FINANCIAL TRANSACTIONS USING DEBIT CARDS OVERTOOK THOSE USING CREDIT CARDS FOR THE FIRST TIME

Financial transactions using debit cards overtook those using credit cards for the first time in July this year, data released by the Reserve Bank of India has shown, signalling a crucial inflection point in the plastic money business.

The month of July saw the volumes of debit card transactions not just exceed those using credit cards, but achieve a gap of a more than a million. In value terms, however, credit card transactions remain comfortably higher than those using debit cards, largely because credit cards are used for more high value payments.

Bankers say the new trend has been helped by strong growth in debt card issuances as also rising comfort levels among Indians for debit cards. Banks typically issue one or more debit cards with every new account opened with them. Between July 2010 and July 2011, the number of credit cards issued increased by 24% while credit card issuances fell 7%. "Both banks and customers are more comfortable with debit cards as compared to credit cards," said Sohini Rajola, vice president and head of cards at Axis Bank. 

"Higher growth in debit transactions was expected as the number of debit cardholders has been rising rapidly." In value terms, credit card transactions outpaced those using debit cards by Rs 360 crore during 2010-11. However, amounts transacted using debit cards is growing at a faster clip than credit cards - 46% against 22% during 2010-11.

Experts say better security in payment gateways and freebies such as cash and reward points bundled with transactions have also helped debit cards become more popular. "A combination of security features and incentives have created a comfort zone for debit card users," said Navtej Singh, who heads the direct payment products at HDFC Bank.

Bankers say the trend being seen in the debit cards sector would gain momentum in the months and years ahead. "In the future, debit card growth is expected to remain very strong and will surpass credit cards," said Rajola at Axis Bank, adding that the credit industry in India remained underdeveloped.

Economists agree. Rajesh Shukla, an economist with NCAER, said, "In the near future, debit cards will do much better than credit cards. Customers and bankers feel more comfortable as it is limited to their bank accounts."

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/financial-transactions-using-debit-cards-overtook-those-using-credit-cards-for-the-first-time/articleshow/10099130.cms