Give them Some Credit

Almost all the new generation private sector banks are offering debit cards to their customers at a cost of Rs 100-250 per annum (many banks even offer it free) which can be used for any commercial transaction. ICICI Bank, which issues over 70,000 cards a month, is leading the pack at a total user base of 1.5 million which is followed by HDFC Bank whose share in the market is 0.8 million of the total user base of 3.5 million.

Says Chanda Kochar, Head Retail Banking ICICI Bank: “Debit cards is useful for those customers who are completely debt-averse. It can be also issued to those customers who do not qualify for a credit card. We are targeting debit cards to those customers who are not interested in a credit card but want a plastic card for convenience.”

Bankers say debit cards are getting popular as an Indian credit card customer has to pay a hefty interest of 40 per cent per annum —which is highest in the world. It’s the zero interest which is making the consumers to choose debit cards over credit cards.

Says Santanu Mukherjee, Country Manager, South Asia, Visa International: “The growth in debit cards was expected because, while there were only 15-20 million people who were credit-worthy, nearly 130 million people have some sort of a savings account and can be issued debit cards. The banks are also satisfied with issuing debit cards because it is more cost-effective. For example, if it costs the bank Rs 10 when a customer visits the bank branch and Rs 4 when he visits the ATM, it costs only Re 1 when he uses his debit card with any merchant. This can lead to lot of cost savings and better service for the banks. The growing use of signature-based debit products—which carry no minimum income requirement and can therefore be used by a wider segment of the population—has also helped drive greater usage and acceptance of the payment card.”

Adds HDFC Bank’s country-head for marketing and retail assets, Neeraj Swaroop: “Debit cards are a very fast growing product and could be used to penetrate the middle-class segment. Our experience has been that the number of active debit-card users is lesser. The reasons for this are that the involvement is much more in the credit-card process. Since it is a new category, education is required to increase usage”. For banks, three factors go in favour of issuing debit-cards: minimal investment, a boost by way of the ongoing automation efforts and absence of credit-risk. Besides what is hitting the credit card business is huge defaults which is a big dampener and banks are thus playing safe by issuing debit cards. India’s credit card volumes are worth $1.8 billion and the credit card base in India has increased to almost six million, but average spends are only at $450. Default rates in the credit card stand at about four to six per cent in India, but can go as high as eight per cent in individual cases. “It’s due to huge defaults and a type of unsecured loan why credit card interest rates are not falling,” says a banker.

Adds Kochar: “Credit card is preferred by those customers who want an additional line of credit for unforeseen circumstances. Almost 50 per cent of ICICI Bank customers pay off before their debt goes into revolving time.”

In debit cards, there is no question about outstandings as the money spent by a consumer is directly credited from his bank account. Mastercard research indicates that a section of Indian consumers prefer to use their own money while paying for purchases of goods and services instead of availing of credit. Adds Visa International’s executive vice-president (south-East Asia), James Murray debit-cards will grow the Indian market and intends to issue close to 50 million Visa ‘Electron’ cards by 2010 as compared to 3.3 million cards that are circulating in the market today. Visa has already issued about 2.5 million cards in association with major banks.