What’s holding back card usage in India?

This piece originally appeared on Livemint.com


Among the debates that demonetisation has kicked off is whether India is ready to go cashless. Some argue that Indians’ preference for cash has to do with their mindset, and that it will take time to change, irrespective of the options one may have. Others say that it has more to do with the infrastructure and that the country simply doesn’t have the capacity to significantly increase the share of digital payments. The data on point of sale (PoS) terminal transactions from the pre-demonetisation years suggests that the problem is the latter.

While the number of transactions on PoS terminals has been going up over the years (chart 1), the number of number of devices has not gone up in tandem(chart 2).





It’s not that India already has enough. There is a shortfall of PoS terminals compared to other countries, measured against the number of people and the number of debit cards in the country (chart 3). These suggest that more terminals would mean more transactions.




Also, while big banks have been active in pushing PoS terminals, the smaller banks can step on the gas. The top five banks’ share in the ATM network is less than 50%. However, they control 80% of PoS terminals (chart 4).



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Curbs on free ATM use are a lever to push plastic money

This piece originally appeared on Livemint.com


Banks want account holders to visit automated teller machines (ATMs) less, and the central bank concurs. But their primary reason to press for this change appears to be different from what they have stated.

With effect from 1 November, the Reserve Bank of India (RBI) has reduced the number of free transactions a consumer can make in a month in ATMs located in metros: five in ATMs of own bank (previously unlimited) and three in those of other banks (previously five). Announcing this change, an RBI circular dated 14 August cited representation by banks about the rising cost of ATM deployment and maintenance and inter-bank payments.




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