Once upon a time, Cash was King, with most of the transactions taking place through the green currency. This was popular in Mom and Pop type of shops but when organized stores ushered in, offering a variety of merchandise, plastic money started to do most of the talking.
Evolution of plastic money
Since its advent with its first Diners card around fifty years back, plastic cards have come full circle quashing the need of green currency all together. Some years back, Citibank and HSBC were the top players, now ICICI is giving them pretty good competition. According to an estimate, there are around 191.21 million plastic cards users all around India and a further breakup of the number reveals 170.56 Debit cards and 20.64 credit cards in all. Thus, we see that the big space needed for stashing cash has been replaced with a small rectangular card, half the size of a palm. This has given rise to a marked growth in sales as there is convenience to pay with Visa or Master card- the two most used cards.
As per the report, during the last financial year Indians spent Rs. 62,872.23 cr through credit cards, and Rs. 26172.45 cr through debit cards.
And debit card purchases saw a jump of USD 4.1 Bn in FY 2008-2009 to USD 5.81 BN in FY 2009-10.
Credit cards, a boon to consumers and retailers but has its own snag
Since, most of the shopping is unplanned and decided on spur of the moment, without worrying about paying then and there, as such; there is safety of cash as many consumers buy expensive goods that they cannot afford.
Ranjana is an impulsive and emotional buyer and she can’t do without her credit cards, the reason quoted by her is, ’It is convenient to make purchases even those that are impulsive and unplanned, easy to carry and attractive by way of discounts, schemes and rewards’.
Rakhi, another impulsive buyer is being pursued by all possible banks for overusing her credit limit. As such, she is absconding and hiding from banks as recovery departments are gunning for her blood. Here Ranjana’s words ring true, “The downside is that a person may end up spending more than he can afford and also get boggled and doused by the humungous bills at the end of the month. Hence, it is for those who are strategic buyers”.
According to Kunal Ahuja, Director and CEO Spice mobiles, “We can’t think of a world without credit cards. It does facilitate impulse buying. Imagine a man who is just doing window shopping and may go for an impulse purchase with his card. If he does not have the facility of using a card, his chances of coming back with cash is remote unless that product was in his budget. Credit cards are indeed a boon to the retailers without any doubt”.
He further adds, “From a retailer’s perspective, there is more in store with schemes, reward points and discounts that hook consumers so that they keep on coming back to the shops and make more purchases. Other benefits to the retailer are that they can receive large payments; exact payment without bothering about change, they can receive payments internationally also, and it is easy to keep track of payments through statements, etc”.
Here, Sanjay Gupta, Vice President, General Merchandizing & Marketing, Spencer’s Retail Ltd agrees with Kunal Ahuja, “Credit cards have always been sale boosters due to their popularity which is due to the fact that today consumers don’t want to carry cash, they want to save cash in hand, they want money to remain in their bank accounts and they want to gain loyalty points”.
He further adds, “It is also convenient from operational point of view of the retailers as he does not have to handle too much cash at the counters, it has easier reconciliation and it is safe as well since it reduces the scope of theft”.
A retailer from Lajpat Nagar who sells trendy salwaar suits makes a point here, “If the machine doesn’t work for even one hour, we lose a good number of buyers”.
Why have Credit cards not fully substituted Cash
Sanjay Gupta states, “We have about 15 per cent of our sales through credit cards which would be considered a low figure by industry standards. This is mainly because of the fact that we are food focused retailer and average bill value is approximately Rs. 400/- for which people don’t use credit cards”.
He agrees that it has drawbacks too, like credit card payments are only viable if the transaction is above a certain minimum amount..Generally Rs. 250/Rs. 300. Otherwise, the opex of a credit card facility which comprise mainly dial-up connections and percentage paid to the bank sum up to be higher than what you get from a bill transacted on a credit card.
Moreover, Indians still transact a lot in cash due to failure on part of the government to egg on an eco system for e-money and curb black money which is running as an analogous economy.
Choosing a processing terminal
While choosing a processing terminal one must take care of transaction rates, be careful of charge backs, also if it is an offshore service provider that can be beneficial for online transactions, see that it saves taxes and other government fees, and that it accepts same cards that are used in the US.
Future of Credit card
The Indian Credit Card Industry is growing at a rate of 31 per cent compounded annual rate. Adding to it, the attraction of Malls and new brands, and the rising income makes the charm of possessing the magic tool called ‘Credit Card” irresistible.
Unfortunately, the growth comes with its problems. Bad loans or non performing assets are one of them. Two years ago the default rate was pegged at 6.5 per cent.
News has it that the gen-next Mobile commerce that would enable consumers to click through the payment options on their cell phones, which some companies are proposing be referred to as “mobile wallets”, is expected to eventually make debit andcredit cards completely obsolete. But like any other technology even this will take time to reach all and make cards totally superfluous. Until then, the card remains as indispensably charming as ever.