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Charts & Analysis

Charts: Card Usage and Payments In India

How do we use cards in India? RBI releases a bulletin every month containing such data and we can see how much cards have been used over time. Additionally, I add commentary on other payment systems.

(Inspired by Medianama’s chart on ICICI Bank cards)

First, the Numbers

Debit cards, ever since the numbers have been revealed have gone way above the credit card numbers. The 24 crore (240 million) debit cards out there far outnumber the 1.76 cr. credit cards, a number that has been declining since 2008 January.

Debit and Credit Cards Active

 

The fight has been won by debit cards, for what seems to be many reasons:

  1. Banks have taken large hits on credit card portfolios, and have thus cut issuances.
  2. Debit cards are issued by default with most bank accounts now, with core banking systems becoming universal, and the National Financial Switch (NFS) allowing all member bank accounts to inter-transact through ATMs.
  3. Debit cards are easier to get, since you need no credit assessment (you can’t spend more than is in your account at any given time).

Transacted amounts

The verdict, on the transaction values, is clearly for credit cards, though.

Card Spends in India, total

Card Spends in India, transactions

Substantially more – nearly 2x – is spent on credit cards. On transaction volume, they’re both neck and neck today. Remember, these are only transactions with a PoS in place. It does not include internet payments, from the language in the RBI report.

But if you look at the difference since June 2008 (set that as a base)

Rebased Card Spends in cr.

Card spends in India have moved up and debit card spends are up considerably higher than credit cards. Thoughts:

  1. Debit cards have some catching up to do, and their greater number will help them catch up fast.
  2. Debit cards have a PIN attached, and there is a security issue in using that PIN in public. RBI recently talked about fraud where you would get a great offer ONLY if you used your debit card, and the PIN sequence and card details were recorded by a special device in the swipe machine. The data was later used to create fake cards and withdraw money from ATMs. Such fraud becomes more rampant as debit card usage increases, so it’s likely that there will be regulatory limits or procedures to arrest such fraud.
  3. Many debit cards now can be used as Credit cards, connected to a Visa/Mastercard network. An Indian payment gateway, Rupay, should substantially increase the usage of cards (most merchants are charged 2% on credit cards, and 1% on debit cards)

Card Values Per Transaction

On a per transaction amount, the steady increase is slower, but credit cards continue to win.

Card Values Per Transaction

Credit cards do offer more protection (you can refuse your transaction, and the merchant doesn’t get paid from the card company – with debit cards, dispute resolution is more complex). Also credit does mean a period of free money before you have to make that payment, so you can plan finances better.

Yet, more and more people are realizing the horrors of rolling over credit card debt – rates can be as high as 42% a year – and the subsequent defaults or negotiations should keep growth at a low, especially in a high interest rate regime.

Overall, payment per transaction hasn’t grown too much – in five years, credit card payments per transaction have grown just 40%; which is just about keeping pace with inflation. It will be interesting to see if this metric changes; that is, will people use cards to pay for higher value transactions? Or will they use different transfer mechanisms?

Other Payment Mechanisms

There are other types of payments. (Focussing on user payments, not inter-bank RTGS, Clearing Mechanisms of using G-Secs as collateral or barter/repo systems)

  • Cash
  • Cheques
  • Electronic Clearing Services (ECS)
  • Electronic Fund Transfers (EFT)
  • Real Time Gross Settlement (RTGS)
  • Mobile Money Transfers and IMPS (See Article on IMPS)

For purely electronic systems:

India, Retail transaction systems
(From RBI monthly bulletin)

While transaction numbers are good for Credit and Debit cards, the biggest chunk of value is in EFT, with over 80% of transaction values. Another 14% use ECS. Makes sense; EFT or ECS is used to transfer salaries by most corporates now, and for dividends, pensions, loan installments etc.

EFT is over 1.31 lakh crores (trillion). But even that has a big daddy.

The Big Daddy: RTGS

Real Time Gross Settlement is HUGE. With over 34 lakh crores transacted in June 2011, it has the biggest scale of them all with 80% of total transaction value. Much of the inter-broker settlement on stock and bond exchanges happens through RTGS, as do many large payments.

Payment Systems in India

A timid second are cheques at 17%. Credit and Debit cards are a fraction of this, at 0.1%.

Where do we go from here?

For scale in India, I think we might not go down the credit card route. With the NFS, it’s very easy for us to use the banking system to pay electronically, and now they have managed to add a layer of protection for disputes as well (visible in Mobile transactions). Transaction costs come down to a fraction of a rupee (independent of transaction size) which will dramatically increase acceptance by merchants.

Mobile and other device based transfers are likely to become the norm, rather than credit cards. In fact, we can see from RTGS that purely electronic money moves are the way to go; physical card based payments are growing but remain a tiny blip in this huge market.

Other Countries

See how other countries fare in the payments space, with a report from BiS. (Thanks Aadisht, for the request!)

  • Idzap says:

    This is an extremely informative post!! Thanks Deepak.

  • Aadisht says:

    Deepak,
    I’m not so sure about the debit card transaction size catching up as debit cards expand – the expansion is going to be in the Bottom-of-Pyramid customers as we go ahead, and transaction sizes will be correspondingly smaller.
    As I said over twitter, it would be interesting to compare debit and credit card transaction values (mean, median, mode) with other countries – though I’m not sure which countries would be comparable to India. Debit cards caught on very late in the US, Singapore has incredibly strict regulation on cc issuance, etc…

  • Jagbir says:

    “you can refuse payment from credit card”.. is there any mention how much time we have to refuse payment after credit card swipe or online transaction happen? Let’s say I get sms for some transaction which is fraud, within how much time should I report to bank to make it revert back/null, any idea?
    – Jagbir

  • Surio says:

    Deepak,
    Thanks mate. I am beginning to like these series….
    I started with the latest post and I am working my way through…. so I repeat my earlier question here as well. You said:
    > getting the data together for India turned out to be messy by itself 😉
    I ask the same question, where did you get the data to begin with.
    Once again, keep the good work.
    Best,
    Surio.

      • Surio says:

        Sorry Deepak, my bad. Did not pay attention (tired eyes excuse works here?)
        As to card values being higher in Credit cards, it should not surprise us, no? Credit cards have always been leverage really — and therefore it is always used when the value of the purchase exceeds what the person might pay if it was solid cash. Plus, the entire concept was imported to India from abroad (USA) where carrying credit was the norm. That model has been convincingly shown to fail, and we seem to have taken the lesson to heart (good for us) based on these statistics. The companies themselves are re-inventing themselves by the looks as we now have VISA debit cards which offer the same convenience of a CC (wider acceptance in e-commerce) but without the leverage threat that CC brings to the table.

      • Surio says:

        P.S: Forgot to mention earlier. Thank you. 🙂

  • Bavithra says:

    Deepak, the article was useful. cud u give me the statistical report of credit/debit card fraud in india aswellas in International level?