India’s removal of high denomination bank notes on November 8 is proving a mixed bag for credit and debit card companies: There has been a jump in card usage, but the overall value of card transactions have declined.
The surprise withdrawal of the 500 and 1,000 rupee bank notes effectively yanked 86% of the currency out of the financial system, led to curbs on withdrawal from banks and ATMs and an overall severe cash crunch.
As a result, consumers are switching to credit cards for lower value items they previously used cash for and more shops are rapidly installing point of sales terminals. This trend has been helped by the difficulties in providing change for purchases made with the new 2,000 rupee note.
In the eight weeks after the demonetization, card payments rose 2.5 times, with usage in so-called tier-2 and 3 cities fuelling growth, the Business Standard reported, citing data by Innoviti, a payment processor.
The same data shows high-value purchase on instalments using credit cards halved since November 8, with card-based monthly instalment transactions plunging 60% in the first week after demonetization. There has since been some recovery, but not to pre-November 8 levels.
Consumers remain cautious and are delaying high-value spending on jewellery and consumer durables, not least out of concern about scrutiny from tax authorities. The Innoviti figures also show that growth in card usage is tapering off in areas where cash supply is showing signs of improvement.
In a way usage of credit cards apart from debit cards is good , for these transactions can be monitored for tax evasion! Source of illegal money can be traced too. ,
But be prepared for credit card frauds. They will rise and Indiab banks who issue these credit cards are not always honest in protecting customers.
So rigorous laws and policing is very important.
First point: the credit card companies don’t care about transaction sizes if overall volume increases. Their primary revenue is from taking a percentage of overall payments.
Second point: if in fact credit card processing is similar in India as in the US, the most dismally affected would be the merchants. Because in the US, there is a minimum charge fee – generally $0.30 or so – on top of the 2% to 7% taken by the credit card network operator. If the average transaction size is quite low, then it means either the merchants are taking a beating or that minimums for credit card purchases will soon be implemented as exists with many merchants in the US already. Or perhaps merchants will just increase prices across the board to compensate.