Plastic Money: Is It My Friend, Or Should I Be Careful??

Plastic money is a term we have become familiar with; rather it now has become an indispensible part of our lives. This term is used predominantly in reference to the hard plastic card that we use on a daily basis in lieu of actual bank currencies. This plastic money come in different forms such as debit cards, credit cards, pre-paid cash cards, cash cards, store cards etc. Plastic money became a slang phrase for these cards, especially when these cards are used to make purchases. The "plastic money" is coined as these cards are made of plastic as opposed to paper or metal. The money part of this term is however, is an erroneous reference to credit cards as a form of money, which it actually is not. Credit cards do facilitate transactions, but they are a liability rather than an asset. Credit cards are neither money nor part of the economy's money supply. It is an alternative of the cash or the standard "paper money" that we use for regular transactions.

The beginning of the "Plastic Money".

When we speak about "plastic money" the first thing that we need to understand is that it was the Charge cards that actually laid the foundation for the debit and credit cards we use today. Way back in the 1900's companies came out with the idea of issuing charge cards. In 1946 “Charg-it" was the first actual bank card issued. John Biggins a banker in Brooklyn was the inventor of the card which was then used only for local purchases unlike now. Companies introduced these cards which kept customers loyal to the company. While the concept of the credit card was that of Frank McNamara who found himself in a jiffy when he ran short of cash as he had forgotten his wallet at home after having dinner with a fellow business associate. This incident made him think of a charge card that could be used at multiple locations which later came to be known as the "Diners Club Card". This great idea became the first true model of the multipurpose credit card that we use today. 

The American Express came out with their first credit card in the year 1958. As American Express already had international presence, the Green Charge Card was globally accepted and became the first internationally accepted credit card.

The Bank of America in the year 1958 came up with a unique new card that could be used to purchase anything at merchants who were participating in registering for the same. In other words, this was one card that could be used at various locations and the cardholder did not require carrying multiple charge cards. This card also set the industry standards of grace periods, which they had then set to 25days, credit limits and floor limits. This initial launch in the year 1959 was a great success with 60, 000 customers opting for the card. This was later rolled out state wide in California. The major leap in the card technology came when CIA hired IBM to attach a magnetic stripe that could identify their cards. There is an interesting story regarding attaching the magnetic stripe. Though the technology of the magnetic stripe was already available however, attaching the stripe to the card permanently had become a cause of concern as it developed wrinkles. While trying to fix the problem, Forest Perry came home from work and saw his wife ironing clothes. He discussed about the problem that he was facing and his wife asked him to get a prototype of the card. Using the iron she easily managed to melt and press the stripe on the card wrinkle free. This was a brilliant idea which solved the entire problem and IBM went into production full swing.

The most convenient aspect of plastic money came with the invention of the Automated Teller Machine or ATM. It is also called "Any Time Money". This fabulous idea was that of John Sheppard-Barron. In the 1960's after an unsuccessful trip to the bank for some cash withdrawal, John not only waited but couldn't get any money till the next day. Back home during the night John thought how well it would be if there was self cash dispensing machine. He soon invented not just the ATM card but also the 4 digit international standard pin code that we need while using an ATM card. It is said John initially wanted a six digit military serial but his wife convinced him for four digits saying it would be easy to remember.

Since then Plastic money has come a long way. With the new technology being able to accept transactions through a mobile device is a game changer. The mobile card readers have significantly contributed towards the usage of the plastic money. It is a win win situation both for the consumer and the seller as it now offers many small businesses across the world more ways receive payment and the consumers’ convenient way to pay.

However, there is a flip side to all this ease of transaction. Researchers have found people who use credit cards are more likely to overspend. The fact that consumers don't feel physical cash leaving their hands also plays on the psychological impetus behind overspending. Rampant use of credit card many a times makes one fall into an endless cycle of maximizing one credit card to pay for the other until one end u neck deep in debts. 

The grace period for payment also plays games with people's mind and most often they end up swiping their cards more than necessary thinking there is enough time before the payment needs to be arranged. However, the amount keeps mounting and it becomes too hard to handle with the entire late payment fee, and other charges only adding up.

Apart from these it has also been found that people are willing to play more amounts for the same item while paying using the card. They also tend to end up buying not so important or at times absolutely unnecessary stuff trying to avail discounts available on the credit cards.  

Credit cards should be used as a means to pay for planned expenses or needs. One should not create new expenses just for the sake of availing some discount/ loan offered on things. Using the card to pay utility bills like telephone, electricity, gas etc are beneficial as one gets enough time to make the payment and at the same time enjoy the reward points as a perk. One should never use the credit card for random purchases. Credit card users should also keep an eye on their outstanding and pay the credit card bill in full to avoid late payment charges, interest accrued etc. If used judiciously cards are definitely a boon and one do not have the trouble of carrying large amount of cash and fearing getting mugged. Control and planned spending is what works well while using the plastic money.

By: Madhuchanda Saxena