Credit/debit card usage surges on demonetisation

Priyambada Sarangi, a small entrepreneur from Angul in Odisha, was perturbed by the demonetisation announcement. The owner of a fashion boutique, Sarangi dealt mostly in cash until now as her average billing size would rarely exceed ₹1,000 per transaction.

Fearing a drop in sales after the demonetisation, she got a PoS (point of sale) machine installed for credit card payments.

In Vasai, a surburb in Mumbai, a housemaid, Laxmi Bendre, used her debit card for the first time to make a ₹450 purchase at a neighbourhood store.

While demonetisation has led to a lot of difficulties and chaos, it is also pushing people to use credit/debit cards.

According to Innoviti Payment Solutions, a Bengaluru-based company that processes transactions worth $2 billion annually, the usage of cards for transactions of less than ₹500 value has increased 65 per cent since ₹500/1,000 notes were scrapped on November 8.

Overall, the usage of debit cards has gone up 70 per cent and of credit cards, by 40 per cent, suggesting a sharp jump in first-time users.

RBI data show that ATMs account for 88 per cent of debit card usage while PoS terminals and online transactions account for the remaining 12 per cent.

According to Innoviti, post demonetisation, people mostly used their cards to pay for essentials. Also, they postponed purchase of items such as apparel and jewellery. Rajeev Agrawal, CEO of Innoviti, said the average transaction size has dropped by around 30 per cent.

Priyambada Sarangi, a small time entrepreneur from a tier 3 town of Angul in Odisha, was perturbed by the demonetisation scheme announced by the government on November 8 evening. Owner of a small fashion boutique, Sarangi so far dealt in cash mostly as her average billing size does not exceed more than 1000 per transaction. However, the very next day she approached a nearby bank to get as POS (point of sale) machine and got one installed within two days fearing dip in sales because of the sudden cash crunch. She is happy as her customers are willing to pay by card now, something that makes her life easy.

"I had to personally visit a bank everyday to deposit the day's earnings but used to manage it somehow. The demonetisation announcement came as a jolt but also was an eye opener for me. I can now keep a check on my earnings and also there is no fear of theft of cash from the counter," said Sarangi. She also used her own debit card for the first to make the payment for the PoS machine.

Similarly, Soumya Das, a media professional from Kolkata, said he had never used a credit card earlier fearing that it would lead to overspending but the latest move forced him to make a big ticket purchase on credit card. He had promised to buy a smartphone for his daughter.

In Vasai, a surburb in Mumbai, a housemaid, Laxmi Bendre, used her debit card for the first time to make a purchase at a neighbourhood store for a product worth Rs 450. Laxmi and her husband together have two bank accounts.

Like the above mentioned examples, Business Line spoke to at least a dozen people from different parts and strata of the country to understand how they coped up with the sudden decision of the government, a move that is taken to wipe out blackmoney and counterfeit notes from the country. The Government's move, which left many in the country face a crisis like situation as ATMs and banks ran out of cash, has also been taken to encouraging people to open bank accounts and make digital transactions.

According to Innoviti Payment Solutions, a Bengaluru-based payment gateway company that processes transactions worth $2 billion annually, the initiative has led to a sharp spike in the usage of debit and credit card transactions in the last three days.

The company, which provides data on the online transactions, said that the usage of cards for transactions worth less than Rs 500, has increased by 65 per cent since the announcement that does not recognise Rs 500 and Rs 1000 notes as illegal tender any more. While debit card usage went up by 70 per cent, credit cards went up by 40 per cent.

A recent RBI data shows that the number of debit and credit card in the country as of September 30, 2016 is pegged at are at 754 million as of September 30, 2016 as against 625 million in the year-ago period in a country with population at 1.3 billion. Of this the usage of debit cards at ATMs accounts for 88% while those at PoS terminals and online is a mere 12%. This is also because of patchy Internet and broadband connection in the small towns and rural areas of the country, which also explains why India is largely a cash driven economy at 90 per cent.

According to Innoviti data, people used cards to make payments for essential requirements mostly apart from those on entertainment and restaurants. Interestingly purchase of alcohol on cards went up by 190 per cent. The report also said that people postponed purchase categories with less gratification such as apparel and jewellery and further reduction is expected in these categories.

Rajeev Agrawal, CEO of Innoviti, in the report said that the overall transaction increased 65 per cent showing a significant shift to digital payments, especially cards. However, the average transaction size decreased by around 30 per cent, he said adding that the trend suggests a sharp increase in first time users, as they tend to make low ticket payments.

The data from Innoviti says, the number of online transactions of less than Rs 250 increased by 177 per cent and those above Rs 500 was about 75 per cent.

Several digital companies like MobiKwik, Oxigen, Paytm and Itzcash expect to do over 10 times growth in digital transactions by next year.

Abhay Doshi, Senior Vice President and Head-Digital Services Platform Business, Flytxt said that digital transactions, led by debit and credit cards, would also help bring in better visibility, transparency, scalability and accountability in the economy.

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