Before note ban, a debit card was used 2.2 times a year

MUMBAI: This is why the government is going all-out to push debit card transactions: Although there are 71 crore debit cards in the country, only 13 crore debit card transactions take place in a month with several account holders not using their card even once for payments. The average number of transactions on a debit card in India stood at 2.2 times a year. And, of the 30 crore RuPay cardholders, 29 crore have never used their card in point of sales (PoS), or card swipe, machines.

All these numbers are till the PM announced demonetisation of high-value currency. Use of RuPay debit cards has since surged 2.5 times, and some banks have even seen a four-fold spike.

On Tuesday, the government announced that all public sector banks and some private banks have waived the merchant discount rate on debit cards until December-end. It also asked banks to install more PoS terminals.

The reduction in charges and loss of business due to shortage of currency notes is expected to push both the usage of debit cards and deployment of credit card swipe machines in shops. According to IndiaMART — a B2B marketplace — there has been a surge in number of enquires for card swiping machines, which reflects a 2,000% surge in demand.

For merchants, debit card transactions are cheaper than credit cards. For transactions up to Rs 2,000, the merchant had to pay only 0.75% and 1% on values above Rs 2,000 (until the waiver was announced). The waiver will bring the cost of debit card acceptance on a par with cash.

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More electronic transactions mean more/better tracking of funds and also more for the credit card companies.Vande Matram

According to AP Hota, MD & CEO, National Payments Corporation of India (NPCI), the fact that there are 20 crore RuPay cardholders who have used their cards to withdraw cash indicates that they are comfortable using a card and PIN, and they have not used the card because they did not have an opportunity. If these customers are able to use these cards to make small purchases, it would substantially reduce the demand for currency notes.

There is also a skew in the usage of debit cards. Three private lenders, HDFC Bank, ICICI Bank and Axis Bank, account for 7.54 crore of the 71 crore debit cards in the country. Their share of debit card transactions is 37%. SBI, with 20 crore debit cards, is the largest issuer of cards in the country. It also has the highest share among transactions, but the average card usage is very low