Two decades ago, when Citibank introduced credit cards who would have thought plastic money would catch the fancy of the urban Indian the way it has.
During the 1990s and subsequently, private sector banks and some public sector ones entered the business gingerly, as it were. But when the economy burst forth in the early years of the new century, as incomes and expenditures steadily fuelled the growing economy, a slew of banks entered the fray.
In the last five years the c redit/debit card business doubled every year. In large part, the Reserve Bank of India helped spread the use of plastic money, increasingly permitting banks to set up ATM kiosks in strategic locations and then point of sale (PoS) sites, thus reducing the need to visit bank branches.
Dedicated ATM booths proliferated but not as fast as PoS establishments, in which banks provided ATM facilities. By May there were 4.70 lakh PoS terminals nationwide against 44,857 ATMs.
Now, the RBI has taken another step to extend the culture of plastic money; debit cards can be used to withdraw cash of up to Rs 1,000 a day from designated non-banking but commercial establishments without having to buy anything or having to visit an ATM or a bank.
The PoS will now dispense cash at a commission of 2 per cent on a swiped debit card. That service charge will be shared between the debit card provider (such as VISA), the bank and the commercial establishment.
This is undoubtedly a welcome move for banks in metro cities confronting prohibitive real-estate costs and in small towns with sketchy business potential. In the semi-rural areas too merchant establishments could serve just as well as ATMs, and without the latter’s recurring expenses, to help banks gain new customers.
Merchant outlets too would benefit; from a share of the service charges and from the potential business that customers tempted by appropriate advertising and discounts would generate with their debit cards. At an aggregate level, the triple benefits of the use of PoS to dispense cash could add to an important ingredient for growth revival — incremental consumer spending.
The RBI move opens up the possibility of an organic diffusion of banking in hitherto un-bankable areas with a little help from Mr Nandan Nilekani’s unique identification numbers, the first lot of which he promises by 18 months. Banks can then access data to create fresh savings accounts and spread the use of debit cards. Financial inclusion may become that much easier with the right blend of old economy initiatives — PoS usage and new age identity cards.
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