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Wednesday, Aug 11, 2004

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Plastic money boosts retail spend

Sudhanshu Ranade

Chennai , Aug. 10

RETAIL spending in India is largely done by credit cards, according to a recent published report.

They account for over 45 per cent of retail spend and are expected to touch 65 per cent over the next three to five years. This may well be true in the short to medium term. But the long-term trend is sure to be quite different if India follows a path similar to that followed by developed economies.

This comes out quite clearly in UK data that have been put online by the Association for Payment Clearing Services. To the extent that this is the case, it is worth noting that a Web site that works in tandem with APACS ( has posted online the full text of its booklet on `Card fraud: the facts'; with the subtitle "The definitive guide for the media on plastic card fraud and measures to prevent it".

The total number of debit card users in the UK in 2003 was 24.3 million. The total volume of transactions using these cards was 3274 million, of which 1527 (ie 47 per cent) were spent at supermarkets and department stores. The average value of total transactions charged to debit cards was 135. At the end of 2002, the total number of debit and credit cards in the UK was 146 million; ie over three cards for every adult.

More than half of all credit card holders had more than one credit card, while one in 20 had five cards or more. As many as 45 per cent of the people in the lowest socio-economic group possessed a credit card at the end of 2002, up from 31 per cent in 1999. The total volume of transactions put through by credit cards in 2002 and 2003 was 1687 and 1826 million respectively. In other words, the volume of transactions put through on debit cards in 2003 was 80 per cent higher than transactions settled by the use of credit cards.

According to APAC projections, the rise in the number of debit card holders between 2004 and 2012 is likely to be relatively modest; going up from 26.3 to 32.3 million. The increase in the volume of debit card transactions, however, is expected to rise 26 percentage points faster, from 3554 million to 5260 million.

Credit card transaction volumes are expected to rise at about the same pace over the period, by about 49 per cent. The volume of personal transactions settled by cheques is likely to fall from 1299 million to 822 million between 2004 and 2012. Interestingly, the volume of business transactions, too, is expected to fall over the period, from 828 million to 522 million.

The surprising thing is that both today and in the years to come, according to APAC data, the volume of business transactions, whether settled by cards or cheques, is well below the volume of personal transactions. This is contrary to what one would expect. On the other hand, we know for a fact that personal consumption expenditure in the US, at $6,450 billion at current prices, accounted for more than half of the GDP ($9,334 billion) in 2001. Five years before that, in 1996, the former added up to $3,822 billion, while the latter aggregated $5,648 billion.

In other words, between 1996 and 2001, personal consumption expenditure as a percentage of US GDP had risen a further two and a half per cent; from 67.6 to 70.

One reason for this is the amount of credit that is `freely' available to consumers in the US. The position in the UK is very similar. Consumer debt in the latter country hit a high of one trillion pound last month.

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