India uses 250m debit cards, to withdraw cash!

Written by Rishi Raj | Updated: Oct 12 2012, 08:18am hrs
When a proposal came to us to interview Ajay Banga, president and CEO of MasterCard Worldwide, during his recent visit to India while leading a delegation of the US-India Business Council of which hes the chairman, we lapped it up. The opportunity of getting to chat with a person who not only ranks as one of the worlds highest-paid executives but is simultaneously a totally home-grown product in terms of his education and also happens to be the younger brother of another corporate stalwart Vindi Banga, the former India head of Hindustan Unilever, doesnt come everyday. But Banga could only spare time for us in the morning. So we agreed to meet for coffee at the Belvedere, the premier club in the Oberoi, Delhi.

Upon reaching the venue a little ahead of time, I was ushered in by his staff who apologetically asked me to wait a little since Banga was wrapping up a USIBC meeting in the same hotel. Since I was early for the appointment, I didnt mind waiting. But Banga appeared within minutes, apologising for the delay, which never actually took place.

Since the flavour of the season has been the issue of policy paralysis in the government, I began by asking him about his perception of India, especially since he heads USIBC and the US companies would be looking up to him to find out the future of Indo-US business relations. The question was also relevant since the government recently seems to have gotten activated, clearing a host of reform-related measures. Banga seemed prepared for the question and put things in perspective. The last few weeks have seen that reforms have got a fresh impetus and the enthusiasm about this is visible in the industry. Theres no doubt that the country will move ahead on the reforms agenda as it benefits everybody, it creates jobs, it creates a middle class and everybody is happy, said Banga.

However, he next moved onto the point that has left almost all businessmen in the country and overseas wondering: The bigger issue is that businesses today want predictability in India. There was a time in the near past when productivity was also in question but now thats over and everything centres around predictability. In making the above point, Banga quite carefully underlined a balance between a nations sovereign rights and industrys interests. The government has a sovereign right to decide whether they want, say, 49% foreign investment in insurance. Our job is to convince the government that it is right for the country to have a higher component of foreign investment in the insurance business as this would bring more funds, technology and best practices. But the final decision is made by the government. If it wants, it is free to reject our push. Our simple point is that once you have allowed 49% FDI and made some rules for the businesses to operate, dont change them midway. Thats what I mean when I say more predictability is needed in India in terms of doing business.

The predictability narrative has another dimension: the separation of powers between the judiciary and the executive. Here, Banga adds a caveat: that hes not competent to comment on this aspect and is merely seeking a clarification. What I want clarity on is if the executive branch of the government makes laws on a subject, based on which businesses invest, can the judiciary overturn them tomorrow I could make out that he was baffled by the debates emanating from the Supreme Courts opinion on the Presidential reference on auctions, dated September 27.

Now I tried to provoke him: Isnt the industry also to blame by not taking a position when one of their fraternity gets caught and is being tried Does the industry not need to take a stronger position than the clichs it mouths in such circumstances, such as Law will take its own course and Everybody is innocent unless proven guilty. My question was in the context of the 2G scam where several corporates have been charge-sheeted, jailed, and the case goes on, but strangely India Inc has never taken a strong position on these companies. Banga ducks the question: I am looking forward, not backward. We have to think about tomorrow.

I moved forward to Bangas career. What has fascinated me is his rise to the top of a multinational firm without a foreign educational degree. Banga studied economics at St Stephens College, Delhi University, and then did his management studies from the Indian Institute of Management, Ahmedabad. Banga said: I speak at a lot of foreign universities but have never studied in one. In fact, I am not even an MBA because IIMs give a PG diploma degree and not an MBA degree. Since Banga started his career with Nestl and spent around 13 years there and then moved on to Pepsico, then to Citigroup and then MasterCard, I asked him how he felt about the transition from the FMCG industry to banking. He replied quickly that this wasnt difficult as both businesses were similar, both were about consumer needs . At Citi, I was in the consumer business and used to look at the consumers wallet share. At Nestle and Pepsi, I used to see the stomach share and the throat share of consumers, Banga chuckled, adding that the consumer is king in all businesses.

His current job demands that Banga increase the usage of plastic money. How is he faring Banga reeled of some statistics that surprised me. Worldwide, around 85% transactions happen through cash and cheques. In India, this figure is 97%, in the US 50%, and Japan 78%. In Nordic countries and Korea, the share of cards is higher. Banga went on to add that India has a real opportunity to increase card transactions; RBI and the finance minister are committed to this. Card-based transactions help the government save on the cost of printing, securing and transferring moneyactivities that take up around 0.5-1.5% of Indias GDP. The direct transfer of subsidy into bank accounts which the government is talking about requires moving to card-based transactions, Banga said. Another interesting statistic he shared was that 250 million debit cards are issued in India but a majority of these are just used to withdraw cash from ATMs, which is then used to make purchases.

Banga asked, Isnt it better if one makes purchases directly with the debit cards

Our free-flowing conversation got suddenly disturbed when one of Bangas colleagues entered the room and whispered something into his ears. Banga sprang up to his feet, saying, Oh, I am really sorry. We have a meeting with the finance minister so I have to leave. His plan the next day was to visit Lucknow to meet the UP chief minister Akhilesh Yadav. Reforms now have to move beyond the Centre and we plan to visit the states.