The importance of plastic money in today's scenario

Abstract

Financial cards witnessed a robust growth in India in 2002-03. The number of cards in circulation increased by almost 50 per cent. The growth in transaction value, at 95 per cent, was even more spectacular. These results are attributable to the thriving economy which led to a large increase in disposable income for mid- and high-level income groups in urban and metropolitan areas. Consumers were not only more open to the possibility of owning a financial card, but were also more than willing to use their cards to settle dues. The status symbol aspect of owning and using cards, too, played its part in bringing about such robust growth over the space of a single year. Debit cards, in particular, proved immensely popular. The number and transaction volumes of all types of financial cards grew substantially between 2002 and 2003. But it was debit cards that played the pivotal role. Consumers preferred debit cards because they were wary of winding up spending more than they could afford. Another contributing factor was the quiet but aggressive promotion campaign launched by key `producers' in this sector. The growth of credit cards in number and transaction volumes in India was low compared to other countries in the Asia-Pacific region. But there is definitely room for further growth. Debit cards, too, have yet to realize their full potential. Among the factors that limited growth was the comparatively slow rate of growth of ATMs in India. This is not the way most Indians perceive this issue, but cross-country statistics very definitely bear out the position as stated in the Executive Summary of a $1400-report on `Financial Cards in India'. It is, however, expected that this constraint to further growth will ease up in the near future as the advent of ever-new technologies drives down the costs of opening and operating terminals. In the meantime, the trend in India has been to greatly enhance the networking of ATMs. Cards issued by one bank, are increasingly accepted by ATMs owned and operated by other banks, on the payment of a small fee. This, incidentally, is true of debit cards as well; not only of credit cards. A large number of cardholders, however, remain unaware of this development. Debit cards issued by, say, HSBC, can be used at all `Visa electron' enabled ATMs, including those belonging to Citibank and HDFC bank. HSBC debit card drawals on HDFC Bank terminals cost only Rs 55. If, on the other hand, you merely wish to check the balance in your account, you can do so for a mere Rs 15. Credit cards are often used for `big ticket' spending in India, like dining at 5 star hotels, and purchasing (often reimbursable) air tickets. Industry sources believe that in future credit cards are also likely to be used in a big way for the payment of school fees, and hospitalization expenses. Projections for the 2003-2008 period, the number of financial cards in circulation will register a compounded annual growth rate of nearly 51 per cent. These estimate, however, seems conservative, representing as it does only a 2 per cent increase over the growth between 2002 and 2003. Debit cards are expected to continue to spearhead the growth of financial cards in terms of the number of cards. Though, for a variety of reasons, this may not be the case in terms of transaction volumes.