Credit card use at ATMs declines amid high interest rates

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Indians always prefer debit cards to credit cards for their daily transactions but the pandemic has thrown up an interesting trend.

While plastic card transactions have slowed down in general, debit card transactions at both Automated Teller Machines (ATMs) and Point-of-Sale (PoS) terminals have gone up. But the use of credit cards at ATMs has dropped by a half as compared to the pre-pandemic era. The number of credit card transactions at PoS terminals has remained almost the same.

A close look at the data provided by the Reserve Bank of India (RBI) reveals that the credit card usage at ATMs has fallen drastically. Monthly transactions at ATMs using credit cards have dropped to 4.64 lakh in November, 2020, nearly by a half since March 2020, according to the recent RBI data. In March 2020, total number of ATM transactions by credit cards stood at 7.55 lakh.

This is despite an increase in credit cards to 6.01 crore by November-end, up from 5.77 crore outstanding on March 31, 2020.

There is a concomitant drop in value of ATM transactions using credit cards in 2020 too. The total monthly value has dropped from Rs 360 crore in March to Rs 231 crore in November.

During the lockdown, Indians used credit cards at ATMs sparingly, primarily because of a major shutdown of ATMs across the country and the irregular replenishment of cash. In April 2020, RBI has reported 3.68 lakh transactions (worth around Rs 159 crore) using credit cards at ATMs, and the number slipped to 2.76 lakh transactions (worth around Rs 141 crore) in May 2020. A month later, in June, RBI has reported 3.23 lakh transactions using credit cards at ATMs (valued at Rs 164 crore).

Senior banking officials point a finger at the high interest rates on credit card withdrawals — running to anywhere between 35-48% per annum — for the drop in credit card usage at ATMs. There is more awareness among price-sensitive consumers and they have smartly moved to using credit cards at PoS terminals which do not attract any interest payment if one pays up dues before the monthly payment deadline.

All major credit card issuing banks have seen a drop in their ATM transactions in 2020. HDFC Bank, which had 1.54 crore credit card users as on November 30, 2020, has seen its credit card transactions at ATMs drop to 1.29 crore in November (valued at Rs 79.4 crore), down from 1.82 lakh in March (valued at Rs108.7 crore). The State Bank of India, which has 1.13 crore credit cards as on November 30, reported a similar drop in credit card usage at ATMs to 86,833 transactions (valued at Rs 34 crore) in November, down from 1.26 lakh (valued at Rs 50.4 crore), in March.

The number of monthly transactions by credit cards at PoS terminals has however returned to where it stood during March 2020, though there was a dip in usage during the lockdown period. The total number of transactions stood at 16.62 crore in November 2020, a marginal increase from 16.46 crore reported in March 2020. However, the total value of transactions at PoS terminals by credit cards has seen a jump to Rs 62,349.7 crore in November, up from Rs 50,697 crore in March.

On the flip side, the number of debit card transactions on ATMs and at PoS terminals have both gone up in November as compared to the numbers reported in March. Even the total value of transactions has shot up in both the categories. The number of outstanding debit cards has seen a jump to 82.3 crore by November, from 82.9 crore in March, 2020.