'Debit, pre-paid cards can be used for financial inclusion'

Written by PTI | Singapore | Updated: Jan 24 2014, 00:09am hrs
Master Card'Cards will be one of the electronic models for cash displacements and reduce cash' (AP)
With a high growth potential, debit and pre-paid cards can be used to accelerate financial inclusion and reaching out to rural India, a senior MasterCard Worldwide official said here today.

"These cards will be one of the electronic models for cash displacements and reduce cash and cheque-based transactions in the coming decade in the country," T V Seshadri, Global Executive for Global Products & Solutions at MasterCard World, told PTI here.

The Reserve Bank of India (RBI) estimates some 700 million Indians were still outside the banking system due to limited access in rural regions.

But Seshadri believes the accelerated way to reach this huge market would be through debit/pre-paid cards, leveraging on the pre-paid mobile/cell phone networks that have spread across the country.

RBI leads the government drive to migrate from cash-based to electronics financial transactions, according to Seshadri, who has been on a number Indian government and state programmes studying and implementing initiatives to cash-less dealing.

He highlighted the government's business correspondence scheme, which would allow small shops and mobile outlets in every village to handle electronic transactions such as the pre-paid cards.

There was a limitation in growing the banking systems in rural India with only 70,000 bank branches covering some 600,000-700,000 villages.

But small shops serving each village would be better optioned to expand its services by offering card top-up service which for mobile phones was already happening, Seshadri said.

At state level, Chattishgarh's student scholarship payments was one of the programmes that opted for card- based, safe and secure electronic system, he said.

Punjab was considering agricultural/commodity payment and settlement initiatives through card-based or cash-less electronics transactions, said Seshadri, who has been discussed such a scheme by the state government.

On the broader front, he also highlighted the Indian government's plan to introduce GIRO, an electronic bank- account deducting system for settling bills.

The Aadhar identification has incorporated electronic card based security code chip for authentification, said the Singapore-based Seshadri.

He said more such schemes would follow the government's cash displacement, financial inclusion and pre-paid mobile phone-linked transactions.

To date, debit card has appeared the most suitable product for the Indian market, as people were more wary of using a credit card, which comes with a credit line from a bank.

Growth for this business would come from simple products such as the popular pre-paid card for mobile phones which could have supplementary pre-paid card for transactions in the rural areas.

As the market develops, Seshadri sees a unique product or a card which would put India in the forefront of global card- based safe and secure financial dealings in the coming years, replacing cash-dispensing.

Debit card, introduced in 2008, has grown to 337 million users in India, he said, citing RBI estimates.

It has grown at an average rate of 20-25 per cent a year, according to the MasterCard executive who is responsible for markets in Asia Pacific, the Middle East and Africa.

Comparatively, credit card popularity has waned from about 30 million before the 2006-07 economic crises to about 20 million these days.

Credit cards were introduced in 2000 and were already 10 million when debit cards were launched in 2008.

But the spending conscious Indians took to debit card in a big way, he said.

Total debit/credit card expenditure was still low in India, accounting for USD 28 billion a year out of the USD 1 trillion annual expenditure.

But he expects exponential growth for card-based transactions at USD 3 trillion when the Indian economy grows to USD 5 trillion in 2020-2025, based on 60 per cent to be consumer spending.

"Young Indians are tagged on to electronics systems and going forward they will be at ease to use card-based financial transactions through online network," said Seshadri.