Card payments are on the growth path

By Joel Rebello

The growth bug that is running across the Indian economy has also bitten the card industry. New employment opportunities, a young population and higher salaries have resulted in large disposable incomes, making India a perfect market for credit card companies.

Visa, which accounts for 70% of the total card industry, expects its total cards in circulation (both debit and credit) to double to 100 million by 2010 from around 45 million now. Purchase volumes in the country are likely to triple to $21 billion, said Santanu Mukherjee, country manager, Visa, South Asia.

“India is among the fastest growing card markets in the world, with a total 45 million cards under circulation (13 million credit and 32 million debit) and a 40% year-on-year growth. The retail sales volume is $7 billion annually (with a 60% year-on-year growth) through 650 million transactions,” Mukherjee said.

Though credit cards (launched in the late 1980s) came to India earlier than debit cards (launched in the late 1990s), the latter have raced ahead in terms of usage.

“Given the nature of the product (buy now, pay now products), debit cards have experienced exponential growth. Today, 68% of payment cards in India are debit cards as against 2% in 1998,” said a Visa-National Council of Applied Economic Research (NCAER) study on card usage in India.

A key reason for the debit card usage overtaking that of credit cards is the fact that banks are giving them free along with a normal savings account. But while this has substantially raised the number of card users in India, it has also made the debit cards bank-centric (viz used for banking services only) and not shopping-centric.

No wonder than that most debit cards in India are used to withdraw money from ATMs. The Indian customer is still reluctant to use his/her debit card to shop.

For example, Visa’s total card sales volume (September 2006) is $37 billion, but only $7 billion is spent to make direct purchases through cards.

The first challenge is to convert people from being users of cash to users of debit cards. Card purchase volumes are only $7 billion, while cash volumes are $23 billion. The next stage is to convert debit card users into credit card users,” Mukherjee said.

Enticing customers to use cards to shop is a crucial step for card companies hoping to tap this very attractive Indian market.

Consumer awareness through direct and indirect means such as entering into partnership deals with banks and offering schemes such as “100% cash back” helps increase card acceptance, Mukherjee said.

“The focus is to broaden acceptance and usage through merchant networks.”

The airline industry is all an area where card companies are finds an attractive opportunity.