The all-new debit card

If there is one course Rajat Agarwal has always aced it’s Financial Savviness 101. Not one given to bouts of splurging, this business analyst with a global consulting firm gets by on his SBI ATM card. “I applied for the SBI debit card but they never gave me one. Now I’ll opt for a debit-cum-ATM card from HDFC Bank instead of a credit card. Or I may apply for a corporate credit card from Citibank, but only if it is free of charge.”

His words spell out the writing on the wall—one no longer needs to pick between cash and a credit card to finance one’s lifestyle. The debit card has come of age in the country, and its remarkable evolution means that the battle of plastic is only going to get hotter by the hour.

According to Business India Intelligence, by January 2007, there were over 70 million debit cards in circulation in India, compared to 22 million credit cards. In 2006, seven out of 10 Visa cards were debit or prepaid. Every single bank is rushing to introduce new variants of debit cards, each one with more frills than a wedding cake—if Standard Chartered Bank (SCB) has two types of debit cards, ICICI Bank offers five choices and Citibank has seven. These choices range from the basic ATM-cum-debit card to cobranded cards customised to fit the spend requirements of niche groups from single women to farmers and pub-hoppers.

M o s t importantly, debit cards now boast of the major advantage long limited to credit cards—rewards for daily usage. Banks are also looking at ways to extend the reach of these cards. Citibank officials say that they are “developing variants which can be used with just a tap or on the Internet, without subjecting the savings account to any risk”.

Gone are the days when the debit card lost out to credit cards mainly on the security quotient. The risk of fraudulent transactions is addressed by the PIN-enabled security features now built into the debit cards. As an HSBC official shares, “PIN-based cards have seen near negligible fraud and there is no rising trend in that direction.” In addition to all this, what every debit card promises is convenience. As Sandeep Das, head, wealth management, SCB, says, “It’s like carrying your bank account in your wallet without worrying about running out of cash or losing it. It even scores over a credit card as now there is no risk of overspending, after all, you can only spend up to the limit in your account.” Which in turn means that there are no interest payments or monthly bills to tackle.

If you dismissed the debit card as plastic money accepted at very few merchant establishments, it’s time for a rethink. While the figure varies from bank to bank, most cards are now accepted at anywhere between 75,000 and 3,50,000 outlets in India.

Little wonder then that the number of debit cards has risen almost fourfold since 2003-4. However, the growth in the value of transactions has been much more modest, hitting Rs 5,900 crore in 2005-6. With credit card transactions notching up a whopping Rs 33,900 crore in the same period, debit cards have a long way to go but this may well be a turtle-and-hare story.

So what is fuelling the mushrooming growth of debit cards? The biggest catalyst has been the speed with which banks are phasing out the plain vanilla ATM card. Most new accounts now come with a debitcum- ATM card. Even if you initially owned an ATM card, chances are that when it expires, the bank will replace it with the debit card. The reason banks are so eager to push debit cards is that it helps them cut costs significantly. As early as in 2001, James Murray, executive vicepresident for Southeast Asia, Visa International, had stated that it costs bank Rs 10 when a customer visits the bank branch, Rs 4 when he visits the ATM but only Re 1 when he uses his debit card at a shop.

In addition, they are a lucrative revenue source. While some banks offer the basic ATM-cum-debit card free of cost, most demand a nominal annual fee that ranges from Rs 100 to Rs 200. These fees are higher for debit cards with additional rewards and security structures. Replacing a lost card will cost you at least Rs 100, and if you want a second debit card, say in case of a joint account, that won’t be free either. If you want an SMS alert every time your debit card is swiped, prepare to pay up. Now look at the larger picture: there are over 330 million savings and current accounts in India today. Even if only half of them come with a debit card, it spells a revenue of Rs 1,650 crore at a conservative estimate.

Hence, before long, most people won’t be able to escape a debit card. At least nobody who owns a regular account—the no-frills accounts will always remain the domain of the ATM card judging by the RBI’s stand.

Unfortunately, that also means that you cannot say no to a debit card for every account you own, since that is, in effect, the key to your money. In case you have multiple accounts in a single bank, then you have the option of linking all of them to one single debit card. However, you can cut unnecessary expenses by reading the fine print. To start with, opt for accounts that come with a free card. Then, on the basis of your spend patterns, determine if you need a separate value-added card.

Any way we look at it, the debit card success story is going to usher in changes in the entire plastic kingdom. And with more bells and whistles in the offing, the all-new debit card is taking the battle straight into the credit card domain.