Is Plastic Money For Real

Updated: Jun 30 2002, 05:30am hrs
Plastic money entered the Indian market, promising a cashless society. But if we evaluate it after a decade, certain deviations are easily seen, like the change in focus from cashless society to plastic money as a debt instrument. As a new product, people used to flash colourful cards. However, the present plastic money definitely lacks sufficient infrastructure.

Fundamental Flaws

Charvak philosophy, which was practised during the Vedic period, though not very popular, now seems the fashion of the day. Charvak philosophy advocated borrowing, to make life luxurious. In a way this philosophy approved materialism. Plastic money was designed to help society overcome the hassles of carrying too much cash. But it seems the multinational banks came here with a mission of targeting the emerging and enormous middle-class segment (around 200 million people).

Almost every bank has introduced credit cards and every card issuer is claiming superior features. But there are certain things unchanged like annual rent, cracking interest rates on cash borrowings and credit purchases.

True Story Of A Victim

About two years back, Arbind Koul, a PSU executive working in Delhi, was approached by one of Standard Chartered Banks marketing executives who persuaded him to apply for a credit card of their bank.

After a certain time period, Mr Koul received a copy of the Credit Card Statement in his name wherein an amount Rs 33,315 was indicated to have been debited to his account in respect of three commercial transactions having taken place on 19.09.1999. This statement also carried the number of the credit card that had never been delivered to him! The matter was checked up with BankCard Customer Service Center of the bank at New Delhi office whereby it was confirmed that the card was not delivered in the proper hands and that it has been fraudulently used during the delivery stage probably by the courier agency.

Meanwhile, the said customer service center advised to send an affidavit to this effect which he submitted on 24.12.1999 in the proforma sent to him. The said affidavit was addressed to the banks Bangalore branch as well as New Delhi office, as advised by the bank cell. However, since then, Mr Koul has been visited by the banks executives at his residence from time to time. Every time after going through the case, he was given an assurance that the matter would be closed and that no one in future would visit him. But, this was not the case.

He was served a notice by the bank through their legal consultants vide letter dated 03.03.2000 advising him to clear his outstandings and also to contact the bank manager, who was looking after the case. However, on approaching the bank, he was once again assured that no such thing would occur in future and that the case stood closed.

But, Mr Koul narrated that the case remained open even after that as the bank employees continued to visit him. Recently, he was again contacted by the banks legal consultants who wanted to inquire about the case. After these experiences, Mr Koul says that he is scared to even glance at credit cards. Presently Mr Koul is planning to fight a legal battle against the bank.

Economics says human wants are unlimited, and it seems credit card sellers are cashing in on this concept only. But here is some sincere advice, avoid revolving credit - it may lead you to a debt trap. If you have a credit card, fine! But use it in exigencies only.

Extravagant use of cards have caused several suicides in western countries. Presently credit card companies are aggressively undertaking campus selling to students of reputed institutions. This is certainly an unhealthy practice, any unnecessary exposure to debt at this level can be dangerous. And if it is revolving credit, it may definitely lead them to a debt trap.

Automated Teller Machines (ATMs)

These machines are the backbone of plastic money but can have their own limitations too. When new, these machines attracted the publics attention. However, their fascination ended when the users transaction requests got repeatedly denied due to failure of network or non-availability of cash or non-availability of specific currency.

The other ATM of that very bank is at considerable distance, what does one do If you withdraw cash from the ATM of any other bank, you have to pay transaction fees. The number of ATMs of certain banks are insufficient to meet user demand resulting in breakdowns. These ATMs see a lot of usage during the first week of each month, as salary account holders transact most at this time.

Interest Rates

Although key interest rates were slashed in the recent past to unbelievably low levels, the interest rate charged to the cardholder on the amounts carried forward beyond the due date for the payment of balances remained the same. Most card issuers highlight the monthly rate of interest charged by them. It might sound low at 3 per cent, but when you look at the interest rate over the year, it turns out to be as high as 43 per cent. Transaction and service charges are also added to interest.

Ill-informed Sales Team

Almost every bank is selling cards through their direct sales associates (DSA). DSAs work on the basis of commissions. Generally, the sales team comprises non-finance background graduates and undergraduates with hardly a weeks training, which only imparts certain jargon and product awareness. As the level of financial awareness is poor in the country, the agents are able to extract their business easily in spite of possessing inadequate knowledge themselves.

Sales persons have very little knowledge about charges and interest rates. They are often more interested in highlighting the ancillary features of the products than discussing charges. Some of the agents have such poor information that they are even unable to differentiate between a Visa Card and a Master Card. This, in turn, creates more grievances, as the customers remain ill informed. However, the responsibility for this situation can be attributed only to the card issuer. The sales team interacts directly with customers. It is imperative that the sales team remains well aware of the nuances associated with the product.

Transaction Irregularities

There are so many instances of late receipt of bills resulting in penal charges being levied on the customer - who should be held responsible Banks provide facility to deposit cheques in the boxes at their ATMs. However, there have been instances where cheques have been missed.

Poor Domestic Outlet Penetration

More than six million cards are in the market, with an average growth of 30 per cent. Comparatively if we look at the domestic outlet penetration of online transaction machines, it is poor. Only shops catering to the higher class segment of customers have transaction machines. Middle or lower income level shops are still not equipped with these online transaction machines even in metros like Delhi. For essential items such as vegetables, milk, etc payment is accepted only in cash. Shopkeepers argue that machines are too expensive to afford. As plastic money is something new to this market, the card issuers should promote awareness but unfortunately no effort has been made in this direction till date. Most of the working class in metros have their roots in B class cities and in smaller towns. However, very few banks cater to these areas as most of them are servicing only the metros.

Conclusion

In spite of the shortcomings, there are certain undeniable advantages associated with plastic money. Plastic money comes to use in an emergency, one is free from the hassle of carrying cash, etc. The responsibility to ensure that the shortcomings do not overshadow the advantages lies with the card issuers only. As indicated above, customer care, services at ATMs, interest rates and domestic outlet penetration are the areas which need immediate attention. Otherwise, the use of plastic money will be limited to luxury goods and services, and the market size will continue to remain small.