Plastic Money

Plastic Money - INVESTMENT BANKING AND FINANCIAL SERVICES...

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INVESTMENT BANKING AND FINANCIAL SERVICES PLASTIC MONEY
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PLASTIC MONEY What is plastic money? Who are the parties involved in the process? Features of plastic money Credit card Business in India: The Emerging Scenario RBI Guidelines for Issue and Management of Credit Cards
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What is PLASTIC MONEY? Usage of plastic card at the time of buy and sell, in place of currency refers to plastic money. The substitution of currency with plastic cards may be either due to postponement of payment or because of prepurchase payment on the card that is issued.
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Who are the parties involved in the process? Card Issuers Cardholders Member Establishments Member Affiliates Clearing Agencies
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Card Issuers The principal issuers of the plastic money are the banks. There are a number of banks offering plastic money in the Indian Market with many banks issuing credit cards The reason for more and more banks diversifying into plastic money business lies in the high returns associated with this business. Banks charge around 2.5 per cent commission from Member Establishments selling goods and services through credit cards
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Cardholders We the guys would like to buy now and pay later (with or without the money in banks).
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Member Establishments Establishments enlisted by the plastic money issuer who accepts valid credit cards towards payment for the goods sold or services rendered by them in lieu of cash. While enlisting MEs, their reputation, integrity, standing and popularity are taken into consideration
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Member Affiliates The issuer may sometimes enter into a tie- up for issuance of credit cards. In such cases, the organizations are called member affiliates. Credit cards issued by MAs are similar to those issued by the issuer, except that they contain the name and logo of the MA on the face of the card, besides the issuer’s name and logo.
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Clearing Agencies Typically a card issuer affiliates itself with MasterCard International or Visa International – the two leading international card issuers which act as clearing agencies. The advantage of this affiliation is that it enables the cardholder of one affiliate to use his card at the MEs of another affiliate.
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Clearing Agencies The holder of Citibank Classic Card can use his card at the ME of the Bank of Baroda (BoB) because both the banks are affiliates of MasterCard. In this case, BoB pays the ME after deducting the discount and routes the transaction through the MasterCard network to Citibank which in turn effects the payment to BoB (acquiring Bank). Citibank gets a percentage of the merchant discount as stipulated by MasterCard and the acquiring bank (BoB) in this case also gets a small (risk-free) commission.
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The Process 1. Banks issue Credit Cards to the 2. Member Establishments will give recognition to the card holders 3. Card holders use their cards to purchase goods and produces credit card 4. Member establishment will verify identity and returns the card and produces sales vouchers to the issuing bank
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This note was uploaded on 01/28/2011 for the course FIN 315 taught by Professor Welker during the Spring '09 term at IUP.

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Plastic Money - INVESTMENT BANKING AND FINANCIAL SERVICES...

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