Credit card spending zooms in 2007-08: RBI

Mumbai: With a larger number of banks issuing plastic, and merchant acquisition business also scoring well with the advent of retail, it is no surprise that card transactions, both debit and credit, were up by more than 42 per cent to Rs70,459 crore during 2007-08, according to the latest data from the Reserve Bank of India (RBI).

The RBI's latest numbers testify that growth in plastic money was much higher than the 24.51 per cent recorded in 2006-07. This is in part on account of the greater adoption of banking technology by the public, and because of banks encouraging the use of cards on account of the lower per-transaction cost.

Besides convenience of not carrying cash, the ramping up of ATM networks for both cash and non-cash transactions, and the proliferation of merchant acquisition points across the country by both new organised retail and traditional retail merchants, card transactions have garnered wider acceptance. Additionally, banks have provided incentives such as cash-back schemes and discounts at certain retailers to popularise the use of plastic money.

The use of debit cards, for banks, also ensures that more cash stays in customer's accounts. Also, the card ensures fewer visits to the branch, as most account functions such as cash deposit / withdrawal, cheque deposit, ordering chequebooks and statements, and even funds transfers can be done via the ATM. Also, it is more cost effective for a bank to let a customer use the card, rather than service him at a branch.

RBI's data indicates that the number of cards issued increased by 46.7 per cent to 88.31 million as of March 2008, compared with 60.17 million at the end of financial year 2006-07.

During 2007-08, the total credit card outstanding rose 43.6 per cent to Rs 5,843 crore. Till May 23 this year, the outstanding shot up by 87 per cent to Rs 12,375 crore. In 2006-07, the value of credit card transactions went up by 22.06 per cent.

Another driver for the adoption of plastic money is the growth of e-commerce and transactions via the Internet. Travel services such as airline and railway tickets are the primary drivers in this segment, and an increase number of people use cards as a payment mechanism for utility services.

Bankers expect debit card usage to surpass credit card usage mainly on account of convenience, which is a primary driver for the adoption of plastic money. Moreover, unlike credit cards, debit cards do not involve any borrowings / loan from the bank, and typically do not need a credit review before they are issued, making them ideally suited to a larger population of the banked public.