Personal Finance: Debit Card

PERSONAL FINANCE: PAYMENT SYSTEMS
10 things you always wanted to know about
Debit Card
...but were afraid to ask

By Ranju Sarkar

Two years ago, when you first heard someone mention debit cards, you thought it was a verbal slip for the credit card. Now, there are four banks that issue debit cards, and 4,75,000 people who own the same. BT puts you out of your misery by answering ten FAQs on debit cards. Now you know!

Sorry, but what is a debit card?

It is an on-line payment card that enables you to access your bank account to pay for transactions at shops and ATMs.

What do you need to get a debit card?

Simple-an account with one of the issuing banks. The list comprises Citibank, HDFC Bank, Centurion Bank, Bank of Punjab, and Times Bank, which was acquired by HDFC Bank. More banks are expected to jump on to the bandwagon, and with good reason. As Neeraj Swaroop, the head of retail banking at HDFC Bank points out: ''A debit card enhances your ability to attract deposits and motivates customers to maintain larger balances.''

How do debit card issuers earn their money?

Most banks view debit cards as a deposit enhancement tool. Banks pay a 4.5 per cent interest on savings deposits, and lend money to others at a higher rate. Therefore, vis-a-vis debit cards, while the bank's spreads remain the same, the card increases the quantum of money at its disposal to lend.

What is the main difference between a debit card and a credit card?

With a debit card, at the point of purchase, your bank account gets debited by the same amount of money used for the purchase, instantaneously. You know how it works with a credit card.

What are debit cards best used for?

Essentially for small-value purchases. Credit cards, in contrast make sense for high-value purchases, as they provide you an interest-free payback period.

Should I go for a debit card?

If you are credit-averse, you should.

Will the emergence of debit cards hit credit cards?

Not really. As Samir Vakil, the head of MasterCard's South Asian Operations, matter-of-factly puts it: ''They (credit cards and debit cards) will grow alongside.'' Besides, debit cards will reduce the use of cash and cheques, not credit cards.

Do the big card companies have debit cards?

Yes, they do. Visa has the Visa Electron. And MasterCard, the Maestro.

Are debit cards as widely accepted as credit cards?

There you have us; they aren't. Credit cards are accepted at over 100,000 establishments. Maestro cards at 6,000 outlets and Visa Electron at 9,700 outlets. Reason? Debit card transactions need on-line connectivity, which is, simply, a pain in the neck.

Will debit cards take off?

Who knows, they may. China, with a credit-averse culture, has more debit cards than credit cards.

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