Essay on Plastic Money in India: Opportunities and Challenges

Technology is an inevitable tool in today’s competitive world. Banks today operate in a highly globalized, liberalized, privatized and competitive environment. To survive in this environment, banks have to use Information Technology to provide traditional and other banking services in a digital platform. Plastic money is a term that is used to denote the hard plastic cards which the bank customers use every day in the place of actual banknotes. With increasing economic and financial liberalization, banks feel it desirable to enter this line of business. Plastic money or polymer money, made out of plastic, is a new and easier way of making payments for goods and services purchased. Plastic money was introduced globally in the 1900s. It reduces the risk of handling a huge amount of cash. It includes debit cards, credit cards, charge cards, ATM cards, prepaid cards, transit cards, commercial cards, add on cards, etc. The main advantage of plastic money is that it provides convenience and safety. People are getting more dependent on technology and the plastic money business is just the best outcome of technology in the banking business.

History of Plastic Money

The plastic money was originated during the 1920s when the first payment card was introduced in the USA. In 1950, Diners Club and American Express launched the world's first plastic card in the USA. The first credit card was introduced by the Diners Club in 1951. The plastic cards began to be widely used only after 1970 with a magnetic strip set up. In the late 1990s, plastic cards became familiar and by 2001, plastic money had become an essential form of ‘ready money’.

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Plastic Money in India

Plastic money in the form of cards has been keenly introduced by banks in India during 1990s. At the time of its introduction, it was not popular among Indian customers. The change in demographic features of consumers in terms of their income, marital status, education level, etc and upgradation of technology and its awareness has brought the relevant changes in consumers' preferences. These changing preferences have also modified their outlook and decision regarding the acceptance and non-acceptance of particular products and services in the market. Thus, plastic cards are gaining popularity among bankers as well as customers and getting accepted in the market place. This paper focuses on the opportunities and challenges of plastic money in India. Popular cards are credit cards, debit cards, ATM cards, smart cards, co-branded cards, add-on cards, etc. Highly using electronic money are credit cards and debit cards.

Credit Card

A credit card allows the cardholder to use the card against a line of credit approved by the card-issuing bank/organization. The card issuer normally allows the cardholder to repay the used amount either in full or in part (monthly minimum repayment). The card can be used at points of sale device at merchant locations, for goods/ services purchased. The card can also be used for online shopping and e-commerce transactions. Citibank and HSBC were the lead ways for a credit card in the Indian credit card market during 1980s. As of March 2019, the volume and value of credit card of banks in India stood at 17724 lakh and Rs.607881crore1 respectively.

Debit Card

A debit card allows the cardholder to withdraw money directly from the bank account of the customer by using an ATM. It also facilitates the user to swipe the card at point of sale (POS) device at merchant locations for goods/services purchased. The same card can also be used for online shopping and e-commerce transactions. The debit card market is having a smooth run in India. After its introduction in the mid-1990s, debit cards gain popularity and user acceptance at a rapid pace. There is no monthly card bill, credit and interest components are associated with this debit card which is the major reason for the popularity of the card. As of March 2019, the volume and value of debit cards of banks in India stood at 142739 lakh and Rs.3904264 crore1 respectively.

ATM Card

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

Charge Card

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

Smart Card

Smart card stores cash with the use of an electronic chip. It is mainly used to pay for small purchases, for example, tea or bus fare. This card doesn’t need any sort of identification, signature, or payment authorization. While making payment, the smart card reading machines take the exact amount of purchase from the smart card. It is used only in very developed countries like the US.

Co-Branded Card

Co-branded cards are credit cards carrying exclusive benefits for the consumer as they shop at various places. They are issued by card companies having tie-ups with a popular brand. Consumers can earn reward points to shop more and avail discounts with this type of card.

Add-On Card

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

Review of Literature

Bhawna Mukaria (2018) has done a study on plastic money’s growth and challenges. The study is based on secondary data and analytical. This paper focuses on the history and prospects of plastic money. The study found that in the modern-day, people like to make payment through debit or credit cards rather than cash. It increased the use of plastic money. Due to major social and technological advancements, the banking landscape is undergoing massive change. The market is seeing increased availability of sophisticated technologies that can enable cashless transactions. The perceived disadvantages such as the need for high IT investment by various service providers, security concerns, lack of technological awareness and the traditional mindset of Indians who prefer to use physical money seem to outweigh the potential benefits. With the change in technology and the improvement in the payment system has led to further development in plastic money.

Mahima Rana (2018) done a study on trends and issues of plastic money in India. The objective of this research study is to find out the current trends in the use of plastic money in India, benefits and risk associate with the cards. The study also attempts to find out the problems attached to the plastic money. The research is literature-based and associate with secondary data. The study concluded that the benefits of plastic money cannot be negated and to develop in the modern world, moving away from the paper currency is becoming important.

Reena Hooda and Deepak Dhaka (2017). India is moving towards a more networked, demonetized economy with a robust infrastructure. Plastic Money will be one of the everyday necessities of the community. A descriptive study contributed towards a range of security issues in addition to technique to make money protected and reliable. The usage of plastic money has so many security issues. In the country of traditions like India, cash cannot be abolished permanently as well one cannot deny the gradual growth of plastic money. Plastic money is the major requirement of the growing economy and global spread of the business and above serving a vast market to the manufacturers. Though it is globally accepted, some problems are there, the user has to be too vigilant in dealings and transactions via cards. The provision of mandatory and free basic training to the cardholders should be made to the customers near to home. The main motto of such training may be to train the cardholders about the precautions to be taken by them to keep their cards and money safe from the fraudsters or skimmers.

Objectives of the Study

1. To find out the opportunities for plastic money in India;
2. To know about the prevailing challenges for plastic money in India.

Methodology Adopted

The study is based on secondary data and they were collected from RBI websites, various research article from journals, etc.

Opportunities of Plastic Money

The use of plastic money is growing at an unprecedented rate in India. Lesser number of installed Point-of-sale (PoS) terminals is the major obstacle in the growth of debit cards. The smart card has many innovative features that may spurt the use of cards in India. The smart card is safer to use in electronic form than the present form of cards. “Credit card business is a volume game and initially highly capital intensive”.

Plastic money is growing by leaps and bounds in India. Today, many banks are offering cards with different types ranging from gold, silver, global, platinum, etc. Though the foreign banks have a dominant share in the card industry, the entry of the Indian banks like SBI, ICICI and HDFC Bank changed the rules of the game. SBI is the third-largest issuer of credit cards. This proves that in our county, there is a huge potential for the use of plastic money.

The competition among banks has been growing and they are offering so many add-on incentives like a waiver of first-year annual fee, discount on retail stores, personal loans, etc. to woo the customers. Indian Government’s order of demonetization in 2016, makes the people move towards cashless banking which ultimately increased the usage of plastic money. This plastic money is beneficial for bankers, customers, merchants and even for Government. The advantages of plastic money are as follows:

• Convenience: Plastic money provides an easy way to make financial transactions without carrying cash. It also provides the benefits of anywhere and anytime banking.
• Easy to check counterfeiting: The plastic currency notes reduce the chances of counterfeiting.
• Long life of plastic currency notes: The plastic currency notes have the life of five years as against one-year life of paper currency notes.
• Check on black money: It is possible to trace the financial transactions done through cards. Developing a culture of plastic money makes it easy for the government to trace black suspected black money sources.
• Supports growth of e-commerce: The use of cards has supported the growth of e-commerce. The growth of e-commerce enhances cost-effectiveness and alternative channels to improve economic growth.
• Power of purchasing: Debit or Credit cards made it easier to buy things. Now one does not have any need to carry money in a large amount. Plastic money is accepted at any time and everywhere.
• Time-saving: One can purchase anything from any place through a credit card or debit card without spending cash. The customer has to provide their card details to the seller store or corporations and settle their order. It saves time in the transaction by using debit and credit cards. It also saves merchant time to deposit their cash earned from their business. Time-saving ultimately leads to cost-effective.
• Safety: If an individual lost the cards, then he/she may contact the bank or financial institution, which provides the cards. The financial institution or bank will block the account and no-one can draw single paise without permission.
• Easy to track transactions: Banks normally send the statement of debit or credit card to its customers every month which will have the list of all their transactions for that particular month. It helps to have a check over our expenses and it is easy to note the transaction history.
• Internationally accepted: The same card can be used locally as well as internationally. So, the problem of running out of cash will not happen in the cardholder’s journey.

It ensures high customer retention and increases customer satisfaction. Due to its various advantages, the plastic money market is growing day by day besides the government move towards ‘Digital India’ pushes the plastic money in circulation.

Issues and Challenges

Plastic cards were introduced to make transactions convenient. Though it offers various benefits to different users, some incidents become a threat or issue for the users. The probable issues related to plastic money are as follows:

• Shops acceptance: Numerous shops accept credit cards of a specific company only. In this situation, cash is the only mode. It is not a good idea to owe loans on high-interest rates and spend it in unnecessary things or purchasing of payment for those who use a credit card for another company.
• Less availability: There are several cases where the firms do not let their cards to be utilized in specific areas wherever they have a regional dispute.
• Increased debt and high-interest rate: Credit card from corporations and financial institutions charge high-interest rates if the person fails to pay the card bill on a particular month. These interests are the earnings for the card-issuing institutions (like banks).
• Fraud: In the case of stolen credit cards, the thief may use it directly to get the information. Nowadays, it is possible to get a clone of any debit or credit card, which works like original and is considered as a substantial loss. Thus, the customers have to be aware of the credit card frauds.
• Service charge: In certain cases, the bank charges a service charge for the purchase of certain items by using plastic money.
• Card damage: Customer’s card equipped with a magnetic strip is damaged or when trying to swipe at the counter or ATM, the transaction is not getting proceed due to some chip error or damage. These cases occur only when plastic money is used. It might be a rare case but the possibility cannot be completely ignored.

The present banking industry has become wholly customer-driven and technology-driven. Banks are using technology to reduce cost, enhance efficiency, productivity and customer convenience. They face the challenges of competition, rising customer expectations and shrinking margins, etc. The major challenge in front of banks in the plastic cards is security in the aspect of data as well as the card.

A malware in an ATM can enter the server of the bank and can access all the details about the transactions, users and other information and due to the networked branches, it crept into other bank’s servers also.

People pay online or through cards using PINs and passwords though they think that their transactions are secured. They are more vulnerable to hijack the cards, the security can be easily breached. So, it is better and secure to make one’s own system rather than using any other sites.

The usage of smartphones is increasing day by day in India. This smartphone enables banking transactions and other banking services through the mobile platform (various banks mobile banking apps (YONO SBI, SyndMobile, CANDI, iMobile, Cent Mobile, etc.), PayTM, GooglePay, Amazon Pay, etc.). So, the mobile companies have to innovate a smartphone with inbuilt security, biometric system and other passwords to operate it in the right possible way.

The plastic money user has to aware with regard to their ATM PIN, or any banking passwords sharing. Such details should be kept in private always. Sharing or writing banking credentials may lead to loss of data and money. So, the user has to stay alert while dealing with such kind of sensitive data and people should highly conscious about electronic banking channels.

The plastic money and other electronic banking channels need a secured, safe, user-friendly banking platform to operate and utilize offered banking services.

Conclusion

In the digital epoch, people like to make payment through debit or card cards rather than cash. The tech-savvy era increased the use of plastic money. Due to major social and technological advancements, the banking landscape is undergoing massive change. The market is seeing increased availability of sophisticated technologies that can enable cashless transactions; however, the perceived disadvantages such as the need for high IT investment by various service providers, security concerns, lack of technological awareness and the traditional mindset of Indians who prefer to use physical money seem to outweigh the potential benefits. The change in technology and the improvement in the payment system has led to further development in plastic money. The government’s cashless society move in India should ensure adequate use of technology and resources to make it a win-win situation for all.

References

1. Reserve Bank of India. (2019). Payment System Indicators.
2. Bhawna Mukaria. (2018). Plastic Money: Prospective and Challenges. International Journal of Engineering Technologies and Management Research. 5(2). 117-125. DOI: 10.5281/zenodo.1185073.
3. Mahima Rana. (2018). Transition from Paper to Plastic: Trends and Issues of Plastic Money in India. IOSR Journal of Business and Management (IOSR-JBM.). 20.
4. Reena Hooda and Deepak Dhaka. (2017). Plastic Money Security Issues in India. Oriental Journal of Computer Science and Technology. 10(2).408-412.
5. Plastic Money and their Advantage & Disadvantages. (2019). Retrieved from https://legatoapp.com/blog-in-detail.php?bp_id=111
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