RBI reports show increase in credit card spending in 2007-08

According to the latest data released by the Reserve Bank of India (RBI) there has been increase in the card transactions both debit and credit. The number has increased by 42 per cent to Rs70,459 crore during 2007-08. One of the reason for the rise in card transaction can be large number of banks are issuing plastic cards and merchant acquisition business also scoring well with the coming up of retail

By looking at the figures released by RBI clearly testifies that growth in plastic money has gone much higher than the 24.51 per cent as recorded in 2006-07. This is because people have started adapting themselves to banking technology, and, moreover banks are also encouraging the use of cards on account of the lower per-transaction cost.

Plastic money is convenient to carry than cash, but with the ramping up of ATM networks for both cash and non-cash transactions, and the propagation of merchant acquisition points across the country by both new organized retail and traditional retail merchants, card transactions has acquired wider acceptance. In addition to this banks are offering incentives such as cash-back schemes and discounts at certain retailers to popularize the use of plastic money.

Unlike the credit card, use of debit cards is more preferable to the banks as it ensures that more cash stays in customer's accounts. Moreover the card ensures fewer visits to the branch, since most of the account functions such as cash deposit / withdrawal, cheque deposit, ordering cheque books and statements, and even funds transfers can be carried out via ATM. Also, use of cards is more cost effective for a bank, rather than service him at a branch.

According to RBI's data even the number of cards issued has increased by 46.7 per cent to 88.31 million as of March 2008, in comparison to 60.17 million at the end of financial year 2006-07.

There has been increase in the credit card outstanding also. During 2007-08, the total credit card outstanding has risen to 43.6 per cent to Rs 5,843 crore. Till May 23 this year, the outstanding has gone up by 87 per cent to Rs 12,375 crore. In 2006-07, the value of credit card transactions has also gone up by 22.06 per cent.

Another reason for the increase in the use of plastic money is the growth of e-commerce and transactions via the Internet. Booking of airline and railway tickets have added to this segment, and, more and more people use cards as a payment mechanism for utility services.

Bankers are of view that debit card usage can outshine credit card usage mainly because of convenience, which is a primary factor for the adoption of plastic money. Besides, unlike credit cards, borrowings / loan from the bank is not attached to debit cards and in general debit cards do not need a credit review before they are issued, this makes them ideally suited for a larger population of the banked public.