Plastic money is considered one of the most evolved forms of financial products and serves as an alternative to physical cash or standard “money”.
The term refers predominantly to the hard plastic cards that individuals use daily in place of actual banknotes
Forms of Plastic Money
Plastic money exists in several different forms, including:
- Credit Cards and Debit Cards
- Cash Cards and Prepaid Cash Cards
- Store Cards, Forex Cards, and Smart Cards
- ATM Cards, which are commonly used to withdraw cash wherever facilities are available
Legal Status and Usage
Despite its widespread use, the sources clarify that debit cards and credit cards are not legal tender. Unlike banknotes, which a creditor is legally compelled to accept, these cards are digital means for transactions within a cashless economy.
In India, the RuPay card is a notable indigenous payment card launched by the NPCI; it is unique because it is devoid of acquisition or transaction costs compared to international networks like VISA or Mastercard.
Recent Security Update: Card Tokenization
To enhance the security of digital transactions, the RBI introduced a tokenization facility in October 2022 for all RuPay, VISA, and Mastercard users
- Mechanism: Tokenization replaces actual card details (like the 16-digit number) with a unique alternate code called a “token”
- Security Benefit: Merchants and payment aggregators are no longer permitted to store actual customer card credentials in their database
- Protection: This protects users against data breaches or hacking attempts at a merchant’s end, as the actual card details are never shared during transaction processing
Advantages of Plastic Money and Tokenization
- Speed and Convenience: Tokenization speeds up the digital shopping experience by removing the need to repeatedly enter card information once a token is issued
- Growth in Adoption: Use of these cards is growing rapidly; for example, credit card transactions increased in volume by 27% during the 2021-22 period
- Transparency: These transactions contribute to a cashless society, which increases transparency and accountability while reducing the risks associated with transporting large amounts of physical cash.
To understand its role, you can think of plastic money like a key to a safe; the card itself isn’t the wealth, but it provides a secure and specialized way to access and move your funds without having to carry the actual weight of the treasure with you.