Debit cards: Your new super hero

By: Kumar Karpe, CEO, TechProcess Payment Services 

‘Debit cards’ — India’s most popular mode of electronic payment — are getting smarter with every swipe. Banks are offering their customers personalised debit cards through a combination of new technology and exciting features. Known as the ‘virtual wallets of the future,’ debit cards are set to become a more enduring part of our digital lives. To that extent, debit cards will continue to dominate the electronic payment gateway in the coming years.

The Math behind debit cards

The Indian market offers a huge potential for debit card penetration despite challenges. Even though the country is driven by the use of cash, with less than 5 per cent of all payments taking place electronically, card adoption for making payments is increasing day by day. From a small base of around 150 million in March 2008, electronic cards are nudging the 564-million mark today. Out of these, debit cards are recording the highest growth and have the maximum potential to give a boost to the concept of Digital India.

In terms of value, debit card spends have risen six times to 744 million between 2007-08 and 2012-13. The number of processing terminals too doubled to 1.125 million during this period. The number of credit cards, on the other hand, actually dipped during this period; however, credit card spends more than doubled to 1.23 trillion. Today, there are close to 564 million debit cards, more than 20 million credit cards and over 1 million POS terminals in India. Almost all Indians with a savings account have a debit card. But what does the future hold for debit cards/credit, digital wallets, cashless cards, and the overall e-payment/m-payment scenario?

Future scenario – to 2FA or not to 2FA?

In view of the increasing demand for making electronic payments easier, the Reserve Bank of India recently said it is ready to relax the norms for 'card-present' transactions where near-field communication (NFC) technology is used. The relaxation pertains only to small value ‘card-present’ transactions. However, ATM transactions where the card is not present will continue to require the additional factor of authentication, a personal identification number (PIN), or a one-time password.

Presently, a customer has to key in the PIN for authenticating every transaction. If the RBI draft circular is implemented, customers using contactless cards will not have to key in the PIN for transactions up to Rs 2,000. Several players in the e-payments ecosystem, including e-commerce firms, have been pitching for doing away with the two-factor authentication (2FA) for small-value transactions, with some requesting for the cap to be set at Rs 3,000. Obviating the need for 2FA, without compromising on security, even for small transactions, would give a huge boost to debit/credit card usage, thus providing a stepping stone for a cashless economy.

What happens to the digital wallet?

With e-commerce, e-payments and m-payments on the rise, digital wallets seemed to be the order of the day. A digital wallet -- which, essentially, is an app containing a user’s banking details and other personal information placed in mobile devices for making e-transactions -- enables users to make payments by just waving their phone at a terminal, without any physical contact. With such an easy payment system, e-payments would surely increase dramatically? Digital wallets, however, did not catch on as much as expected. In fact, Google’s first attempt at a digital wallet, christened Google Wallet, failed to take off.

And then came Apple Pay, followed by Google’s new, improved wallet, Google Pay, as also Samsung Pay from Samsung. With Apple incorporating its mobile wallet solution directly into its operating system and simultaneously incorporating a SIM-independent (and thus MNO-independent) secure memory chip, an NFC radio, and a fingerprint reader into the hardware of its device, the next-generation wallet is no longer a software application. Instead, it is as much a physical wallet as an actual leather wallet, as it is part of the device itself. By all accounts it appears that the digital wallet has died even before it could take off, to be replaced by a physical wallet tucked safely inside a mobile phone.

Mobile payments shows the way

Even as mobile payments become an integral part of the business landscape, concerns about safety and security of transactions persist. Alibaba’s online payment platform, Alipay, is incorporating biometric security as part of an advanced security protocol. Biological identification is set to become very important in the future as customers’ real-world identities merge with their virtual identities. Who knows, we might soon need to take a selfie to authenticate a payment!

A revolutionary product like Paynimo is already creating a ‘Super wallet’ of your existing debit cards, credit cards and bank accounts. This provides us, the choice to decide how we want to pay for various transactions. We can even opt to transfer money to our friends by using just their mobile number/email ID. With virtual POS as a feature of super wallets, the merchant and customer’s phones can be used to securely pay for shopping and provide a viable alternative to Cash –on-Delivery.

With all the excitement surrounding payment methodology, what remains to be seen is how soon newer technology is adopted on a mass scale, and how secure fancy payment modes turn out to be. After all, e-wallet and digital wallet-promoting firms cannot sustain a business model for long on the back of cash backs and discounts, presently being offered liberally by them. Besides, it is early days yet and customers in India may not be ready to ditch cash and plastic altogether for a long, long time to come. Moreover, the sheer number of debit cards floating around in the Indian payment landscape weighs heavily in their favour, when compared to wallets. When all is said and done, the good old debit card might rule in the foreseeable future, at least in developing economies.