RBI?s decision to allow cash withdrawal through debit cards will help to draw larger footfalls at retail stores. Retail consumers have been whipping out their debit cards more often than credit cards to pay for small purchases. RBI data shows that the number of credit cards in 2008-09 fell to 2.46 crore, a sharp fall from 2.75 crore cards that were in circulation at the end of 2007-08. But debit cards have increased from 10.5 crore in the beginning of 2008-09 to 14.3 crore cards at the end of May.

The facility would be available to debit card users to withdraw Rs 1,000 on a single day from the point of sale (POS) terminals, which are machines deployed by banks in retail establishments to read debit or credit card information and enable customers to pay for purchases using plastic money. Currently, there are 4.7 lakh POS terminals as against 45,000 ATMs in the country. The central bank?s notice was, however, silent on the date from which the plan becomes effective and more clarity could emerge next Tuesday when RBI comes out with its first quarter review of the monetary policy.

The usage of debit cards in India is largely confined to instant withdrawal of cash from ATMs. The move will benefit people in small towns and rural areas which have few ATM machines. The banks may have to split the service charge with retailers to attract them to offer the services and would bring down the amount of money a retailer has to deposit in banks every day. So, if the concept catches on, retailers will need to keep sufficient cash on hand at all times to avoid a run on their tills.

However, to make the process secure, retailers will have to do identity verifications of customers before disbursing the money as is usually done for high-value purchases using a credit card.

Also, banks should ask debit card holders to register their mobile phone numbers with them so that they can send an SMS to the customer giving details of the transactions. With growing plastic card frauds, the payment card industry will also have to work to educate people on various security aspects.

saikat.neogi@expressindia.com