Credit Cards - An Indian Experience


P. Raja
R.L. Institute of Management Studies

A barometer of the maturity of an economy with a few expectations is the stage of development reached by its payment systems. Cash in the form of notes and a coin makes up just one form of payment system.  The development in banking brought about a second phase in payment system, namely paper instruction such as cheques and credit transfers.  The requirements, for greater flexibility and convenience and development of technology has given rise to electronic payments and this where plastic cards have provided their worth.

The development of the credit card is one of the most significant phenomena of the modern financial service scene. Basically the use of credit card of one of the two essential aspects of the financial services function services function, the transmission of payment and the granting of credit.  The development of the credit card allowed for the first time, the use of these two functions together.


Credit card originated in the United States during 1920s when individual companies such as hotel chains and oil companies began issuing them to customers for purchase made at their business units.  The use increased after Second World War. Diners club introduced the first universal credit card than be used at a variety of scores and business.  In 1958, the American express company established another universal card called `don't` leave home without it` only after such development bank credit into existence.


In India the foreign banks and organizations forayed first into the credit card market the pioneer in the Indian field is the City Bank's Diner's Club Card, which entered in 1969.  Recognizing the potentiality of the credit cards, few Indian banks took early initiative to introduce them. However it was only during 1981 when Andhra Bank introduced its own credit card did the Indian bank constructively enter the field central bank of Indian in association with Vysya Bank, United Bank, of India issued the central card it 1985 the bank of Baroda along with Allahabad Bank launched the bob card.  The mercantile credit corporation limited merchant came in 1986 the Canara Bank made later entry into the credit card business in 1987 and the bank of India issued its own card, India card in 1988.  Among the foreign banks the ANZ Grindlays Bank came with visa classic card by 1989.  Citibank's master and visa card appeared in 1900m along with Taj Premium Card market turned busy with all the twenty-eight public sector banks operating in it.  The state bank of India has introduced also state bank cheque card.  In 1992 the hongs Kong bank entered the field with its visa international card and master card international and recently it has launched the Hyatt regency preferred gold card.


Credit card is given by the banker to the customers in which the name of the customer is embossed in blocks letters, the name of the bank of issues and expiry are also mentioned on the field the reverse side of the card will bear the specimen signature of the customers. A list of vendors or sellers will be given by the banker to the customers.

Some of the terms, which are commonly used in the credit card industry

* Cardholder                        - One who posses a credit card.
* Plastic money                    - Credit Card is called as plastic money.
* Issuing bank                      - Bank which issued CC to ach
* Merchant establishment      - Which has an agreement with the CC issuers and are authorized to
                                            accept CC.
* Acquire                            - It is a card issuing organization, which collects the charge slips from
                                            the merchant establishment and makes prompt payment to the merchant
                                            after deducting its commission.
* Credit limit                        - The maximum amount of charges a cardholder may apply to the
* Annual fee                        - A bank charge for use of a credit card levied each year, which a ranges
                                           depending upon the type of card one possesses bank usually take an
                                           initial fixed amount in the first year and then a lower amount as yearly
                                           renewal fees.


There are two associations, master and visa, which offer membership to other agencies especially banks.  The member association affiliated to master or visas or both issues the credit card with logo of Master or Visa along with their own logo.  Now visa and master card are the leaders in the market of credit cards. Various Banks are now issuing credit card having tried up with these global payment systems.

The multinational banks offering card are Citibank, standard bank, and ANZ grid lays bank.  The domestic banks offering credit are SBI, BOB, Canara Bank, and central bank of India Andhra bank, Vijaya bank and bank of India.  Today cards are accepted by all major hotels, airlines, car rental agencies, restaurants and retail outlets.


Visa international has the largest global ATM network in over 113 countries Master card international has over 23,000member financial institutions serving consumer in 220 countries and territories and has over 3,50,000 ATM locations around the globe she first card was issued in India by visa in 1981.

The country's first gold card was issued from visa in 1986. The first international credit card was issued to a restricted number of customers by Andhra bank 1987 thought the visa program, after getting special permission from the Reserve Bank of India.


* Charge card

In this card, the cardholder has to make full payment of the charge by the due date. Unlike other credit cards, here dues are not allowed to carry forward.

* Affinity card

A card offered by two organizations of which one is a lending institution and the other a non financial group. Here schools, non profit groups, airlines, petroleum companies issue affinity cards. These cards carry special discounts.

* Standard card

It is a normal credit card which carries limit on transactions, according to the credit worthiness of the card holder.

* Classis card.

A credit card issued by visa, carrying the logo of visa.

* Gold card

A credit card that offers a higher line of credit than a standard card. Income eligibility is also higher. In addition, issuers provides extra perks or incentives to cardholder.

* Platinum card

A credit card with a higher limit and additional perks than a gold card.

* Titanium card

A card with a even higher limit than a platinum card.

* Secured card

A credit card is given to a card holder who has savings deposit which will take care of his outstanding balance, in case of his default on payment.

* Smart card

Smart cards, sometimes called chip[ cards, contains a computer chip embedded in the plastic where a typical credit card's magnetic strip can hold only a few dozen characters, strip can hold only a few dozen characters, smarty cards are now available with 16k of memory. When read buy a special terminals, the cards  can perform a number of functions or access data stored in the chip. These cards can be used as cash cards or as credit cards with a present credit limit, or used as ID cards with stored in passwords.

* Debit card

It is the account holder's mobile ATM. Open an account with a bank that offers a debit card and payments for purchases are deducted from your bank account. The retailer stripes the card over an electronic terminal at his outlet, you enter the Personal Identification Number on a PIN pad and the money is immediately debited at the bank.Citibank and a few domestic banks like Times Bank offer this.


The advantages and acceptability of credit cards from the customer's viewpoint vary from that of banker or member establishments.


* Wide acceptance reduce the risk of carrying case during travel
* Flexible payment scheme allow the cardholder to successfully mange his cash
* Fringe benefites like ATM`s insurance's cover, shifty discounts at M.E.


* More customers will avail the banking facility
* The bank, by extending credit to customer, retailer, wholesaler and manufactures is able to earn interest on the credit.
* The profile of the bank will also increase due to the extension of credit to different parties.


* Helps to increase business turnover.
* Reduce the possibility of customer bad debts.
* Certain free advertising promotions from credit card comparisons or banks.


Credit Card which was considered to be a luxury, has become one of necessity. It was considered to be used only by higher income group. But today, with development in banking and trading activities, fixed income group or salaried class has also started using the same. There may be the criticism that  it includes for more purchases or makes people spend thrift. This may be so in the initial stage, but when once a customer gets used to the credit card, he/she will know how to use the same in a discretionary manner.

P. Raja
R.L. Institute of Management Studies

Source: E-mail January 16, 2007


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