In their belief that the future lies in plastic, banks are introducing microchip based credit cards, called smart cards, into the Indian market. The latest entrant in the burgeoning credit card industry is the State Bank of India, which has announced a joint venture with GE Capital to launch the State Bank Card’. The venture will benefit from the bank’s large network and is sure to give other card companies a run for their money. Credit cards have been instrumental in widening the market for consumer goods, and it is a matter of time before plastic becomes the norm in India as well. But several obstacles remain.

Enthusiasm for the new technology appears to be low with most bankers being lukewarm to the idea inspite of the high security features of chip card. They are more concerned over high conversion costs from magnetic to chip cards, as credit card fraud in India is minimal in comparison to the West.

The absence of credit bureaus is another stumbling block. These bureaus are used by banks to distinguish between a good customer and a potential defaulter. There is no reason why banks should not develop their own database. For instance in the US, one can have scores of credit cards, the only consideration being a positive credit history. In the case of default, it is virtually impossible to get a card. This is very different from our country where banks can rely only on a salary slip. Another drawback is the legal system, which makes it impossible to recover dues from defaulters.

This has restricted the launch of advanced products. Stumbling blocks apart banks are very keen to enter this market. But they will have to contend with the parallel economy that thrives on cash payment and by its very nature shies away from leaving a trail for the taxman to follow.