Debit cards: The dark horse?

Better security, greater awareness lead to higher usage

Banks’ customers are now increasingly using their debit cards to buy merchandise, pay bills or book tickets online.

Only a few years earlier, debit card usage was mostly restricted to ATMs while customers used their credit cards or paid cash while making purchases at retail outlets. But the promise of better security, greater awareness and growing popularity of plastic money appear to have persuaded customers in using their debit cards outside ATMs.

 

Consider this: The volume of debit card transactions in point-of-sale (POS) terminals in October, 2013, increased by 38 per cent from a year earlier to 55 million. In terms of value, the year-on-year growth was 28 per cent. Compared to this, the volume and value of credit card transactions in POS terminals grew 22 per cent and nine per cent, respectively during this period. Rajiv Sabharwal, executive director of ICICI Bank, while speaking to Business Standard, said: “We strongly believe that as a bank we have to give our customers a choice of all possible transaction channels. We encourage our customers to use electronic mode for making payments or purchasing goods, instead of physical cash. It is much safer. We have seen our debit card spends growing at a much faster pace than before.”

Bankers explain that enhanced security measures on debit cards have given customers the confidence to use it in retail stores. To provide an additional layer of security, cardholders are now required to key in their personal identification numbers (PIN) while using debit cards in departmental stores, restaurants and fuel stations.

 

 

"Initially, many feared that it will cause inconvenience and transaction volumes will drop. But because of this move customers now feel more secured. We saw similar thing happening on online transactions when an additional layer of authentication was introduced. Contrary to popular perception, transaction volumes had increased significantly," Jairam Sridharan, head of consumer lending and payments at Axis Bank, said.

 

Bankers claimed that there is greater awareness among customers about the benefits of using plastic money. Lenders are also encouraging use of cards by offering rewards and discounts. "Now, almost every major bank is out in the market advertising the benefits of using cards. The number of e-commerce websites has also grown exponentially and customers are increasingly using their cards to make purchases online," Sridharan said.

 

While in terms of revenue, bankers prefer their customers to use their credit cards instead of debit cards, they are not complaining because of the large volume of debit card transactions. At the end of October, 2013 there were 374.19 million debit cards compared to 18.60 million credit cards.

 

"Credit card transactions are definitely more profitable from a bank's point of view because of the revenue model. But the penetration of credit cards is still very low. Debit card base is much bigger. We will prefer our customers to use debit cards instead of cash," said a banker.