Despite the phenomenal growth in transactions, the number of annual transactions per user for debit cards is still low compared with credit cards. In terms of total value of transactions also, credit card spends are higher than debit cards
Statistics released by the Reserve Bank of India (RBI) show a clear shift in the use of plastic money. Indians, especially those who are not big spenders, are increasingly eschewing credit cards for debit cards. Data shows that the number of debit cards issued by banks was ten times higher than credit cards.
However, when it comes to the transaction value, spending on credit cards continued to be twice that on debit cards. This would suggest that big spenders see a lot of value in using credit cards.
Over the past five years, debit card usage both in terms of number of transactions and growth in value has outstripped credit card spending by a huge margin. The number of debit cards issued has risen 265% to 18.2 crore while the number of credit cards have increased by a mere 5.5% to 1.82 crore from 1.73 crore cards.
In terms of total number of transactions, debit card usage is also higher than credit cards. Between FY06 to FY11 (provisional), the number of transactions for debit cards grew 270% to 17.02 crore from 4.6 crore. During the same period, the number of credit card transactions increased by 50% to 23.4 crore from 15.6 crore.
Over the past five years, the value of transactions for debit cards rose 355% to Rs26,418.10 crore from Rs5,891.1 crore, according to RBI data.
The total transaction value for credit cards, as we said earlier, is significantly higher, but the growth is slower - it increased by 85% to Rs62,881.80 crore in FY11 from Rs33,886.5 crore. In India there are 1.83 crore credit cards, excluding those that are withdrawn or blocked, while there are 18.2 crore debit cards.
While the growth of debit cards compared with credit cards is extremely strong, the numbers may have been higher if there was a larger acceptance of debit card payments by merchants or vendors. There are many vendors in India and abroad who still prefer a credit card payment to debit card payment.
For instance, multinational Dell, which sells computers and laptops, does not accept debit cards. A Dell sales representative claims that the issue is related to delay in payment for debit cards. He said that the company receives credit card dues "much faster".
The difference between credit and debit card transactions substantiates the vendor's claim. While the number of transactions per credit card per user is about 12.8, the same for debit cards stands at a poor 0.94 transactions per annum.
Earlier in May, speaking at a Moneylife Foundation seminar, an official from the RBI said that about 80% of credit card users in India do not pay any interest to banks and make their full payment within the credit period facility (http://www.moneylife.in/article/8/5419.html).
Interestingly, statistics for the coming year may throw up more surprises. The recent permission to allow mobile transactions and micro-payment systems may be the next big game-changer. At least seven new companies are all geared up to offer small value transactions through e-wallets or mobile phones. The performance and security of these transactions could transform the way Indians shop or pay for smaller value transactions in the coming years.