Plastic Money

Introduction to Plastic Money

Plastic money refers to plastic cards such as debit cards, credit cards and ATM cards used in place of actual bank currency notes. They are made out of plastic and hence the name. Even though the Reserve Bank of India introduced plastic money in the 1990s, it did not gain much popularity until much later.

Advantages of Plastic Money

  1. Convenience: Plastic cards eliminate the need for carrying cash everywhere. They are durable than traditional cash. With just a swipe, they serve the purposes of payment, purchase, withdrawal, exchange, etc. Furthermore, credit cards have many applications such as school fees payment, hospital bills settlement. 
  2. Higher security: Every credit card has a unique security number. This helps in significantly reducing the rate of theft and thereby increasing the usage of credit cards. They also follow many safety standards to ensure utmost safety. Every time a purchase is made using the card, a message is sent to the cardholder regarding the payment details. 
  3. Internationally accepted: The same card can be used to make purchases in different countries from anywhere around the world at any time. There is no need for converting banknotes from one currency to another. 

Types of Plastic Money

There are many forms of plastic money. They are:

  • Credit cards
  • Debit cards 
  • In-store cards
  • Smart cards
  • Cash cards
  • Charge cards
  • Add-on cards

Among these cards, credit and debit cards are predominantly used in monetary transactions.  

Credit Cards

Credit cards are a form of plastic money with which a holder buys goods and services without paying cash immediately. 

Whenever the cardholder wishes to make a purchase, he produces his card to the supplier of the goods and signs the charge slip. The credit card issuer, let’s say SBI or HDFC Bank, will then settle the claims on his behalf. Later, he receives a statement of his transactions and makes the payments back to the issuer. 

The crux is that the holder gets a loan from the card issuer. He does not need to pay interest if he pays back the amount within the stipulated time. In case he misses the deadline, a small percentage of interest is levied on his sum due. The amount of money he can spend is limited before he has to pay back the initial sum.

Advantages of Credit Card

There are substantial benefits to using a credit card, not just to the cardholder but also to the bank. As mentioned earlier, credit cards are convenient and safer to use. They accumulate reward points on purchase which can be redeemed for gift coupons later. Some issuers provide personal insurance against loss of life. 

On the other hand, banks attract new customers by entrancing them with exclusive features. The increased usage of cards improves the turnover and boosts the popularity of the banks. Moreover, they aid in cutting down on the cost of printing cash notes. 

Debit Card

Unlike credit cards, debit cards involve deducting money from the holder’s bank balance. The bank that issues the card requires the holder to open an account associated with it. 

There are broadly two classifications of debit cards: PIN-based and signature-based. While a PIN-based debit card is more secure, the latter is widely accepted in India.


Plastic money was designed to overcome the hassle of carrying cash everywhere. But, there are drawbacks to using them. The appeal of credit cards can lead financially poor people to debt traps. There is insufficient infrastructure in rural areas to promote the use of plastic money. 

The benefits, however, far prevail over the pitfalls. Plastic money could bring in more foreign tourists, entrepreneurs and engineers into the country. It could help in the regulation of black money. Ultimately, plastic money has the potential to pave the way for a thriving economy.