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The Indian prepaid and debit card market registered significant growth during the review period (2007-2011), with combined card volume recording a growth of 31% in 2011 over figures from 2010. Changing lifestyle demographics, the need for more sophisticated products, the growth of online shopping and increasing levels of per capita income supported the growth of this market. Many Indian banks have been expanding their networks of automatic teller machines (ATMs) in order to develop their business. Part of this expansion has involved installing point of sale (POS) terminals, which are electronic data-capture swipe machines and accept both debit and credit card payments at retail outlets. With competitive pressures on both the prepaid and debit cards market, banks and issuers are developing marketing and pricing strategies with the aim of attracting larger customer bases. Offers such as cash-back, discounts for retail outlets, buy-one-get-one-free offers, rewards points, increasing daily limits for cash withdrawals and insurance coverage are some of the most common strategies that banks are providing to debit and prepaid card customers. View Full Report Details and Table of Contents Key Highlights - The Indian debit and prepaid cards market grew substantially both in volume and value terms during the review period. - Growth in payment infrastructure has supported increased levels of card usage. - The online retail market will drive the use of prepaid and debit cards. - Consumer preference plays a key role in purchasing decisions. - Domestic payment scheme, RuPay, to compete with Visa and MasterCard. - Entry of non-banking companies to support growth. - Use of corporate prepaid travel cards to support growth over the forecast period.

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The use of debit cards in India has caught on, but not in the way that banks want. Banks, especially from the public sector, are discovering that their customers prefer using debit cards mainly for withdrawing cash from ATMs. For shopping or eating out, customers prefer using cash, even though most retail stores and restaurants now accept card payments.
USAGE STILL LOW

According to Visa's latest Global Payment Tracking Survey, even though awareness about debit cards is high, the rate of usage is still relatively low in India. Indian consumers are still using traditional forms of payment such as cash because of two main misperceptions they will incur an additional fee levied by merchants on each debit card transaction and the fear of overspending on their debit card. But PSU banks are now making efforts to change this. They are tying up with card companies to popularise the use of debit cards and encourage customers to swipe them at retail outlets, multiplexes and at restaurants, through advertising campaigns, rewards points and cash-back programmes.
SBI'S CAMPAIGN

State Bank of India, the largest bank in the country, has an advertising campaign currently running on television which shows a family's debit card (an animated one) complaining that it does not get a chance to go out. The card implores the family to take it out with them. When the family pulls out cash at the store to pay for the shopping bills, the card reminds them to use it (the debit card) to make the payment. SBI, which has 8.65 crore debit cards, has received around Rs 200 crore from Visa and MasterCard, the two card companies operating in India, for publicity campaigns, said Mr Pratip Chaudhuri, Chairman, State Bank of India. While underutilisation of debit cards is a problem across the industry, it is acute in the case of PSU banks, said Mr Uttam Nayak, group country manager, India and South Asia, Visa cards. PSU banks look at ATMs and debit cards as a cost reduction channel to drive customers away from the branch and not as a relationship channel. This is because of the legacy and historical nature of these banks. But foreign and private banks look it as a retail liability product if more people use debit cards then funds will remain with the banks and their net interest margins will improve, he said. That is why foreign and private banks have more point-of-sales terminals (where debit cards can be swiped) and better Internet utilisation of debit cards.
REWARD POINTS

Union Bank of India recently announced its tie up with Loyalty Rewardz for offering reward points on card transactions at merchant establishments and on the Internet. The bank's 80 lakh debit card holders will now be able to earn points for use of their debit/credit cards for purchases and e-commerce, which they can then redeem online for attractive gifts. Mr Lalit Sinha, General Manager, Alternate Channels and New Initiative, Union Bank of India, said it is mainly due to lack of awareness among customers that usage of debit cards is low. In smaller centres, infrastructure could also be an issue. For instance, not too many merchants may have POS terminals in smaller towns, he added.

Debit card transactions also give banks insight into their customers' spending habits and patterns. For instance, whether a customer is spending more on travel or on electronic items, and so on. This information can help banks drive customer loyalty by coming out with specialised promotional campaigns. That is why private and foreign banks have significantly higher customer loyalty, Mr Nayak said.

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Indians use a credit card for an average payment amount of about Rs.55,000 in a year which is nearly 30 times the money spent through debit cards. However, the number of debit cards in the country is more than 15 times than that of credit cards, shows an analysis of data available with Reserve Bank of India. At the end of the last fiscal, 2011-12, there were 1.76 crore outstanding credit cards in the country, which rose further to 1.8 crore by June 2012. On the other hand, the number of debit cards stood at over 29 crore as on June 30, 2012, up from 27.8 crore at the end of last fiscal, the latest RBI data shows. During 2011-12, the total amount spent through credit cards was Rs.96,614 crore giving an average transaction size of Rs. 54,738 per card in a year. In comparison, debit cards were used for transactions worth Rs.53,432 crore in 2011-12, leading to an average transaction size of Rs.1,920 on every card in a year. A credit card allows the person to pay for goods and services based on a promise to repay the money to the bank with some interest costs, while a debit card facilitates payments from the actual amount lying in the customers bank accounts. In the first quarter of the current fiscal, the average credit card transaction size for a year is nearly 29 times of the debit card payments. In the April-June 2012 period, Rs. 28,465 crore was spent through 1.8 crore cards, giving an average of Rs. 15,805 for these three months. In comparison, the average transaction amount for this period was Rs. 528 crore per debit card. Over the last five years, the average credit card transaction size has grown nearly three-times from Rs. 19,554 in 2005-06 to Rs. 54,738 in 2011-12 as economic growth fuelled consumer aspirations as well as purchases. On the other hand, the average payment size for debit cards during the same period stayed largely stagnant, rising from Rs. 1,185 in 2005-06 to Rs. 1,920 in 2011-12. This is despite the number of credit cards remaining largely unchanged from 1.7 crore in 200506, while the number of debit cards has risen sharply from 4.97 crore in that year. Experts say that one of the reasons for the lower debit card transaction size could be the frequency of usage. A credit card was used by its holder over 18 times in 2011-12, while a debit card was used barely once on an average. The number of credit card swipes in a year has doubled from nine times in 2005-06, while the debit card usage inched up from 0.92 times to 1.18 times during the same time. The wide difference in deal sizes is also partly explained by the trend that credit cards are mostly used to purchase high-value items, while a debit card is used just as an alternative to the cash.

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A whopping 54 crore bank customers or nearly half of India's population shall be issued debit cards in the next three years, signalling impressive strides in making banking inclusive for all, a top industry body said here Sunday. However, the number of credit cards would remain at less than three crore during the same period, a recent study by Assocham, released Sunday, said. By the end of last year, nearly 31.44 crore bank customers were issued debit cards. This number is growing at a compound annual rate of 18 percent, and this pace is expected to be sustained, if not improved, with the focus on higher bank inclusion, the study said. "This would take the number of bank debit cards to well over 54 crore in the next three financial years," it said. However, the number of credit cards, largely a phenomenon in metro cities among the middle and more affluent classes, is not growing at even half the rate of the debit cards. By December 2012, the number of credit cards in the market was just 1.88 crore, with an annual growth of barely six to seven percent. Consumers are shying away from credit cards in view of the exorbitant rates of interest and excessive penal rates for even minor delay in payments, the study revealed. "The so-called plastic money culture, implying living on borrowed money, has not really caught on in India. Part of the blame lies with card issuers, which have kept so many hidden charges, making users feel deceived," pointed out Assocham president Rajkumar Dhoot. Besides, there are regular reports about fraud, with the misuse of credit card transactions. The increasing cyber crimes, originating from data theft and hacking, have also led to loss of public confidence in plastic money, especially credit cards. However, the debit cards are largely being used for cash withdrawal and not much at the merchandise stores, given the conservative nature of this class of customers. The 'point of sales' usage was limited to just about Rs. 6,909 crore monthly sales in December 2012 by debit card-holders, whose number was about 16 times more than that of credit card holders. In contrast, the 'point of sale' at the merchandise stores by the credit card holders was about Rs. 11,132 crore in December 2012. Similarly, cash withdrawals or borrowing by credit card holders was limited to a monthly figure of around Rs. 124 crore, as compared to a stupendous Rs. 1,46,125 crore by debit card holders. "Debit cards are performing the role of bank cashiers, through ATMs," the Assocham study pointed out. There are other benefits accruing to both the banks and customers through increased use of debit cards. These include less crowding in bank branches and convenience of any-time, round-the-clock banking to the customers through the use of the Automatic Teller Machines (ATMs).

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Electronic payment systems have become increasingly popular in India. In fiscal year 2012, electronic payments grew 26.8% to 1.21 billion transactions from 0.96 billion transactions in fiscal year 2011, while the amount of cheque clearance slid from 1.39 billion units to 1.34 billion units over the same period. In terms of total transaction value, 98% of all electronic payments consist of large value payments through real time gross settlement (RTGS) systems, and the remaining 2% comes from retail electronic payments, including credit cards, debit cards, electronic clearing services (ECS) credit and debit payments, and electronic funds transfers (EFTs). The picture was just the opposite in terms of total transaction volume only 4.5% of transactions came from payments through RTGS systems, while retail electronic payment transactions acc! ounted for the other 95.5%. The growth in electronic payments was largely evident in the growth of large value transactions through the RTGS system. Introduced in March 2001, the RTGS system was primarily meant for large value transactions to settle customer remittance and inter-bank transactions of values over INR 2 lakh (INR 0.2 million). Within five years, the volume of transactions on the RTGS system had increased almost tenfold, from 5.85 million units in fiscal year 2008 to 55.05 million units in fiscal year 2012.

Electronic Payment System in India

Chart provided by: CEIC

Although large value payment systems have mostly shifted to electronic payment mode, retail payment remains rather paper-centric, and the growth of different retail electronic payment systems varies. The total number of transactions of retail payments only increased five times, from 229 million units during fiscal year 2006 to 1.15 billion units during fiscal year 2012. Of all transaction volume handled by the retail electronic payment systems in fiscal year 2012, 55.8% was conducted through credit cards and debit cards. ECS credit payments, ECS debit payments, and EFTs accounted for of 10.5%, 14.2%, and 19.5%, respectively. Debit cards transactions have seen more vibrant growth than credit cards in the past few years, even though they entered the market 10-years later than credit cards. As of June 2012, the transaction volume of debit cards grew by 38.29% year-on-year, while credit card payments grew by 21.95% during the same period. The transaction volume of credit card payments shrunk from 2009 to early 2010, however, whereas year-on-year growth rates of debit cards stood firm, averaging 33.9%, in part due to the 2008 financial crisis. During the same period, the growth of ECS credit (a facility for companies to pay salary, pension, dividends, interest, and other regular incomes) decreased by 5.06% year-on-year, while ECS debit (a similar facility for paying regular bills, such as utilities or school/college fees) saw an 8.61% growth during the same period. At the same time, the EFT system

 which facilitates the transfer of funds electronically by giving mandate to the bank branch or ! through internet banking has seen rising popularity over time. Although it only covered 1% to 2% of the retail electronic payment systems in 2005, it now accounts for approximately 20%-25% of all retail electronic systems. Compared with other emerging markets like Brazil or Russia, Indias currency in circulation to gross domestic product (GDP) ratio is relatively high at about 12%. Cash and cheques continue to be the major modes of payment transactions despite the security risk in carrying cash and the timeconsuming nature of cheque clearance. The Reserve Bank of India Governor, D. Subbarao, believes that it is necessary to transform the nation into less of a cash-handling society. Insufficient infrastructure development is one factor hindering the growth of retail electronic payments. To expedite the transformation, expanding the necessary electronic payments infrastructure, particularly in the smaller towns and villages, will need to be on the agenda.