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.