Note ban effect: Debit cards preferred over credit cards, account for 60% of card spend

Debit cards have conclusively displaced credit cards as the primary mode of payment in the country following demonetization . Until October last year, despite outnumbering credit cards by a factor of more than 25, debit cards accounted for only 42% of the total card spend. This has jumped to 60% after demonetization, which was announced on November 8, 2016.

The change is largely driven by small public sector lenders like Oriental Bank of Commerce and Punjab & Sind Bank, where usage of cards has gone up nearly five times. Debit card transactions tripled-from October 2016 levels-in December. Transactions in January slipped to double those in October last year. However, according to payments companies, they are seeing stickiness in use of debit cards for utility and petrol bill payments and travel bookings.

Last October, public sector banks saw transactions worth Rs 10,893 crore from the 61.7 crore debit cards they had issued till then. As against this, private and foreign banks had reported transactions worth Rs 11,048 crore although their debit card base was much smaller at 12.25 crore. This has changed after demonetization.

In January this year, public sector banks reported debit card transactions valued at Rs 29,339 crore against Rs 19,664 crore worth transactions recorded by debit cardholders of private banks. Pre-demonetization, in October, for every 100 debit cards in circulation there were only 19 transactions in a month. This jumped to 54 transactions a month in December, but dropped to 40 a month in January 2017.

Bankers point out that if debit cardholders use their cards even once a month on an average, the share of debit cards in transactions will cross 80%. Public sector bank customers in smaller cities are expected to drive the debit card usage.

"In metro centres, the credit card penetration is high and increasing. Given a choice, customers will use their credit cards to make payments because of rewards. But in smaller towns debit card is the only instrument that the customer has," said an official with the National Payments Corporation of India (NPCI).

Source: TOI