuing bank. Authorizations and captures are performed through the card company itself for these particular cards.

10. The card-issuing bank sends an approval or denial code back to the acquiring bank. The acquiring bank then sends this code to CyberCash. 11. CyberCash sends the merchant a message indicating success or failure of the credit card payment transaction. This message is of course sent encrypted. 12. CyberCash claims that the process up to this point should only take between 15 to 20 seconds. 13. The merchant's SMPS software then sends a message back to the buyer's CyberCash Wallet indicating success or failure of the payment transaction. As with First Virtual, the CyberCash system has its own set of advantages and disadvantages. Advantages:

CyberCash uses strong encryption for transporting payment information.


They claim to be the only Internet payment company granted an export license to use RSA's 786 bit encryption algorithm.

The Merchant does not see the buyer's credit card number. Merchants do not have a waiting period for receiving payment, as with First Virtual. The merchant's bank account is credited within in the normal time frame for credit card transactions.


Potential buyers and merchants must both install extra software in order to use the system. This makes the system harder to use for people with little computer experience.

Merchants need to have an account with an acquiring bank that accepts CyberCash Secure Internet Payments.

CyberCash is one of the pioneering companies in Internet payment systems. They currently have little competition in handling credit card transactions over the Internet. This will change. The release of the SET protocol (see below) will make it easier for other companies to provide Internet credit card payment systems. CyberCash is reacting to this by expanding their operations to include other types of Internet payment services including digital cash (e-cash) and micropayments. CyberCash will support the SET protocol, once it is released. They have always stated that they would support open standards for credit card processing once they existed. In fact, CyberCash is one of the companies working on developing the SET Protocol. SET capabilities will be added to their current software, and they also plan on selling SET gateway services to acquirers.


SET (MasterCard/Visa) SET stands for Secure Electronic Transactions and is a proposed standard for performing credit card transactions over the Internet. It is being developed jointly by Visa and MasterCard, with technical assistance from various Internet, information systems, and cryptology companies such as Netscape, IBM and VeriSign. With these names behind it, in the future SET may very well become the dominant method for paying by credit card over the Internet. MasterCard and Visa are developing SET as a license-free protocol for credit card transactions over the Internet. Even though it is being developed by MasterCard and Visa, the protocol can be used by any type of credit card such as American Express or Discover. It is important to note that SET is still a work in progress. Visa and MasterCard have released drafts of both the business and technical specifications of SET for public comment. MasterCard states that testing of SET should start in the second quarter of 1996, and it should be available for use by the fourth quarter. There are several goals they want to achieve by creating this protocol. First, they want to create a simple, inexpensive way for merchants to conduct credit card sales over the Internet. Second, they want to produce a protocol for processing credit card transactions that would have little impact on the existing financial infrastructure. Third, the SET protocol will allow software vendors to produce credit card payment software that will interoperate. Also, by being an open, license-free standard, SET will create a level playing field and insure competition among software vendors. This should keep costs down for merchants and financial institutions interested in processing credit card payments over the Internet.

On the surface, the SET protocol looks very similar to the CyberCash payment system. Merchants and buyers will both need software which follows the SET protocol in order to use SET for credit card transactions. Also, acquiring banks process credit card transaction requests delivered to them through SET in much the same way as the process requests coming through a point of sale terminal. Merchants can request the same type of transactions (authorize, authorize and capture, etc..) as they can through CyberCash. There are differences between CyberCash and SET. CyberCash takes an active role in processing each credit card transaction that flows through their system.. CyberCash's server sits in between the merchant and the acquiring bank. It verifies the identity of the buyer and the merchant involved in the transaction. The server also handles the translation from a CyberCash format for transaction data to the format used by the acquiring banks. With SET, There is no single company which will be responsible for processing the transactions. The task of translation from SET request format to the format used by acquiring banks is done by the SET payment gateway. These gateways will either be run by companies contracted by the acquiring banks to do so on their behalf (most likely), or by the acquiring banks themselves. Identity verification of buyers, merchants, and acquiring banks is not handled by a centralized server. SET uses a system of certificates for party verification. Certificates are like the stamp a notary public places on a document to confirm the signatures on it. Certificates are issued by a trusted entity or "certificate authority" that can vouch that the party presenting a digital signature is who they say they are. The certificate shows that the signature has been proven to belong to the party in question. These certificates are passed between the

buyer's, merchant's, and acquirer's payment gateway software to prove that each entity involved in the transaction is who they claim to be. For a fairly understandable and detailed explanation of how certificates work within the SET protocol, I advise the reader to download a copy of the SET business specifications. The SET payment process is slightly more complicated than the others discussed in this paper because of the need to pass public keys between parties and verify certificates during the transaction. The payment process outlined below follows the outline set forth in the SET business specifications. It shows a merchant requesting authorization of the credit card transaction at the time of sale, and then requesting the actual capture (charging the account) at a later time. The document does state that SET allows for the capture of the credit card charge at the same time of authorization. However, I think they wanted to present a case which closely reflects the sequence of events that takes place under credit card transactions conducted through normal retail channels. Steps in making a credit card purchase using the SET protocol: 1. The buyer indicates that they are interested in making a credit a card purchase. 2. The merchant's system generates and sends the buyer an invoice for the purchase.

This process is not currently specified in the SET protocols. As it stands, the protocol only details what happens once the buyer's software responds to this invoice.

The buyer is running software similar to the CyberCash Wallet which will handle the acceptance of the invoice and the transmission of the buyer's


credit card data to the merchant. This software may be built into the buyer's WWW browser. 3. The buyer selects a VISA or MasterCard credit card for payment from the ones they can use with their SET payment software. 4. The buyer's software initiates the payment process by sending a request to the merchant's software for both their encryption public key and the public key of the payment gateway (acquiring bank's system) that the merchant uses. The request indicates the type of credit card the buyer will use, as a merchant may use different payment gateways for different types of cards (probably not).

The buyer's software needs both the merchant's and payment gateway's (acquiring bank) public keys before it can send credit card data to the merchant.

5. The merchant's software generates a response to the request and replies back to the buyer's software. This response includes:
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A unique transaction identifier generated by the merchant's system The certificate for the merchant's public key The certificate for the payment gateway's public key

Note - a certificate is an authenticated version of a public key. The certificate can be linked backed to the entity that issued it. By issuing the certificate, the issuing entity ,or certificate authority, is stating that this public key actually does belong to the party claimed within the certificate.

6. The buyer's software then verifies the merchant's and payment's gateways


Please read the SET business specification for information about this verification process.

7. The buyer's software generates two packets of information to send back to the merchant, the Order Information packet (OI), and the Purchase Instructions (PI) packet. Each packet is encrypted separately. The PI is encrypted with the payment gateway's public key since the merchant is not meant to have access to it.

The OI is data meant for the merchant to see. It contains the transaction identifier, brand of card being used, and the transaction date. The merchant does not get to see a copy of the buyer's credit card number.

The PI is data meant for the acquiring bank to use when processing the transaction. It is tunneled through the merchant to the payment gateway. By tunneled through, I mean that the merchant does not decrypt the packet and process it, but passes it to the payment gateway untouched. The PI includes:

Credit card number and expiration date Purchase amount agreed to by the buyer Description of the order

A precise definition of what information is contained in these and other packets and messages used in the SET protocol can be found in the SET technical specification.

8. The buyer's software transmits the OI and PI to the merchant.


9. The merchant's software checks the message from the buyer with the OI and PI for any tampering. If no tampering is found, the software starts the process of requesting authorization from the merchant's acquiring bank. 10. The merchant's software generates an authorization request for the credit card payment request. Included in this request is the transaction identifier that the merchant generated at the beginning of the payment process. 11. The merchant sends to the payment gateway of their acquiring bank a message encrypted using the payment gateway's public key. This message includes the following:
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The authorization request The PI packet sent from the buyer The merchant's certificate authority with their public key

12. The payment gateway then decrypts the message and its various components such as the PI from the buyer. It checks the various parts of the message for any tampering. These checks include:

Making sure the transaction identifier in the authorization matches the one in the buyer's PI packet.

The merchant has not tried to tamper with the data in the buyer's PI packet.

13. The payment gateway then sends a request for payment authorization to the buyer's credit card issuer through customary bankcard channels, i.e.. the same as the acquiring bank would request authorization for any typical credit card transaction.


14. The issuing bank sends back an approval or denial response and code to the payment gateway in response to the authorization request. This happens over regular bankcard networks. 15. The payment gateway generates an authorization response message to be sent back to the merchant. This message includes:
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The issuing bank's response An optional capture token to be used by the merchant when requesting capture of the sale later on (May be used by the acquiring bank to find the original authorization request from their records.)

16. The payment gateway encrypts and sends the authorization response message back to the merchant's software. 17. The merchant's software decrypts the authorization notice from the payment gateway. It examines the notice to find out if the request was approved or not. It then stores the authorization response and capture token sent by the payment gateway for later use when capturing the sale. 18. If the transaction is approved, the merchant's software then creates a purchase response message which is sent to the buyer's software. This message informs the buyer that payment was accepted and that the product or service that they purchased will be delivered. 19. The buyer's software processes the purchase response message and informs the buyer that payment was accepted. 20. At a later time, the merchant's software generates a capture request message to send to the payment gateway. This request includes the capture token (optional),


transaction ID, and authorization information. The sequence of events surrounding the capture are very similar to steps 13 - 15 of the authorization process. It is important to remember that steps 4 through 19 of this process will happen in a matter of seconds. This is the sequence of events surrounding a "normal" credit card transaction. These transactions can vary depending on the circumstances. SET allows for variations such as performing the authorization and capture at the same time for merchants that require real time processing. The SET protocol provides the following advantages and disadvantages over other payment systems: Advantages:

Eliminates the need for a third party to monitor Internet credit card transactions. This will lower the cost of doing credit card business over the Internet.

Strong encryption and authentication scheme to be used. Merchant does not have access to the buyer's credit card number. Merchants do not have a waiting period for receiving payment, as with First Virtual. The merchant's bank account gets credited within in the usual time frame for credit card transactions.

Is backed by MasterCard and Visa.



It is not ready for use yet. The SET protocol was just released for public comment in February 1996.

Buyers and merchants will need to install software which allows SET transactions processing. Acquiring banks will either need to contract with a company to run a SET Internet gateway for them, or install a SET Internet gateway themselves.

Merchants will need to have an account with an acquiring bank or card processor that is set up to accept SET transactions.

With MasterCard and Visa putting their weight behind SET, it should probably become the dominant method of doing credit card transactions over the Internet. Companies are already starting to develop software to process SET transactions for buyers, merchants and acquiring banks.

Bank Credit Cards and Consumer Behavior

Bank credit card is one of today's most ubiquitous financial instruments (Wolters, 2000). For bank management perspectives, identifying the appropriate market for the credit card, interpreting consumers needs for the product and developing business strategies are crucial to cope with fierce competition in the credit card market. In addition, Bernthal, Crockett, and Rose (2005) indicated that credit cards came with important technology to help facilitate several financial transactions for consumers, but the cards have capacity to support consumers in their everyday life activities without much concerning about cash in hands. Brito and Hartley (1995) observed that another important service on credit card was about borrowing on credit cards. However, such borrowing came with high interest rates which might appear irrational, but low

transactions costs can make credit cards attractive relative to bank loans. In addition, credit cards offer liquidity services by helping consumers to avoid some of the opportunity costs of holding money. Goyal (2004) stated that service products, such as credit cards, being intangible and experiential in nature are different to evaluate prior to purchase and consumption. Information regarding supplementary services can help consumers make pre-purchase evaluation of credit cards. In addition to pre-purchase evaluation, the impact of supplementary services is studied towards post-purchase evaluation of credit card services. Cargill and Wendel (1996) answered the question about the way credit cardholders using their credit cards and found that consumers are rational with respect to credit card usage. Understanding card usage rationality assists credit card issuers to formulate strategy to cope with competition and to provide better services for consumers. Moreover, d'Astous and Miquelon (1991) stated that for credit card users, choosing a suitable credit card requires a knowledge of one's credit card usage and comparison information on credit card costs. Chebat, Laroche, and Malette (1988) conducted the credit card research on English-speaking and French-speaking Canadians in Toronto and Montreal, focusing on their attitudes toward credit cards. Both groups are satisfied with benefits from using credit cards, improving their financial situations. In addition, the English group was concerned about costs, accuracy, safety, practicality, and facilitation, while the French group is concerned about costs, accuracy, over-consuming, and overspending. As for the impact of customer characteristics, income and education positively affect usage. Stanghellini (2003) investigated that finance agencies, including banks, have started to

develop new products aiming not only to increase their portfolio but also to maintain good relationships with existing customers and to prevent undesired behaviors of highdefault risk customers. This suggests that understanding the behaviors of the customers is significant for financial operations, because the customers can be either profitable or unprofitable. Devlin, Worthington, and Gerrard (2007) the results suggest that credit card providers should always keep in mind about whether the discounts they offer, the promotions they arrange and their loyalty schemes are superior to those offered by competitors. Being responsive to competition is also an important key to succeed. Several researchers conducted consumer behaviors and the role of credit cards. Lunt (1992) stated that it is important for banks offering credit card services to study what makes consumers who have 5 or 6 credit cards use one rather than another when making a purchase to determine marketing techniques. Among many factors affecting card adoption include high credit limit, quality customer service, fair fees, and a fair interest rate are the factors that count at the point of sale. In addition, lower interest rates, cash advance checks with low rates, and sweepstakes are some of the marketing promotions used by banks. Some other promotions were cashback bonuses and no annual fee. Moreover, Sulaiti, Ahmed, and Beldona (2006) studied the role of credit card on consumer behavior and found that credit card usage by consumers across the oilrich Arab countries (such as Qatar, Bahrain, and Kuwait) is changing in their consumption behavior, because having credit card motivates Arab consumers to buy more often, and encourage promoting impulse buying. Carow and Staten (2002) found that convenience and rebates are the main reasons for using a bank credit card. Furthermore, Hayhoe, Leach, Turner, Bruin, and Lawrence (2000) found that affective

credit attitude (feeling about using credit cards) and gender influenced college students' credit purchasing. Affective credit attitude predicted the purchase of clothing, electronics, entertainment, travel, gasoline, and food away from home. Their results also indicated that gender differences in the relationship between financial practices, financial stress, affective credit attitude and the number of credit cards with a balance. Lee and Kwon (2002) found that consumers' usage of store credit cards is related to a number of variables, including the use of bank cards, credit history, attitude toward credit, income, education, and ethnicity. It is important for banks to develop marketing strategies to attract and win competition in the industry. Devlin, Worthington, and Gerrard (2007) examined credit cardholders carrying many credit cards at the same time. In this case, there were main credit cards (most often used cards) and subsidiary cards (rarely used cards) and the respondents stated that their subsidiary cards were held for "stand-by purposes". Bielski (2001) suggested that development of loyalty programs and e-commerce programs that all add to a high quality customer experience for credit card business. Moreover, those programs can attract and retain credit card users.

Customer Analysis
Understanding the importance of customer retention and methods of identifying profitable clusters in a highly competitive Credit Card market environment. Developing tools for customer identification, loyalty programs and market


segmentations and analysis, studying market size and applying analytics for future business potential. The existence of Financial/Credit Card Industry has a very little value without the existence of the customers. In modern world, the Credit Card sector is one of the fastest growing profit centers in the financial services industry. In the credit card business, the longer-term the customers is with the firm, more the profit. In fact, given the high cost of acquisition in many markets, credit cards only become profitable if a customer remains for a certain length of time. So, the aim is not only to create and win more and more customers but also to retain them through effective customer service. In response to increasing customer demand, credit card companies are increasingly seeking to differentiate themselves through offering a wider range of card services and benefits. With rising competition, product improvement alone is not enough to capitalize on the current industry trends. In a time of changing consumer values and economic uncertainty, the marketing function has a more strategic role to play in driving growth and high performance for any industries. In this modern world customers have more information and more choices than ever. Fortunately, the organizations can employ their powerful analytical tools to understand and engage customers today and anticipate their needs tomorrow. The discipline of analytics can serve to identify the segments that matter most, uncover useful insights about the behavior and point out the way to process changes that can surely make a difference in customer loyalty and profitability. For any Financial Institution, it is important to know who their Most Valuable Customers (MVCs) are so that more resources may be used to market relevant

products and services to these MVCs while fewer resources should be expended on unprofitable customers. The goal is to make the right offer to the right customer at the right time through right channel. Such customer knowledge can immediately and significantly reduce total cost while, at the same time, increase sales with individual customers. This strategy enables an organization to anticipate greater returns from its campaigns, a reduction in costs, as well as increase in conversion rates. Traditionally, most of the financial organizations are organized around product-centered and function-centered models rather than a customer-centered model. By becoming truly customer-oriented, a financial organization can achieve the following benefits:

Higher returns on invested capital(for e.g. improve the ROI of marketing campaigns

More profitable customers Lower capital costs (due to the consistency of financial results that comes from those long-term, carefully managed customer relationships)

Larger investment opportunities (due to their understanding of customer finances and unmet needs)

Build a foundation for highly targeted marketing (the Financial Organizations do not want to treat all customers alike nor does they want to treat them all differently. Create more or less homogenous groups in terms of their needs and expectations)


Improve cross-selling through segmentation schemes that reveal growth potential of specific groups

Decrease customer churn by isolating loyalty drivers and optimizing retention offerings

Improve decision making through dashboard reporting that integrates business intelligence

Anticipate shifts in customer priorities Financial Institution with clientele from various segments could think of market penetration by offering the existing range of services to existing customers.

Financial Institutions which are not facing acute competition could think of Market Development by offering the existing services to new customers

Design new product range for their customers of various segments based on their needs (Market segments, targeting one or more segments, developing products and marketing programs, tailor-made for these segments)

Customer Segmentation


Method of Segmentation Credit Card Organizations can try to understand the group behaviour patterns, demographics, and attitudes. Such analysis enables organizations to develop appropriate product offering strategies or to identify MVCs. Here are couple of common segmentation methods:

Statistical Segmentation (grouping, prediction, factor analysis, cluster, RFM Analysis)

Manual Segmentation/Tree (CHAID/CART etc.)


Market Basket Analysis (product using sequences) Can create segment based on attitudinal behaviour (Survey data can help here but extrapolation might be a problem. But classification techniques like Discriminant Analysis definitely can help in this situation).

Competitive Landscape in India

Unlike debit cards, credit cards are governed by domestic commercial banks. ICICI and HDFC together account for around 38% of the total credit cards in circulation in 2009 and almost 46% in term of value transaction in the same year. However in 2009 there was no aggressive competition as banks where shifting from unsecured to secured forms of business in order to remain profitable. According to industry sources, ICICI has the largest network of POS terminals with over 40% of the total market share, followed by Axis bank and HDFC.

Recent events in the industry

Industry observers have found that there is a strong correlation between the growth of the debit and prepaid market in India, and that of the mobile phone market, showing that this region presents phenomenal opportunities. A recent estimate by Visa Inc puts the target population for credit and debit cards in

India at 200 million. Yet there are about 400 million Indian people who don't have a bank account. It is this combined 600 million which should be viewed as the true target market for prepaid cards. Providing intelligent insight into the Indian prepaid and debit card industry, this VRL report gives your business the expertise to take advantage of this emerging market. Focusing on target market The number of Indian prepaid cards in issue is almost embarrassingly small. According to the Prepaid International Forum there are around 4 million prepaid cards in India. This comprises a mere 2% of total debit cards (there are 185 million debit cards in India), but the targeted population for prepaid cards by any measure has to be considerably larger. A recent estimate by Visa Inc puts the target population for credit and debit cards in India at 200 million. Yet there are about 400 million adult Indians who don't have a bank account. It is this combined 600 million which should be viewed as the true target market for prepaid cards.

The existing market for Indian debit/prepaid cards Unsurprisingly the Indian card market is fast growing, and the pace is accelerating. Industry observers point to strong similarities between the growth of the Indian mobile phone market, and that for Debit and Prepaid cards. The Compound Annual Growth


Rate of mobile phone take up in India during 2006-2010 was 52%. By comparison the number of debit cards issued rose from 18.1 million in 2003 to 184.79 million in 2009, +47% CAGR. The transaction value has shown healthy growth of 32% during the period. In 2009-10 fiscal, payments made by debit cards in India stood at US$ 5.87 billion (Rs 264.18 billion) a rise of 44% compared on 2008-09. Payroll cards dominate the prepaid cards market with a 34% share, with travel cards at 24%, and multipurpose cards with a 22% market share. Remittances and other prepaid cards are estimated to account for 14% and 6% of the market respectively. Estimates by ICICI suggest the prepaid cards market is expected to grow by almost 75% in 2010 year-on-year, rising from $2.9 billion to $5 billion. Axis Bank is the domestic leader in prepaid cards, with a 39% market share of followed by Itz cash cards at 22% and ICICI bank at 16%. Other players include SBI, HDFC Bank and Punjab National Bank. In the multipurpose cards market, Itz Cash Card Limited is the leading player. It is the largest firm in the non-banked category for prepaid cards. As for the number of debit cards issued, SBI dominates with a 37% share followed by ICICI bank at 11%.

Factors influencing the growth of the industry Important features driving the debit/prepaid card industry include the confident growth trajectory of the Indian economy, the availability of a payment infrastructure embracing both private and public sector banks, and increased penetration of mobile telephony.


Indias economic expansion remains the catalyst for a dramatic change among the countrys consumers. GDP growth has averaged around 7% since 1997 and India was able to keep its economy growing at a credible rate even during the 2008-2009 slump, managing +5.4% in 2009. This broad based growth is creating a potent middle class, primarily urban based, who are leading the spending and usage of plastic cards. While there is no official definition of how to classify the middle class in India, consensus seems to have settled on a figure of c-200-300 million people. Even using the most aggressive estimates of its size, the middle class comprises less than 30 percent of the population. With sufficient disposable income to spend on goods and services, the middle class is an attractive target for prepaid cards. According to a recent study if India is able to maintain its current growth trajectory, average household incomes will triple over the next two decades and it will become the worlds 5th-largest consumer economy by 2025, up from 12th now. Private consumption plays a much larger role in Indias growth than it has in that of other developing countries. In 2005, private spending reached about 17 trillion Indian rupees ($372 billion), accounting for more than 60 percent of Indias GDP. As for payment infrastructure, most Indian banks have been widening their networks of automated teller machines (ATMs) in order to expand their business. Banks have also been installing increasing numbers of point of sale (POS) terminals (electronic datacapture swipe machines for accepting debit and credit card payments) at retailers. As of 2010, there are 40,000 ATMs and 450,000 POS terminals in India. A majority (more than 70%) of these ATMs and POS terminals are located in cities with the rest in small


towns and villages. The key cities which lead in number of ATMs include Mumbai, Delhi, Kolkata, Bangalore, Chennai, Ahmadabad, Hyderabad, Pune, Kanpur, Surat, Jaipur and Lucknow. Another important infrastructure requirement for the development of banking services and prepaid cards business is a credible telecom network. India has been investing heavily in its telecom infrastructure. It is the world's fastest growing telecommunications market (CAGR of 52%), with 671.69 million telephones. Close to 95% of all phones in India are mobile phones, with a penetration rate close to 57%. Potential for expansion in rural areas As telephone ownership in urban areas matures, rural areas are taking the lead in adding new phones. Rural areas added an average of 8.76 million phones monthly during December 2009 to March 2010. By July 2010, the number of mobile phones in rural India had reached 236 million. This number is markedly higher than the 187 million adult population living in rural India with bank accounts. In short there are a significant number of people with mobile phones but without bank accounts in rural India. This gap will only increase as millions of mobile phones are added monthly in rural India. This is an attractive back-drop for starting mobile banking services in rural India. Mobile wallets would bring low-cost banking & remittance services to millions, for whom banking services are not readily available or easily accessible. The attraction is that the mobile telephony infrastructure is well developed. This offers an attractive opportunity to open new markets and business opportunities for service providers, banks, mobile operators & merchants.


Leading domestic banks like SBI, ICICI, HDFC, AXIS and Canara all offer mobile banking services in India. For example, iMobile, a mobile banking application offered by ICICI Bank, assists its customers to carry out mobile money transfers, bill payments and check credit card balance through their mobile. This mobile application covers savings bank, Credit Card and Loan accounts. By using iMobile almost all internet banking transactions can be done on mobile phones.

Advantages of credit card transaction

Every type of business benefits financially by accepting credit cards. With more than 500 million credit cards in use domestically, US charges recorded for 1999 alone reached $1.1 trillion! Accepting credit cards has advantages as sales increase by as much as 40%. Listed below are some advantages of accepting credit cards:

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

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

More Expensive Merchandise: Credit cards entice customers to purchase more expensive merchandise than they had originally planned to buy.

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

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.

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.

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

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.

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.

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.

Online Shopping: The Credit Card helps you to buy products/services online or over the phone thus helping you to purchase anywhere 24x7.

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.

Borrowing cash through credit cards: You can also withdraw cash through ATMs at any time.

Reward Points: Credit Cards also offer reward points on purchases which you can accumulate and redeem later with cash backs & attractive gifts etc.

Why should I process credit cards? There are several advantages for companies processing credit cards. The average American's reliance on cash and checks for retail and Internet business transactions is continually diminishing. Today, the average American adult carries at least two credit cards. Together, Visa's and Mastercard's annual volume exceeds $210 billion dollars

What are the business advantages of processing credit cards? A merchant account will allow you to:

Improve your customer service. With credit cards you give your customers a wider range of payment options.

Increase sales. Additional payment options increase both your total revenue and the size of individual sales.

Improve your cash flow. Electronic funds transfer means you get your money faster.


Reduce risk. Unlike personal checks, electronic payment options will not be returned NSF. You also reduce the amount of cash kept in your store.

Increase productivity and record keeping. Electronic payments mean faster tallies at the end of the day and easier trips to the bank.

Increase your market share. Offering state of the art payment methods for your customers puts you ahead of the competition.

Compare credit cards There is a plethora of credit card choices available in the market which would simply clutter the process of choosing your card, so before you opt for a card you must evaluate the card features on the basis of following points: Interest rate: The interest rate is levied by banks whenever you revolve your outstanding balance into your next billing cycle; it ranges from 2.79 - 3.9 per cent per month varying from bank to bank. Go with the bank which has the cheapest interest rate. Identify a card suiting your needs & where you spend the most : Search for a card which serves your needs & the areas of your expenditure should match the type of the card, e.g. if you are an overseas traveler you can look at a Global card which can be used for paying expenses in foreign currency and offering 24-hour travel bookings around the globe.


Annual Fee, Joining Fee & other features : You should review the features of the cards available; make sure that the card offers maximum features such as zero annual fees, zero joining fee 24-hour helpline & good reward points program. Grace Period/Interest free Period : It is that period offered by banks during which they dont levy any charges, the period is between the statement date and the due date of payment. It is normally between 15 to 20 days and varies from bank to bank. You must look for a card which offers maximum grace period. Look out for various kinds of rewards & lucrative offers : There are various cards which have a reward structure offering rewards in the form of flier points while purchasing a specific good/services & these points can be redeemed for attractive gifts & cash back offers. Card companies offer certain credit cards which come with the high annual fee and offer luxurious services like hotel accommodations, concierge services for 24X7 travel bookings around the globe. Balance Transfer in Credit Card - How does it help? What is a Balance Transfer? It is the process of transferring the existing outstanding balance or debt from one credit card to another credit card. How does it benefit? It benefits the card holders when there are high interest rates on their existing cards as against the other card on which the balance is transferred. This facility helps those who are not satisfied with the services by the existing card company like incorrect billing,


non-receipt of the card bill etc. thus switching from one card to another offers the card holders with low interest charges or sometimes 0% charges & other services. Balance Transfer interest rates Most of the banks offer low interest rates or sometimes even zero interest on balance transfer on credit cards ; however you should note that these rates are applicable only for initial period (3-4 months), post that the bank will start charging you at the same rate what your preceding card company charged you. Credit Limit The balance transfer reduces the credit limit of the second card to the balance transferred amount. You must note that the transferred amount should not exceed 80 per cent of your credit limit.

Marketing of Credit card

In order to satisfy credit cardholders needs, low annual fees and domestic and worldwide credit card acceptance were highly necessary. However, in order to offer different services from competitors and to build long-term customer loyalty, bank marketers can initiate a marketing campaign with attractive installment plan choices and point redemption. Additionally, making credit cards to be more widely used in more domestic stores can increase credit card adoption. This requires collaboration among banks and other businesses to share higher benefits from greater numbers of card users. For installment plan, longer installment period should be provided for allowing customers to pay back in longer term with lower amount of payment, while banks can

have higher profit from interest charges. Moreover, various interest rates on installment plan can be offered. For example, the customer may be able to choose the fixed interest rates or flexible interest rate on each plan. In addition, many installment plans can be developed innovatively to attract more customers in response to their diverse needs. Bank marketers can apply more creative point collection campaigns to encourage higher card usage. Carow and Staten (2002) also suggested that the collaboration between banks and other businesses, such as gasoline companies, can contribute to benefits for both parties and their research results help explain the growth in popularity of "co-branded" cards. Therefore, the marketers can offer point redemption methods in more convenient ways through channels, such as telephone, internet, point-of-sales, and ATMs. Moreover, banks should have a co-branded program with businesses, including retailers, dining and restaurants, gas companies, hotels, airlines, transportations, shopping malls, and hospitals. Credit card issuers should also build inter-organizational network among business partners in various industries in order to enhance card acceptance in many domestic areas in the country. Despite high competitive credit card market, banks with stronger inter-organizational relationship can survive and succeed in the market.

Types of Credit card usage

Here are few ways to get the most out of your plastic. 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'll


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 $50 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 .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 of. For example, most VISAs have an

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.

Advertising & Promotion

Once upon a time, life took Visa. All good things were priceless with MasterCard. Membership had its privileges with American Express.


But that's all changing as America's card brands retool their advertising strategies in an effort to convince economically battered consumers to forgive them their excesses, cut them some slack -- and find it in their debt-hardened hearts to buy on credit again. Second only to Wall Street investment bankers, credit card issuers have become this year's favorite punching bag for cash-strapped consumers and outraged lawmakers eager to end their usurious policies and practices. Even before the reforms of the Credit CARD Act of 2009 kick in, three major card brands have rolled out new TV campaigns that seek to repair some of the damage wrought by an ungraceful credit ebb and heated regulatory hearings. "The credit crisis has sent the issuers and associations back to the drawing board to figure out what works best in this new regulated environment," says Anuj Shahani, director of competitive tracking services at Synovate Mail Monitor. Based on these three new TV commercial campaigns, the card companies hope to change your perception of them from go-ahead-and-spend-you-deserve-it libertines to we're-really-here-to-help-you-control-yourself counselors. But since their livelihoods depend on how much you charge, don't expect any antiplastic messages from these new massage treatments. American Express: "Don't Take Chances, Take Charge" American Express has long depended on exclusivity and celebrity to entice us to its growing family of colorful cards with the slogan, "Membership has its privileges." Its recent "Do You Know Me?" campaign featured the likes of Martin Scorsese, Ellen DeGeneres and Robert De Niro.

While there is still a whiff of the VIP lounge about its new "Don't Take Chances, Take Charge" campaign, this 30-second journey takes a neutral stand on conspicuous consumption and focuses instead on the benefits of using the green card over cash. The opening line -- "Sometimes the little things in life feel like our biggest enemies" -shows us the unhappy faces of luxury purchases past: an expensive purse, latte, leather furniture and a computer mouse that symbolizes online shopping. The subliminal message: your card is another treasured "little thing" that only seems like an enemy. Next, it injects a touch of fear by throwing in a symbolic gas and water bill, followed by a dash of identity theft. Times are scary. Boo! Once the "we'll repair/replace/credit your account" reassurance message is delivered, it cuts to smiling images of everyday, non-frivolous items (a bike, baggage carousel, an old prop plane), closing with a down-to-earthiness rare for American Express commercials. "The new campaign encourages consumers to think carefully about how they pay for their purchases and to take a closer look at the cards in their wallet," says Deborah Curtis, vice president of advertising for American Express. Especially the green one. Visa: "Let's Go" Of the large credit card transaction processing companies, Visa has always been the most extrinsically driven brand. Throughout the 1980s and most of the 1990s, the card promoted self-indulgence and conspicuous consumption -- while pointing out the


growing number of places where credit cards are accepted -- with "Visa. It's everywhere you want to be." But as rival MasterCard morphed its flagship slogan, "There are some things money can't buy. For everything else, there's MasterCard" into the more family-focused, get-alife lessons of the "Priceless" campaign ("Haircut: $10. First haircut: priceless."), Visa responded in 2006 with its own non-materialistic tack, "Life takes Visa." In "Let's Go," Visa does indeed go in a new direction to tout its Visa Check Card Gone are the celebrities, the exotic locales and actor Billy Crudup's "Priceless" punch lines, replaced by working-class images: a suburban tract home, a bedroom with no window coverings, a morning commuter train platform. It's almost like Visa is now everywhere we don't want to be. Our caviar dreams have been scaled back accordingly. The voice-over asks, "Will you do something that you've always wanted to do?" followed by images of a jog in the park and a walk in the surf. Have our dreams really sunk that low? The kicker -- "Will you keep going, no matter what life throws your way?" -- shows a guy boogying in his boxers, a senior partner looking bewildered and a woman content to stay in the surf. What, is this an ad for Aricept? End message: "More people go with Visa." Translation: Just keep going. We know you'll buy something.

Discover: "Get Cash Back: This One's On Me"


Admittedly, the opening sequence of this Discover commercial brings to mind the Cialis twin bathtubs as a giddy baby boomer couple bumpstires on a go-kart track. The "Get cash back" graphic morphs into "Get immaturity back." Translation: With cash back, you can afford a second childhood, although not the SUV from previous commercials. Scene two shows three guys toasting beers in a bar. What are they toasting? That one of them can now afford to buy the round -- either because of the cash back or the fact that they have no dates. Scene three: Dad and the kids "Get Saving the Universe Back" while enjoying some athome gaming. Subliminal message: Keep it simple and no one gets hurt --financially.

AmEx, Mercedes rev up deals - To American Express, had launched a new card in partnership with Mercedes-Benz. The Mercedes-Benz credit card offers five times the American Express Membership Rewards points for charges at Mercedes-Benz dealerships, triple points for gas and double points for restaurants, plus a $500 certificate for the purchase or lease of a car (after $5,000 in spending), 1,000 extra miles on a lease and an annual $50 certificate for Mercedes-Benz accessories. The annual fee is $95. For $475 a year, a platinum version of the card offers more generous certificates plus access to airport clubs, hotel perks and a personal concierge service.


American Express will also offer service packages and $1,000 Mercedes-Benz certificates through its Membership Rewards program.

Chase upgrades Sapphire Preferred - Chase upgraded its Chase Sapphire Preferred card so that it offers double points on travel and dining purchases. A news release said the upgrades, combined with existing features including no foreign transaction fees and dedicated customer service, make the card "the perfect rewards card for affluent card members who love travel and dining." Brent Reinhard, marketing director for Chase Sapphire, said Chase made the change to make the card more attractive to the affluent segment. "One of the things we realized about the affluent customer is they're affluent for a reason," he says. "They do their research. They're making sure their dollar is working hard for them. For us, it was important to make sure we had a really strong value proposition that resonated with this segment."

Business cards launched - There were also several announcements of new or enhanced cards for business owners, which card issuers often categorize as affluent because they spend a lot:

Capital One launched a new small-business card, the Capital One Business No Hassle Cash Premier card, which offers 2 percent cash back on all purchases.


"No major competitor has as high a cash-back rate across all purchases as our new small business cash back card," the company said in a release.

American Express launched a Business Gold Rewards Card that includes double points on online marketing expenses and allows business owners to redeem reward points for Facebook ads.

Credit Card Advertising Rules and Laws

Revealing the Annual Percentage Rate With credit card advertising, companies are not required to display the annual percentage rate unless the advertisement describes the amount of any repayment. If there is an advertisement and it contains the annual percentage rate and payable credit card fees and charges then the advertisement must distinctly state this that the fees and charges are payable. This can be done by either stating the amount of the fees and charges payable or providing a specific amount of charges and fees that are payable. The Comparison Rate - If you find an advertisement that contains a comparison rate then the rate must reflect a calculated nominal rate per annum including the compounding frequency. In addition, an accompanying statement must reveal the amount of credit on which the rate is based and the term.3

There must also be a warning that informs the consumer that the rate shown is only accurate for that particular example. The warning can be stated as such, Care should be taken in using this comparison rate. Differences between contracts, and variations

permitted during the period of the contract, can detract from its usefulness or even lead to a false impression. Revealing Interest Rates - When a credit card company discloses its interest rates in an advertisement then the interest rate but show that is is a nominal percentage rate per annum or that that it is a comparison rate calculated as described above. Interest Free Deals - Interest free deals are a major advantage to consumers who have the discipline to pay back the loan within the interest free time period. Retailers and department stores will offer these deals when advertising the sale of electronics, major appliances, computers, bedding and many other items.

You are required to sign up for a credit card at the retail store, however, the money provided for the item is provided by a separate finance company. If the loan is not paid within in the interest free period, the consumer runs the risk of paying extremely high interest charges of up to 30%. There are also fees and other charges that are associated with these interest free deals.

Methods and tools used in credit card industry to detect fraud

Credit cards are increasingly becoming a part of our daily lives these days. Credit card companies make considerable investments on research and analytics for understanding market dynamics and consumer spending patterns and for better customer service


experience. Credit Card Analytics are mainly used for following strategic services to the commercial credit card industry:

Loss Provision Strategies/Fraud Protection Predictive Modelling to target the right customer for right kind of service/s through right channel

Customer Segmentation New Customer Acquisition Strategies Industry Benchmark Studies Issuer Profitability Studies Portfolio Risk Based Pricing P&L Modelling which helps Financial Planners in development of Business Plans & Assessing Organization Expenses and Revenues

Marketing Mix Modelling which helps to reallocate budgets among different marketing vehicles.

Issuer Risk Assessment Studies (Account Pricing, Fees, Authorization Strategies, Line Increase/Decrease Strategies, Queuing of Delinquent Accounts)

Strategic Operational Assessment Reviews

Loss Provision Strategies/Fraud Protection Credit card fraud is the most common type of identity crime and on the rise.


Types of Credit Card Fraud Credit fraud can fall into one of five categories: 1. Counterfeit credit card 2. Lost or Stolen Cards 3. No-Card Fraud 4. Non-Receipt Fraud 5. Identity Theft Fraud The percentage that each type of credit card fraud represents is described below:
1. Counterfeit credit card: Makes up for 37% of all funds lost through credit card

frauds. To make fake cards, criminals use the newest technology to skim information contained on magnetic stripes of cards and other security features such as holograms.
2. Lost or Stolen Cards: Cards stolen from either cardholders or lost by them

account for 23% of all card frauds. Often, cards are stolen from the workplace, gym, and unattended vehicles.
3. No-Card Fraud: Comprises 10% of all the losses and happens without the

physical card been in hand. This can happen by giving your credit card information on the phone to shady or fraudulent telemarketers and deceptive Internet sites that are promoting the sales of their non-existent goods and services.

4. Non-Receipt Fraud: Is responsible for 7% of all losses. It occurs when new or

replaced cards mailed by your card company are stolen during the process of being mailed. However, this type of fraud is on the decline with the cardactivation process that most companies use. In 1992, non-receipt fraud represented 16 % of the losses.
5. Identity-Theft Fraud: Accounts for 4% of all losses, and occurs when criminals

apply for a card using someone else identity and information.


Credit cards are responsible for $2.5 trillion in transactions a year at more than 24 million locations in 200 countries and territories. (Source: American Bankers Association, March 2009)

It is estimated that there are 10,000 payment transactions every second around the world. (Source: American Bankers Association, March 2009)

Card fraud costs the U.S. an $8.6 billion annually and the bulk of that loss falls on the card issuers. (Source: Aite Group LLC)

India is also not lagging behind. There are lots of data and those are being generated every second. In terms of predictive modelling (logistic regression), the credit card industry (and finance in general) is way ahead of the line. And I think it should be because if they can reliably predict where and when fraud might occur, they can have a significant impact on their organizations bottom line. Of course, this pretty much applies to any industry.


The predictive modelling for fraud detection is very critical to any of the Financial Organization and the credit card industry and the Financial Organizations are tight lipped about what they look for. However, their algorithms are constantly changing based on how fraud is perpetrated (as the patterns of fraudulent activities are changing with time). For some cases, the small online purchases were being used to see if a card was active and could be used, this information was added to their predictive model. Of course, one must also consider active purchasers versus inactive ones, the spending patterns etc., and because they want to make sure that they flag cards with a fraudulent alert that might actually be fraudulent and not typical buying behaviour for the card holder and not present a situation of false alarm.

Ways To Avoid Credit Card Fraud

1. Report fraud as soon as you suspect it - Any case of fraud must be dealt with immediately. You need to call your card provider or bank and file an immediate report using a 24-hour number that you have been given. Your card will be canceled immediately and then the company will help you deal with any further matters. 2. Shop safely - When you are out and about shopping there are ways to avoid credit card fraud that you may not have thought of. When the sales assistant gives you back

your card take a look at it first to make sure that it is yours before putting it in your pocket or wallet. Also, you should always make sure that nobody sees your pin number whenever you use your card. Try to shield it with your hands. These thieves can be very tricky and use cameras or assistants to watch what number you are keying in for your pin. 3. Check Statements - It's surprising how many people don't check their monthly credit card statements. Yet keeping an eye on the amounts charged to your account can be a quick way to determine whether your card is being used by a fraudster or not. 4. Eyes On Your Card - Never allow your credit card out of your sight at any time. It might be trendy to slip your credit card into the bill-folder at a restaurant to be charged back at the counter, but this could be an excellent opportunity for a fraudster to take advantage of you. This also goes for anywhere you can't see your credit card being processed in front of you. 5. Don't Be Fooled by Email Phishing - Phishing' is the term used to describe a fraudulent email requesting that you click on a link. Youve then encouraged to enter your personal details into a website. Your credit card issuer will never ask you to verify your details or to click on a link to re-enter your details. Millions of people every year get scammed this way. 6. Keep your information private - Your bank or credit card issuers should never call or e-mail you for your account information. If you receive such a call or e-mail, call your bank immediately and let them know about it.


7. Secure Online Shopping Sites - Even though most people fear shopping online, it can actually be a little safer than shopping in person but only if you check that you're using a secure website. A secure site used encryption to keep your information safe. Check the address bar in your browser to be sure it says HTTPS:// in front of the address. Also check whether there's a little lock symbol in the bottom right of your browser. 8. Safe Statement Disposal - Buy a cheap shredder from a discount department store and be sure to shred your old credit card statements and bank statements. There really are people willing to go through garbage to find personal financial details like this. 9. Notify Your Credit Card Issuer - Always notify your credit card issuer immediately of a change of address. Be sure your statements and correspondence are being sent to the correct address as quickly as possible. 10. No Sharing - It's never a good idea to share your credit card information with anyone for any reason. There are plenty of people every year who are scammed by family members or friends using their credit card details fraudulently. Even if your intentions are good, make sure you enter your own details and take responsibility for your own card.

Smart Cards A window to the future

Security was the main purpose of smart cards from the early days. In case of the ideal smart card tamper-resistance has utmost priority. The card manufacturer provides the


cards physical and the OSs logical security. This is necessary to preserve the applications logical security. The ideal smart card has large storage capacity. It is in the region of megabytes, so even photographs and multimedia information can be stored on it (to be used in e.g. facial recognition). High storage capacity is also necessary to enable the use of more complex applications. The ideal card is capable of real-time speech and video encryption. This requires three things: fast computation, fast communication with the outside world and fast cryptographic functions. For the latter purpose it contains a cryptographic coprocessor for accelerating both symmetric and asymmetric cryptography. In case of cryptographic protocols random number generation is vital. This card can generate good quality random numbers. If a random number generator can be predicted, whole security protocols can be corrupted. (A good example for this danger is the Fiat-Shamir algorithm, which would be suitable for a smart card due to its relatively low processor requirements on the card side.) It is theoretically proven that the generation of random data is not possible in an algorithmic way. In such cases a human factor is often used. Mobile phones can use disturbances in the ether as random seeds. The ideal card has an own power supply and a timer. Equipping a security-oriented microcomputer with timers increases its cryptographic potential. The own power supply enables it to run without the support of a reader. Programmers do not have to keep in mind that the attacker may remove the card from the reader and so cut off its power supply thus trying to leave the card in an inconsistent state. To avoid such problems, transaction management should have been implemented. The own power supply not


only makes transaction management unnecessary, but provides the possibility for an application to run on the card continuously.

Moreover, more applications can run simultaneously in the ideal cards multithreaded environment. The ideal smart card is a compromise between two philosophies. The upper layer of the software architecture is flexible and replaceable whereas the operating system is strongly connected to the hardware.

The ideal smart card has a long lifetime (measured in decades). This and the fact of storing precious information on the card gives robustness even more importance. The increase of the number of smart card based applications will definitely increase the number of smart cards held by one person. To solve this problem the ideal smart card runs multiple applications. These may change dynamically so that new applications can be downloaded to the card and deleted when they are not used. It is vital that these applications are separated so that they cannot tamper with each others data. However, due to lack of storage space and reasons of consistency, it is also vital that they can interact with each other and share data (e. g. cardholder name) or even code.

The card is programmed in a high-level platform- (and vendor-) independent programming language so that the source code can be easily transferred from one card to another.


The card can be easily programmed because its interface with the standard IT devices is standardized. This not only includes the PC and mobile phones, but communication through the Internet as well.

Trust is critical in case of all security applications. Neither the ideal cards hardware, nor its OS contains any trapdoors. Its security features are well documented, and the possible customers can receive information on the smart cards internal architecture. It is not designed using security by obscurity, but strong cryptography and careful planning and testing.

Developing security oriented applications for PCs is difficult. This is due to their numerous I/O devices, network connections and possible attack points. In case of a smart card the only point where interaction with the outside world is possible is the contacts. The restriction of communications is on one hand convenient, but on the other hand it restricts the power. A simple LED on the card gives the ideal card the ability of direct feedback to the user.

Smart card of the future What is realistic from the features of the ideal smart card, and what capabilities exist in the cards on the market today. Todays cards have 8-32 kilobytes of memory. This is likely to increase in the future in parallel with the development of IC technology. Computational power has a closer limit


though. Controlling overheating has always been a problem in case of microelectronics but it case of cards the problem is even larger. The cards shape is restricted and plastic may not melt. The authors believe that computational power will increase in the future, but will not increase dramatically. Neither will smart cards speed nor their storage capacity increase over that of PCs.

Real-time encryption of speech or video is far beyond the capabilities of todays cards, and the authors believe that it will not be possible in the near future. Supplying cards with cryptographic hardware is a question of price thus it is a question of mass production. Security and portability are the two areas where cards can be better used than PCs. This is why the author suppose that the smart card of the future will be equipped with cryptographic hardware. The production of good quality random numbers is a problem yet to be solved. The documentation of todays cards contains no information on the ways of random number generation.

The possession of an own power supply probably has technical limitations, so cards are not likely to have one in the near future. This implies the absence of a timer too. However, non-card-shaped devices such as iButton do have such possibilities.

Transaction management and power supply are two alternatives. On Java Cards the previous one is supported by the programming environment. Although the Java Card API seems to be a well designed, clear and card-independent programming environment, this part of the technology is still in an infant stage today. Though the


language of Java Cards is object oriented, this feature cannot be practically used due to limited hardware resources. This specification has changed a lot in the past and it is likely to change in the future in parallel with the improvement of the hardware.

The lifetime of cards is not measured in decades nowadays. However, iButton is a device designed for hard circumstances (rock climbing, swimming), and its estimated lifetime is much larger than that of smart card. However, the technology of programmable smart cards is new so no long-term experience is available. The Java Card specification defines an environment, where applets may enter and leave the card dynamically. However, these applets cannot interact with each other.

The applications of Microsoft Smart Card for Windows may share data among each other, but the cards file system needs to be re-designed before a new application is downloaded. The ideal smart card would have to be a compromise between these two, but security and robustness remain vital. The authors believe that although technology does not have the proper tools for this today, a solution will be found for this problem in the future.

Java Card and Microsoft Smart Card for Windows both use high-level languages today, this seems to be the trend of development. Documentation for the cards is incomplete, the main tool of manufacturers is unfortunately still security by obscurity.


Smart cards are not likely to have an own user interface in the future. However, their future is closely connected with that of mobile phones. Mobile telephony already gave a boost to the improvement of smart cards, and this rapidly developing area is where programmable smart cards are mostly used in practice today. Combining the power of smart cards with the user interface and network connection of mobile telephones new possibilities may arise. SIM cards already offered the users various applications in the past, and there is more to come.

Growth in the electronic payments sector

Growth in the electronic payments sector has surpassed general economic growth and growth in other financial sectors. Electronic payments include credit, debit, and other electronic instruments used to transfer payments from consumers to merchants.

The growth in the electronic payments sector is companied by numerous economic and transactional benefits. As demonstrated by Muham-mad Yunus and the Grameen Bank, winners of the 2006 Nobel Peace Prize, gains from financial innovations can be extensive, widespread, and developmentally favorable.

Electronic payments improve economic inefficiencies, make payments more secure and convenient, and, as a corollary to the lessons learned from micro finance, provide the impetus for further economic and social development.


For developing countries, those gains could be significant, but they would depend on the concur-rent development of the appropriate network and payments infrastructure, government regulation, consumer education, and competition within the sector. As governments in developed economies have learned, adequate regulatory oversight in the electronic payments sector is essential to maintaining financial stability, consumer confidence, and data privacy and security of the sector. Although electronic payments growth could represent an opportunity for developing countries to rebalance their economies by encouraging domestic consumptionand an opportunity for the United States to lower its trade deficitgovernments, industry, and consumer groups will need to educate consumers to use electronic payments responsibly and securely.

Electronic Payments Promote Economic Efficiency and Growth Electronic payments expand the consumer market, increase banking access to the unbanked, improve macroeconomic efficiency, and encourage entrepreneurial activity. The ultimate benefit of adapting an electronic payments system will depend on how competition and the evolution of the informal sector affect how widely electronic payments are adopted.

Electronic Payments Expand the Consumer Market The development of an electronic payments system enlarges the consumer market and boosts the purchase of U.S. exports, particularly in the e-commerce and travel and tourism sectors. According to an analysis of a cross-section of 50 countries by Global Insight, increasing the existing share of electronic payments in a country by a margin of


just 10 percent will generate an increase of 0.5 percent in consumer spending. For example, according to the Economist Intelligence Unit, consumer expenditure in China was $865 billion in 2005. Increasing credit cards share of the transaction market from 20 percent to 22 percent would result in an incremental $4.33 billion in consumer expenditure.

Electronic Payments Increase Access to the Banking System Electronic payments act as gateways into the banking system for unbanked segments, which make up as much as 70 percent of the worlds population. In a simulation of the U.S. economy, a 10 percent shift of currency into deposits or other reserves that can be used for loans increased GDP by more than 1 percent annually.2 Many Latin American countries, such as Brazil and Mexico, with large unbanked or under banked populations would benefit significantly from movements into the formal financial sector.

Electronic Payments Create Macroeconomic Efficiency Electronic payment networks have the potential to provide cost savings of at least 1 percent of GDP annually over paper-based systems through increased velocity, reduced friction, and lower costs.3 For China, with a nominalthat is, unadjusted for purchasing power parity (PPP)GDP of $2.278 trillion in 2005, that amount translates into a potential savings of roughly $23 billion.

Electronic Payments Are a Source of Capital for Start-ups


Credit cards are one of the most reliable sources of start-up funds for new entrepreneurs. Unlike bank loan officers, private angel investors, or government lending programs, credit cards offer a simple and rapid access to capital that has helped a significant number of U.S. entrepreneurs establish new businesses. In addition, factoring future credit card receipts for short-term capital needs is a valuable option for many small businesses. The small and medium-sized enterprise sector in emerging countries, which typically has difficulty accessing financing, could benefit from that alternative financing source.

Electronic Payments Benefit Consumers and Merchants In addition to the numerous economic benefits that result from expanding the electronic payments markets, electronic payments systems also provide consumer and seller protection and convenience. For consumers, electronic payments provide an established system of dispute resolution, increase the security of their payments, and reduce their liability for stolen or misused cards. Electronic payments also provide immediate access to funds U.S. Department of Commerce, International Trade Administration on deposit through debit cards and offer the convenience of global acceptance, a wide range of payment options, and enhanced financial management tools. For sellers, electronic payments improve the speed and security of the transaction processing chain, from verification and authorization to clearing and settlement. Such payments also provide better management of cash flow, inventory, and financial planning through rapid bank payments. Electronic payments may also reduce costs and risks by eliminating the need to run an in-house credit facility.


Financial Sector Development Enhances Economic Growth and Innovation Financial development increases economic growth by directing capital to an economys most productive areas. The greater a countrys financial development, the larger the economic growth over the subsequent decades. A doubling of the size of private credit in a developing country is associated with a 2 percent annual increase in economic growth.6 Finally, more new firms are created in countries with developed financial systems, and capital-dependent industries and firms grow faster. The development of the financial system includes the banking, securities, and electronic payments sectors. Electronic payments, for example, contribute toward the development of a more efficient and sound financial system. Numerous studies show that the growth of electronic payments has measurable economic benefits for countries primarily because electronic payments are much more cost-effective on a large scale than cash payments. Ecommerce and travel and tourism, for example, are two sectors that depend significantly on the ability of consumers to use electronic payments at the point of purchase. Electronic Payments and Exports In addition to its role in developing a countrys domestic economy, the electronic payments sec-tor is also linked to an expansion of exports. As discussed earlier, more accessible and convenient payment options facilitate larger consumer purchases. An analysis of credit card penetration data shows a moderate correlation between credit cards per capita and exports per capita, which is higher than the correlation between GDP per capita and exports per capita. Also, a moderate correlation exists between changes in credit card penetration and exports. Although it is likely that both credit card


penetration and exports between 1998 and 2005 were affected by economic growth in GDP, that analysis suggests that the development of electronic payments markets has important implications for further economic and trade opportunities for U.S. businesses.

Credit Card Market Penetration in Selected Countries Is Growing Below table shows the extent to which credit and charge cards were used in different countries in 1998 and 2005.

Country Malaysia Germany France Thailand Chile South Africa Mexico Venezuela Hungary Poland Colombia Czech Republic Indonesia Saudi Arabia China Russia India United States Taiwan Hong Kong Canada Japan South Korea United Kingdom Australia Singapore Spain Italy Sweden

1998 0.10 0.19 0.15 0.04 0.14 0.08 0.06 0.13 0.00 0.02 0.04 0.00 0.00 0.02 0.01 0.00 0.00 1.80 0.49 1.12 1.40 1.95 0.88 0.71 0.85 0.52 0.33 0.25 0.34 95

2005 0.30 0.27 0.23 0.20 0.19 0.13 0.13 0.12 0.09 0.08 0.07 0.07 0.04 0.04 0.03 0.02 0.02 2.53 2.14 2.05 1.79 1.74 1.50 1.35 1.05 0.94 0.75 0.51 0.49

Change(% ) 192 46 50 372 37 69 112 -5 3022 251 70 2323 360 101 136 >9999 405 40 341 84 28 -11 71 90 24 80 130 101 43

Number of Companies n.a 7 5 4 n.a 5 4 n.a. n.a. 4 n.a. 4 4 5 1 8 4 7 n.a. n.a. 5 6 6 6 5 n.a. 8 5 5

Israel Portugal Netherland Brazil Argentina Belgium

0.40 0.20 0.26 0.14 0.24 0.28

0.47 0.46 0.43 0.38 0.35 0.32

18 127 70 168 44 13

n.a. 5 n.a. 6 n.a. n.a.

Quantitative market research

Need Gaps - As per the research conducted, HSBCs major problem is low awareness level among consumers caused by their low-key advertising, very stringent credit policies, and absence of direct selling. Lately, they have tried to venture into cobranded (with Shoppers Shop) and affinity cards (with Top Gun Club) also. They have alliances with Thomas Cook, DBS lounges, DHL tele-express services, Oberoi Hotels and Sita Travels. The bank primarily draws upon its strength from a strong ATM network of 56 ATMs.

Credit Card holder behavior - According to Visa Internationals latest data, average Indian cardholder uses his card 9.3 times, spending about Rs. 14,700 per year. A number of card owners do not use their cards and almost 20 30 % cards are inactive (less than one usage every quarter). An important fact that should be observed is that it is only in the past few years that the Indian customer is beginning to accept Credit. The Indian culture doesnt promote credit, and it is this outlook change which is the most important development for the credit card industry. ABN Amro, for instance, backed up their launch of the Freedom Card with research that showed that the Indian middle class views the credit card as a

potential debt trap.

Unmet Needs - Unmet needs analysis in qualitative research has brought to light benefits which are not currently being offered by the credit card industry and hence present an opportunity.

Need for a Card customized for Internet transactions - With rapid growth of business over the Internet, there now exists a great need for a card suitable for transacting safely and conveniently over the Internet. The growing number of Internet users will provide a lucrative market for this product.

Need for Premium benefits - Even though there are credit cards like Diners in the premium segment, there is a dearth of premium benefits. Examples of these are Special airport Lounges etc. These benefits are available to the Indian consumer once he goes abroad, but within India, he doesnt get all the extra premium benefits which can associated with Premium cards.


Proliferation of ATMs - The credit card can be used for withdrawing cash from an ATM. This revolving credit facility is also a major revenue earner for the issuing bank (interest charges range from 1.99 % to 3 % per month). There are very few ATMs in the metros, and are not there in most non-metro cities. The lack of the ATMs doesnt allow the credit card to be used to its potential.

Wider Acceptability - Though the numbers of Merchant Enterprises are on the increase, more ME should be included in the credit card framework. Product Characteristics translating into need gaps (as told by consumers) a) Low Credit limit b) High Interest Charges (& interest charges applicable on the interest itself) c) High Annual charge d) Grace period (mentioned, but not much importance given) e) Lost card liability of Rs 1, 000 on non-photo card (eg. Stanchart) as opposed to nil on photo card f) Low Value added benefits and inadequate information updates

Other factors affecting sales level With a parallel economy of the same order as the countrys GDP, for a large number of people, the incentive to use credit card is low.


Lack of a strong telecom network hinders efficient card operations. Without the full convertibility of the rupee, internationally acceptable cards could not till recently be launched in India and full potential of the card business is still not realized. The average consumer is more comfortable with cash and is averse towards credit. Moreover, the problems of reluctant MEs and postal delays may hinder the development of the card market. Target Audience a) Customer Segments: The segmentation of the card industry can be done on the basis of income. Further research can only be conducted after preliminary secondary research of the income profiles in the country. The Indian market reflects considerable diversities in income levels and lifestyles. A World Bank estimate places average annual household incomes (in terms of purchasing power) at US $6452. But there are large segments of people, whose income levels are significantly higher, growing faster and spurring a consumer revolution. It is difficult to obtain correct estimates of this group, as there is a very small percentage of Indias rich who pay income tax and their income levels are correctly reported. Therefore to conduct this segmentation, we shall have to make use of National Council of Applied Economic Research (NCAER) data and not the estimates from the income tax department.


The segment which have been identified are as follows: Segments Very Rich Consuming Class Climbers Aspirants Destitute Income Group (Rs.) 2,15,000+ 45,000 2,15,000 22,000 45,000 16,000 22,000 < 16,000

According to NCAER reports: The Very Rich (annual income over Rs 215,000) will increase from 1 million to 6.2 million households by 2006-7. The Consuming Class (annual income of Rs 45,000-215,000) will grow from 28.6 million to 90.9 million households by 2006-7. The number of households in the Aspirants (Rs 16,000-22,000/year) and Destitute (less than Rs 16,000/year) groups will decrease significantly.

Segments with high unrealized potential Mid-Size cities in India have low credit card penetration. The residents of such cities are affluent and they are good markets for Citibank cards. This low penetration is due to comparatively low acceptance of credit cards.


Rich farmers who live in the rural belt but also spend quite some time in the nearby towns can be tapped. A product can be introduced to serve their specialized needs. The growing number of netizens represents a segment with high-unrealized potential.

b) Customers Motivations - Preliminary qualitative research has identified certain motivators differentiated on the basis of the income segments. Further quantitative research shall be conducted keeping this in mind to arrive upon the ideal positioning.
Segments Very Rich Consuming Class Climbers Motivations Convenience and acceptability, Level of service, Credit Limit Prestige, Convenience and acceptability, Level of service, Charges Prestige, Charges

Charges include all commissions, interest rate, annual fees, which are to be paid to the bank. The motivational factor has been derived from the credit card holder behavior and income levels. This shows differentiation as we move along the various segments. Fee charges are not at all important for the Very Rich but they assume a fair degree of importance as we move down the segments. This segment primarily has either the nonpremium cards or cards issued by the nationalized banks. In both the scenarios, level of service is not very high. The other segments have not been considered since they do not fall into the potential customer category. However, with the introduction of Kisan Cards (The major issuing banks are: Dena Bank, Punjab National Bank, State Bank of India Benegal Circle, State Bank of Indore, Vijaya Bank), these segments are also being

brought into purview of credit card users (assumption: 65% of low-income households are associated with agriculture). Sampling and Research Methodology Stratified Sampling - In this random sampling technique, we first divide the whole population into mutually exclusive subgroups or strata on the basis of our three identified target segments (Very Rich, Consuming Class and Climbers) and then units are selected randomly from each stratum. The population herein consists of the urban employed. The segments are based on predetermined criteria, i.e. the demographic characteristic income. It is important that the segments be as heterogeneous as possible. It is considered representative if its features are characteristic or typical of the entire group. With a representative sample, you can make generalizations about the entire population with a measurable degree of precision and confidence. We have thus divided our population into mutually exclusive and exhaustive groups of like elements, or strata, and shall then select a random sample from each. Since we are going in for a positioning statement that will be targeted at a broad group of individuals, we do not require very high confidence limits and so can conduct the research with a proportionately small sample of the population in the various strata.


Quantitative Research Methods Concept Testing - Multiple concepts "screened" among a general audience of target consumers. In depth evaluation of single concepts using standard, projectable measures Objective: Use a cost effective approach to identify which new ideas have the most potential and are worthy of further development Use the results in combination with product testing results in a sales forecasting model to predict: o Likely sales take-off in year one o Repeat purchasing levels (Multiple credit card users) o The profile of likely buyers (verify qualitative and secondary research)

Pricing Research - Use multiple price points to develop a simple price/sales curve in early stage concept testing to assess price sensitivity with respect to credit limit, interest charges and annual charges. Use full profile pricing scenarios to develop a much more sophisticated category pricing model which allows us to predict the impact on purchasing when the client or competitors run discount price promotions or introduce new price points/value benefits for existing brands. Objective: Assess alternative return on investment strategies


Proprietary Research Methods Laddering Research - This research method is designed to determine the rational and emotional basis for brand preference and to identify new brand positioning, equity, extensions and advertising strategy alternatives. It will show how consumers discriminate between products in the category, based upon factors that directly affect their preference. It also shows the means by which these discriminating factors relate to the satisfaction of higher level personal needs. Laddering Research shall give us o A very detailed and insightful understanding of the rational and emotional reasons people have for choosing specific brands (credit cards) in the category o A framework for discussing and choosing strategic options for positioning and advertising the brand. o A basis for clearly differentiating the brands within the category (rationally and/or emotionally) o A basis for comparing and contrasting the strategies behind the historical advertising and selling of brands within the category (strategies can be "mapped" on the strategic framework that has been developed) o A much more insightful response to new ideas for the brand


Strategic Advertising Research A proven assessment method for advertising which measures advertising against it's strategic objectives (not norms) and offers the ability to objectively assess multiple creative approaches and multiple advertising strategies for a brand using "common sense" measures. The method is based on the "accepted" theory of how advertising works to inform and persuade people o We all agree on the specific communication objectives for the advertising before proceeding with the research. o We conduct the research early enough in the advertising development process to make good use of the study results o We conduct the study only with the target audience o We allow people to see the advertising several times - this is not a recall test o We measure delivery of the agreed communications strategy at all levels, both rational and emotional o We measure attitude shift towards purchasing the product o We utilise additional multiple measures of advertising so that we are all in a better position to assess the strengths and weaknesses of the advertising and to improve it o We collect a great deal of information in each interview so that we have the right balance of objectivity in our analysis of the findings


Information Areas 1. The bank may offer more than one type of credit card based on the segmentation and the conclusions arrived at as a result of the research. Research needs to identify the profitability of targeting the respective segments and the efficacy of the suggested positioning statements to these segments. 2. The bank should be able, on the basis of the research, to ascertain the profitability of adopting a generic strategy of differentiation, based on the wide range of cards and services it may offer. The bank may then effectively target most segments of the society. 3. A clear cut cost-benefit relationship is desired with respect to the potential customers relative weightage of the provision of various services such as schemes to pay MTNL bills, customs duties, dial-a-draft facility, frequent flyer program with Indian Airlines and Air India etc. 4. The ad spend will also be ascertained after testing the effectiveness of various advertising and promotion options in order to increase market share. Consideration should also be taken to the medium of advertisement and promotions so that the bank may decide upon a strategy after weighing the costs and benefits. 5. Qualitative research has indicated that HSBC has an image of non-exclusive membership, but exclusive service and has the largest number of ATMs. Positioning opportunities in this line suggested the card should be targeted at middle to senior business professionals and businessmen, positioning the card on friendly service.


Attention must be paid to verify the effectiveness of the same through quantitative research. 6. Test possible Key Success factors that have come up in qualitative research Present: i. Brand recognition ii. Access to major channels iii. Marketing program iv. Reach (target market) Future: i. Level of Service ii. Acceptability iii. Safety of use over the Internet. iv. Value Added Benefits

7. Test Feasibility of recommended innovations and improvements in the product line. 8. Test assumed positioning objectives a) The positioning should be so that it disassociates with the elite image associated with the bank. The positioning may be done so as to give an image that the cards can be acquired by people from not only the upper class, but also the middle income categories. This is essentially to counter the strategy of SBI-GE. In other words, it


should give a mass appeal to the cards while reinforcing the clean, and dependable image of the bank at the same time. b) The positioning should be such as to imply that HSBC credit cards are a part of the customers everyday life. It should lead the customer to keep the card with him whenever he goes out. This in turn, shall lead to more card usage as the card would be handy for the customer to use whenever he wants to make purchases or withdraw cash. For users with multiple cards, such an objective shall bring more usage for the Banks card, compared to others. c) It should try to leverage HSBCs strong perceived ATM network.

9. Test alternatives for positioning - On quality of service: After convenience and acceptability of credit cards, the most important thing for customers is quality of service. This can be defined as prompt response in issuing the card, 24 hour customer service and quick complaint and grievance redressal. A positioning based on superior quality of service would create a favorable image in the mind of the consumer leading him to not only buy the card but also use also use it more often. Positioning based on benefits: Such a positioning has not been recommended as differentiation among credit cards fails to provide sustainable competitive advantage, as benefits offered on cards are easy to copy. However, as need gaps arose in the preliminary research, we must also test this, while giving weight to the above. Positioning as a low cost card: This has previously been disregarded as an option as the costs involved are higher than its competitors and also in this industry one cannot

gain an SCA by competing on price and advantages can be gained only on the basis of service and innovative product features. Positioning on use: Credit cards in India are most often used while traveling. This can be the main positioning plank because it would increase the credit card usage and as HSBC has a good brand image it wont be thought of as a card exclusively meant for travel. Positioning on acceptability: Acceptability is the most important factor in the minds of the consumer and so positioning on this factor will add new consumers. Positioning as a card for transactions on the net: With the impending boom in ecommerce in India, HSBC could position itself as the best and safest medium for payment purposes.

Uses of Smart Cards

Smart cards currently exist for a vast array of applications. However, the expected growth in the industry will not be due merely to growth in these segments, but also to the addition of the Internet and electronic commerce with their myriad of uses.

Current Applications A smart card, as mentioned above, is a portable computational device with data storage ability. As such, they can be a very reliable form of personal identification and a tamperproof, secure information repository. The main possible applications of smart cards are

the following:

Payphones - Outside of the United States there is a widespread use of payphones equipped with card readers rather than p; or in addition to p; coin recognition and storage. The main advantages are that the phone company does not have to collect coins, and the users do not have to have coins or remember long access numbers and PIN codes. Smart cards have the further advantage over magnetic stripe cards of being reloadable, and allowing advanced features like phone banking, automatic memory dialing and on-line services.

Mobile Communications - Smart cards are used as identification device for GSM digital mobile phones. The card stores all the necessary information in order to properly identify and bill the user, so that any user can use any phone terminal.

Banking & Retail - Smart banking cards can be used as credit, direct debit or stored value cards, offering a counterfeit- and tamper-proof device. The intelligent microchip on the card and the card readers use mutual authentication procedures that protect users, merchants and banks from fraudulent use. Other services enabled by smart cards are advanced loyalty programs and electronic coupons.

Electronic Purse - A smart card can be used to store a monetary value for small purchases. Card readers retrieve the amount currently stored, and subtract the amount for the goods or services being purchased. Groceries, transportation tickets, parking,


laundromats, cafeterias, taxis and all types of vending machines are only some of the purchases that often do not reach amounts to justify the hassle of using a credit card (a cash card reader does not require a permanent phone connection with a host computer). Radio-read smart cards will allow the free flow of people through transportation systems, avoiding the need of ticketing machines or validation gates.

Health Care - Smart cards allow the information for a patient's history to be reliably and safely stored. Health care professionals can instantaneously access such information when needed, and update the content. Instant patient verification allows immediate insurance processing and refund. Doctors and nurses themselves can carry smart cardbased IDs that allow secure, multi-level access to private information.

ID Verification and Access Control - The computational power of smart cards allows running mutual authentication and public-key encryption software in order to reliably identify the bearer of the card. For higher security needs, a smart card is a tamper-proof device to store such information as a user's picture or fingerprints. Smart cards can be used also for network access: in addition or in alternative to user IDs and passwords, a networked computer equipped with a smart card reader can reliably identify the user.


Computer security - The Mozilla Firefox web browser can use smart cards to store certificates for use in secure web browsing. Some disk encryption systems, such as FreeOTFE, TrueCrypt and Microsoft Windows 7 BitLocker, can use smart cards to securely hold encryption keys, and also to add another layer of encryption to critical parts of the secured disk. Smart cards are also used for single sign-on to log on to computers. Smart card support functionality has been added to Windows Live passports. Credit cards - These are the best known payment cards (classic plastic card):

Visa: Visa Contactless, Quick VSDC"qVSDC", Visa Wave, MSD, payWave MasterCard: PayPass Magstripe, PayPass MChip American Express: ExpressPay Discover: Zip

Roll-outs started in 2005 in USA. Asia and Europe followed in 2006. Contactless (non PIN) transactions cover a payment range of ~$550. There is an ISO/IEC 14443 PayPass implementation. Some, but not all PayPass implementations conform to EMV. Non-EMV cards work like magnetic stripe cards. This is a typical USA card technology (PayPass Magstripe and VISA MSD). The cards do not hold/maintain the account balance. All payment passes without a PIN, usually in off-line mode. The security of such a transaction is no greater than with a magnetic stripe card transaction. EMV cards have contact and contactless interfaces. They work as a normal EMV card via contact interface. Via contactless interface they work somewhat differently in that the


card command sequence adopts contactless features such as low power and short transaction time. Cryptographic smart cards - Cryptographic smart cards are often used for single signon. Most advanced smart cards include specialized cryptographic hardware that uses algorithms such as RSA and DSA. Today's cryptographic smart cards generate key pairs on board, to avoid the risk from having more than one copy of the key (since by design there usually isn't a way to extract private keys from a smart card). Such smart cards are mainly used for digital signature and secure identification. The most common way to access cryptographic smart card functions on a computer is to use a vendor-provided PKCS#11 library. On Microsoft Windows the CSP API is also supported. The most widely used cryptographic algorithms in smart cards (excluding the GSM socalled "crypto algorithm") are Triple DES and RSA. The key set is usually loaded (DES) or generated (RSA) on the card at the personalization stage. Some of these smart cards are also made to support the NIST standard for Personal Identity Verification, FIPS 201.


Financial - Smart cards serve as credit or ATM cards, fuel cards, mobile phone SIMs, authorization cards for pay television, household utility pre-payment cards, highsecurity identification and access-control cards, and public transport and public phone payment cards. Smart cards may also be used as electronic wallets. The smart card chip can be "loaded" with funds to pay parking meters and vending machines or at various merchants. Cryptographic protocols protect the exchange of money between the smart card and the accepting machine. No connection to the issuing bank is necessary, so the holder of the card can use it even if not the owner. Examples are Proton, Geldkarte, Chipknip and Mono. The German Geldkarte is also used to validate customer age at vending machines for cigarettes. Identification - A quickly growing application is in digital identification. In this application, the cards authenticate identity. The most common example employs Public key infrastructure (PKI). The card stores an encrypted digital certificate issued from the PKI provider along with other relevant information. Examples include the U.S. Department of Defense (DoD) Common Access Card (CAC), and various identification cards used by many governments for their citizens. Combined with biometrics, cards can provide two- or three-factor authentication. Smart cards are not always privacy-enhancing, because the subject carries possibly incriminating information on the card. Contactless smart cards that can be read from within a wallet or even a garment simplify authentication. The first smart card driver's license system in the world was implemented in 1987 in Turkey. Turkey had a high level of road accidents and decided to develop and use

digital tachograph devices on heavy vehicles, instead of the existing mechanical ones, to reduce speed violations. Since 1987, the professional driver's licenses in Turkey are issued as smart cards and the driver is required to insert his driver's license into the digital tachograph before starting to drive. The tachograph unit records speed violations for each driver and gives a printed report. The driving hours for each driver is also being monitored and reported. In 1990 the European Union conducted a feasibility study through BEVAC Consulting Engineers, titled "Feasibility study with respect to a European electronic drivers licence (based on a smart-card) on behalf of Directorate General VII". A smart card driver's license system was later issued in 1995 in Mendoza province of Argentina. Mendoza had a high level of road accidents, driving offenses, and a poor record of recovering outstanding fines. Smart licenses hold up-to-date records of driving offenses and unpaid fines. They also store personal information, license type and number, and a photograph. Emergency medical information such as blood type, allergies, and biometrics (fingerprints) can be stored on the chip if the card holder wishes. The Argentina government anticipates that this system will help to collect more than $10 million per year in fines. In 1999 Gujarat was the first Indian state to introduce a smart card license system. To date it has issued 5 million smart card driving licenses to its people In 2002, the Estonian government started to issue smart cards named ID Kaart as primary identification for citizens to replace the usual passport in domestic and EU use. As of 2010 about 1 million smart cards have been issued (total population is about 1.3


million) and they are widely used in internet banking, buying public transport tickets, authorization on various websites etc. By the start of 2009 the entire population of Spain and Belgium will have an eID card that is used for identification. These cards contain two certificates: one for authentication and one for signature. This signature is legally enforceable. More and more services in these countries use eID for authorization. Smart cards are also beginning to be used in emergency situations. In 2004, The Smart Card Alliance issued a statement expressing the need to "to enhance security, increase Government efficiency, reduce identity fraud, and protect personal privacy by establishing a mandatory, Government-wide standard for secure and reliable forms of identification". In light of this, emergency response personnel have now begun to carry these cards so that they can be positively identified in emergency situations. WidePoint Corporation, a smart card provider to FEMA, produces cards that contain additional personal information, such as medical records and skill sets. Cards like these provide immediate access to information, which allows first responders to bypass organizational paperwork and focus more time on the emergency resolution. Schools - Smart cards are being provided to students at schools and colleges. Usage includes:

Tracking student attendance As an electronic purse, to pay for items at canteens, vending machines etc Tracking and monitoring food choices at the canteen, to help the student

maintain a healthy diet


Tracking loans from the school library


Public transit - Smart cards and integrated ticketing have become widely used by public transit operators around the world. Card users may use their cards for other purposes than for transit, such as small purchases. Some operators offer points for usage, exchanged at retailers or for other benefits. Example: The Octopus Card used in Hong Kong, London's Oyster Card, and San Francisco's Clipper card. However, they have been criticized for presenting a privacy risk because it can allow the mass transit operator (and the government) to track an individual's movement. In Finland, for example, the Data Protection Ombudsman prohibited the transport operator Helsinki Metropolitan Area Council (YTV) from collecting such information, despite YTV's argument that the card owner has the right to a list of trips paid with the card. Earlier, such information was used in the investigation of the Myyrmanni bombing Concessionary travel - A highly successful use for smart cards within the UK is in concessionary travel schemes. Mandated by the Department for Transport, travel entitlements for elderly and disabled residents are administered by local authorities and passenger transport executives. Smart cards have been issued as bus passes to qualifying residents; however these smart cards can instead now be used by elderly and disabled people who qualify for concessionary taxi travel. These schemes are part of an additional service offered by some local authorities as an alternative for residents unable to make use of their bus pass. One example is the "Smartcare go" scheme provided by Ecebs. Other - Smart cards are widely used to protect digital television streams. VideoGuard is a specific example of how smart card security worked.

The Malaysian government uses smart identity cards carried by all citizens and resident non-citizens. The personal information inside the MYKAD card can be read using special APDU commands. Since April 2009, Toppan Printing Company has manufactured reusable smart cards for money transfer and made from paper instead of plastic. Security - Smart cards have been advertised as suitable for personal identification tasks, because they are engineered to be tamper resistant. The chip usually implements some cryptographic algorithm. There are, however, several methods for recovering some of the algorithm's internal state. Differential power analysis - Differential power analysis involves measuring the precise time and electrical current required for certain encryption or decryption operations. This can deduce the on-chip private key used by public key algorithms such as RSA. Some implementations of symmetric ciphers can be vulnerable to timing or power attacks as well. Physical disassembly - Smart cards can be physically disassembled by using acid, abrasives, or some other technique to obtain unrestricted access to the on-board microprocessor. Although such techniques obviously involve a fairly high risk of permanent damage to the chip, they permit much more detailed information (e.g. photomicrographs of encryption hardware) to be extracted.


The Disadvantages Of A Smart Card

With all the advantages of using smart cards, there are some disadvantages to using them also. For example, even though they are small, lightweight, and easy to carry, they can be easily lost if the person is irresponsible. This is fine if the card has a single use like a bus pass, but if one smart card has multiple uses, allowing you entrance to office parking, access to the office, and paying for lunch, then losing this card will have give a different outlook to the day if it is lost. A second disadvantage of the using smart cards is their level of security. They are more secure than swipe cards. However, they are not as secure as some in the general public would believe. This creates a false sense of security and someone might not be as diligent as protecting their card and the details it holds. A third disadvantage to smart cards is the actual technology and hardware. If used as a payment card, not every store or restaurant will have the hardware necessary to use these cards. One of the reasons for this is since the technology is more secure, it is also more expensive to produce and use. Therefore, some stores may charge a basic minimum fee for using smart cards for payment, rather than cash. The fourth disadvantage of using smart card technology is their identity theft potential. When used correctly for identification purposes, they make the jobs of law enforcement and healthcare professionals easier. However, for criminals seeking a new identity, they are like gold, based on the amount of information it can contain on an individual.


Conclusion & Recommendations

Most often credit cards can provide convenience but they can also land you in debt through unwise choices or through no fault of your own, such as an emergency. In order to overcome the risks of credit card use, avoid accumulating too may and pay the debt off on time, read terms and conditions carefully and take measures to avoid fraud.