Living on plastic

Updated: Jan 21 2002, 05:30am hrs
ASK Venture Infoteks vice-chairman, Piyush Khaitan, on the potential for plastic money in the country, and he has this very interesting point to make: "If you were to look at the money supply (M3) figure, it is at around 18 per cent or so. It is only about 8-9 per cent in the Philippines and Thailand."

What has all this got to do with plastic, one may well ask. The point is that of the over Rs 10,00,000 crore or so by way of personal-consumption spends in the last few years, only about Rs 12,000 crore thereabouts is put through electronically: credit, debit and other payment instruments. In the US, these figures are at $6 trillion and at $2 trillion. Add on the obvious: elimination of the need for printing currency. And what you see is the great future that awaits plastic-players: cash is too much in vogue, but digital-money is set to score in a big way.

Sample these figures. The credit card business is growing at 30 per cent a year and the card-base is seen touching 6.5 million soon; private-banks are seen increasing their share to six per cent. On the debit-card side, numbers are higher than credit-cards at 6.5 million.

And these are some of the broad trends now on. Aggressiveness on the part of credit-card acquirers is pushing down discount-rates; the average ticket-size of transactions is expected to dip; and annual-fee waivers are on. Inter-change fee on the Visa International and MasterCard International loops for credit-cards is at 1.6 per cent and 1.1 per cent for paper and electronic transactions respectively. It is at 1.1 per cent and 0.55 per cent for Visa Electron and MasterCards Maestro for debit. And how are brands to use them in marketing is anybodys guess.

Other than the well-established big five -- Citibank, Standard Chartered group (StanChart), HSBC, SBI-GE, ICICI Ltd -- joining in are ABN Amro Bank and HDFC Bank on the credit card side. Debit is also in with private-sector banks joining the fray in a big way. Add on networked automated teller machines (ATMs) and increased terminalisation, and plastic-money is well on its way to being commoditised. Is almost rather.

Plastic in India started out on a linear-evolution path. Credit, ATM, and debit cards. Smart and stored-value cards have made a presence, and will make an impact soon. Interestingly, it has reached a point where it is all converging, albeit slowly: cards -- of all propriety and the operating systems.

Points out HSBCs manager, card-products division, Roopam Asthana: "I would say that we are some time away from a common chip-card. Not before 2007... in Europe, they are to have one by end-2003. But yes, it will happen out here as well."

The leaders in the credit-card business -- read Citibank, the StanChart group, HSBC, SBI-GE and ICICI -- will soon see their base-levels come second best to that of their respective debit cards. This one aspect will indicate how the cards business is poised. Nearly 15 lakh credit cards may well be issued in a year from now: it is reasonable to expect debit cards to mirror like growth! Why While re-carding ATM-cards as debit-cards is a costly affair, most will do so when ATM cards come up for "renewal." Within the next 15 months. If at all there is a gap between ATM and debit-cards, it is so because, the former was born first. Debit-cards are now being issued to new accounts. Some on demand only. Then, of course, there are more depositors than credit-card holders.

And networks are no more a hindrance. Inter-connect has been a big boon. Explains StanCharts head-wealth management, Vikram Issar: "There is no point claiming that you a have certain number of ATMs. They are getting wired up." By 2003, it is believed that that India will be ahead of China in terms of ATMs. The figures put out by leading ATM manufacturers -- HMA Diebold and NCR Corporation -- seem to suggest so.

But as IDBI Banks head for ATMs & card-products Shameek Bhargava points out: "Select private-sector banks will drive this growth. However, as competition intensifies in the retail-space and margins shrink, banks will find it difficult to sustain growth in owned-ATMs." And it matters to none if an issuer has got ATMs galore on its own. Or whether it is on a Visa International or MasterCard International loop. Sharing is in. Take StanChart. It does not have a great ATM network to boast of on its own. But can yet leverage on an inter-connected ATM network. If you are an American Express card-holder, you can withdraw cash from HDFC Banks ATM. This applies to most issuers, and all stand to gain.

But far more needs to be done. Take terminalisation. There are over 1,00,000 outlets for credit cards. But just about 30,000 or so are terminalised. There is a further skew given that there are outlets -- five-star hotels and malls -- with multiple-terminals. Mr Khaitan claims that his order-book is flowing: at around 1,000 a month, and that the firm has 20,000 or so terminals in the market earning transaction and a flat-fee. A few like HDFC Bank have invested in terminalisation, shedding the prevalent "proprietary attitude" and all benefit. IDBI Bank also is to embark on a similar strategy and invest in terminals.

There is a divergent trend here. Owned-ATM networks may be giving way, but owned-terminals are in. Why this philanthropy as every other rival bank will win Well, banks are seeking to a wider relationship with merchant outlets.

"We aspire to get their letters of credit, cash management... the idea is to broaden the relationship from that of a stand-alone acquiring relationship," explains Mr Bhargava, adding: "It is important for banks to do so... my great fear is that otherwise it will reach a stage wherein likes of a Venture Infotek will call the shots with a monopoly on terminals, driving discount rates and the like."

But there are a few other tricky issues as well. It is not clear as to why the inter-change fee should vary on the Visa and MasterCard loops. In the case of debit cards, the discount is split at 1.1 per cent for the issuer and at 0.90 per cent for the acquirer on the Visa Electron loop. It is at 0.55 per cent and 1.45 in the MasterCard. Why so Mr Khaitans says it is a technical issue. "Frankly, I will not speculate on this at all. I fail to understand this as most banks are there on both Visa International and MasterCard International... they decide these charges."

A few like Mr Issar at StanChart says that it is so because banks with strong acquiring-led strategies opt for MasterCard while issuers primarily, opt for Visa. Further MasterCards Maestro has a PIN protection. "Maestro is more secure... credit card-like risks on the debit card side are eliminated," says Mr Asthana. But all this may change. It has been gathered that MasterCard International will shift this skew to favour issuers on Maestro. Whispers abound that a few issuing banks may otherwise shift bag and baggage to Visa International.

The big picture is this. The above chronicled bottlenecks will soon disappear. Visa International and MasterCard International Acceptance Forums are working hard.

All trends point to the fact that the payment card industry is getting bigger and better. And if the countrys banks can get the operating infrastructure in place, they will be very well placed to reap the benefits of an industry that is all set explode in a big way: the great revolution in retailing. Time for a plastic smile!