Plastic money : Debit or Credit

The Telegraph has carried a news item titled Rebound seen in debit card use. Quoting the latest RBI monthly bulletin, the news item informs that

Debit card payments increased 38 per cent in the first half of the current fiscal to Rs 11,780 crore, signalling an uptick in consumer sentiment, the Reserve Bank of India said.

During the first six months of the last fiscal, debit card payments stood at Rs 8,531 crore, according to the RBI’s latest monthly bulletin.

“The rise in debit card payment is because of a spurt in consumer activities,” said an economist with a leading bank on condition of anonymity.

On the other hand, credit card transactions in the country have slumped 12 per cent in the first six months of this fiscal to Rs 29,330 crore as shoppers have decided against using their cards amid the ongoing economic slowdown.

The sharp growth of 38% in debit card use alongwith a decline in credit card use by 12 % could be due to some of the following reasons :

  • In India, plastic money is still equated with credit cards. Debit cards came in late. For every rupee spent on debit card, today three rupees is spent through credit card. The worldwide trend is much more balanced, 1: 2 as this table from indicates.

2008 worldwide purchase volume by card type
Visa credit – 31.7 percent
Visa debit – 28.6 percent
MC credit – 22.0 percent
Amex credit – 10.0 percent
MC debit – 6.3 percent
JCB credit – 0.9 percent
Diners credit 0.4 percent
(Source: Nilson Report, May 2009)

  • One of the largest credit card issuer ICICI Bank has been tightening its personal unsecured credit business. They have stopped issue of new credit cards and have brought down credit limits.
  • Even in a declining interest rate scenario, credit card interest rates still remain high at 30-42 % p.a. In an economic recession, surely the customers have been conscious.
  • The Indian consumer who had taken some tentative steps towards the consumerist culture of the west in the boom times, retracted to his shell , during the recession times.
  • State Bank of India even as they have been widening their ATM network , they have  been issuing ATM-cum-debit cards to all its existing and new account holders.
  • Indian middle class is beginning to realise the value of debit card as plastic money, hence safe to carry.

The cards market  will continue to grow rapidly in India, with debit cards growing faster than the credit cards.  


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