This is an interesting thread of a discussion started by Mr Ajay Kelkar @ http://www.linkedin.com (Group – Asia Pacific Analysts, Consultants & Researchers Association)
Do post your comments herewith.
Discussion Posted By him continues as:
How do consumers use Debit cards vs Credit cards and do
banks make a lot of money on DEbit cards? Should they treat it
as a separate vertical with a P&L of it’s own?
The Indian situation is still in its early days with regard to Debit card penetration and usage! Though smart banks would be making a neat packet of other income with fees, interchange & off us charges kicking in.
In India we have over 1464 lakh (as of June 2009) debit cards issued by banks (excluding those withdrawn/blocked). By March 2008 end, the number of ATMs deployed in India was 34,789 with the then annual rate of increase in the number of ATMs being 28.4%. Thus considering a reasonable figure of 44000 ATMs deployed currently by the banks, on an average each ATM caters to about 3300 debit cards.
COMMENT 1 by Hannah Nguyen, Analyst at Global Intelligence Alliance – Asia Pacific:
Debit card may be used by consumers who for one reason or another do not qualify for credit card or do not want to use one (students, income brackets, the budget control-conscious, etc.). Since debit card does not have the interest earnings potential of credit card, what the bank earns is mainly in the form of annual fee and the early relationship with the customer. As a debit card must be tied to an account from the same bank, the card-issuing bank gains from the deposits as well as the stickiness that might follow. The very same consumer may very well later apply for other products from the same bank, assuming its product offering is as good as any one else’s.
COMMENT 2 by Sohan Dhande, Experienced Banking-Finance Professional (MBA Finance) – Expert in Fraud Risk Management:
In Indian scenario, bank customers prefer Debit Cards as it anyways comes for free once you hold an account with a bank. Plus they are a little reluctant to Credit Cards because of their negative popularity being unnecessary charges, risk of theft, etc…. despite forgetting the advantage that it provides large floor limit & repayment period in excess.
Indian Culture is inclined towards savings, & with the easy distribution & increase of Debit cards, Indian Banks have come up with hell lot of discount offers & cash back options for their Debit users. e.g. 5% Cash back on transaction at certain places or certain amount & above.
Apart from physical transactions, online usage is on upsurge in India. Recently, http://www.visabillpay.in have introduced a delicious & mouth watering offfer to pay your utility bills through Debit Cards (NOT applicable to Credit Cards), whrerein an Visa Debit user is entitled for 5% immediate cash back on Transactions for bill payments. BSNL also has certain discount plans in pipeline for online payment. well, there are n number of examples where service providers had to provide Debit Card payments so as to increase transaction traffic. take IRCTC or Travel portals for that matter.
In near future, Debit Cards will certainly gain a distinct place for Profit & Loss Statement.