Mumbai: People are generally using their debit cards to withdraw cash rather than to make payments directly while buying goods, says a recent RBI study.
“The use of debit cards for such payments (for normal purchases) has not yet picked up. Debit cards are used more for cash withdrawals as ATM cards,” said RBI’s review of payment and settlement systems in the country.
Although the number of debit cards far exceeds that of credit cards, “for normal purchases, the most modes of payments in India after currency have been credit cards,” it added.
With banks issuing 2 million cards every month, the total number of cards swelled to around 100 million as on 31 March, 2007. These include 24 million credit cards and 78 million debit cards.
Despite a big difference in numbers, the value of transactions recorded through the credit card, at Rs41,361 crore during 2006-07, was five times that of similar transactions using debit cards.
However, the value of transactions through the debit cards, the report pointed out, increased to Rs8,172 crore in 2006-07 from Rs5,897 crore in the previous year recording a growth of nearly 39%.
As regard smart cards, the RBI report said, “only a handful of banks have issued such cards, numbering around 300,000 with outstanding value of Rs1,000 crore.”
The RBI report further pointed that while use of credit cards have proliferated in metros and tier I cities, their acceptance at smaller cities is not yet widespread.
The report also underlined the need for updating the regulatory regime to facilitate new payment modes like mobile phones and pre-paid cards, especially for smaller amounts.
As regards other modes payment, the RBI survey said although the cheques continue to be predominant mode of non-cash payment, its rate of growth has decreased from 14.1% in 2004-05 to 6.5% in 2006-07.
The report suggested that banks should consider providing incentives to merchants in smaller cities to improve acceptance of cards at merchant locations.
Currently, the cards are accepted at 350,000 sale terminals which are “very less compared to the retail locations and population of the country,” it added.
The report also made a case for reducing surcharge levied on merchants who provide card payment facilities. It added the fee acts as disincentive for merchants to encourage customers to make payments by cards.
Encouragement to electronic payments, the report said, will reduce usage of currency and paper based instruments, and facilitate faster movement of funds in the economy.
Referring to the impact of the decision of the government to levy service tax on card transactions, the RBI report said, “no conclusive inference can be drawn”.