Go cashless, start with debit card

 Jairam Sridharan

Everyone is talking about "cashless economy" these days: regulators, the government and your bank. There are many reasons why reducing cash is helpful for the economy. It builds transparency in the financial system. It reduces tax avoidance and consequently attacks the black money problem. It reduces the pernicious impact of counterfeit money in the economy. And of course, it reduces the massive cost overheads of cash transactions.

While these are all great reasons for the economy to go cashless, should you, as an individual consumer, go cashless? More importantly, can you?

Most developed economies have transitioned a significant proportion of consumer spends to non-cash formats. In India, however, cash is still king, accounting for 90% of all transactions. How can we overcome the overwhelming dominance of cash? Let me suggest this — There is an instrument that can fight the battle for cashless boldly, and can enfeeble cash, if not actually slay it. No, it is not a new fangled e-wallet I speak of. Look into your real, physical wallet — you are probably carrying the giant fighter ... the humble debit card.

There are 55 crore debit cards in circulation today. This is a huge number, given that there are just over 60 crore adults in the country. These 55 crore cardholders could, if they choose, move a large part of their expenses to cashless by using their debit card. But only about 10% of them actually make any spends at all using these cards. The rest merely use them as cash withdrawal cards to be used at the ATM.

Why this avoidance? There are three main reasons. The first reason is lack of awareness. Some customers are not aware that the cards they carry with them can actually be used at merchants or on e-commerce sites. Most are aware, but are not sure whether it is a good idea to use a debit card. I suggest to you that if you have a debit card in your wallet, using it is simple common sense. Here are half a dozen reasons why:

n It is convenient: Why carry around a wallet overflowing with soiled, torn notes and coins when all the value can be carried on one simple piece of plastic?

n It is safer: Lose your wallet and you lose your cash for good. But one phone call to your bank protects your debit card and all your money instantly. What's more, because of the PIN-based authentication required on your debit card, it is useless to the thief unless he knows your PIN too.

n Earn interest: Why withdraw a large sum of money and hold it in cash, just so you can spend? Let it stay in your account and keep earning interest. When you need to spend, swipe your card.

n Get deals and offers: Have you noticed the many great offers that are available to customers who pay by card? Your bank is spending a lot of time (and money) designing these offers just for you. Why let them go?

n Free insurance: Most banks offer free insurance on their debit cards. However, to be eligible for it, you need to use your card for spends.

n Protection: The merchant did not deliver the goods as promised or delivered inferior goods? If you spent on your debit card, you have an opportunity to cancel ("charge back") the transaction. You can similarly charge back incorrect billings, non-authorised transactions etc.

The second reason why customers don’t spend on their debit cards is lack of merchants. There just aren't enough merchants who accept cards, particularly in smaller towns. This situation though, is changing rapidly. More and more terminalisation is going on across the country. And of course, all of e-commerce is available for card acceptance.

The third reason that stops customers from using their debit cards is the serious concern around security. Is my card information secure? Or am I exposing my bank account in some way by using debit cards?

Security and financial protection is a very big deal for customers, just as it should be. The good news is, we in India have one of the most secure payment systems in the world now.

Starting December 2013, based on an RBI regulatory directive, all debit card purchase transactions in India are authenticated by entering the ATM PIN of the card. This has resulted in a much higher level of protection for purchase transactions on debit cards. Many cards are also now moving to EMV chip format, the most secure form of cards in the world. Banks, on their part, are also coming out with several innovative debit card products to address security concerns of the customers.

But there are some simple steps you can do too, to make sure your debit card is secure. And they are truly simple and common sense.

Don't disclose your card PIN to anyone. Don't write it on the back of your card. Don't share information like PIN with someone calling you claiming to be from your bank. Your bank will never ask for such information over the phone or on email. When you buy online, look for the lock sign. And if you want to feel even more secure, upgrade from your magnetic stripe card to a chip card. Simple steps —aren't you always vigilant to protect the cash you carry around? Your debit card asks the same.

So the next time you step out to shop, think before taking out your cash. Go cashless with debit cards. It is safer, simpler and smarter.

The author is President & Head, Retail Lending & Payments, Axis Bank. The views expressed in this article are his own