Daybreak - Debit cards will be obsolete soon but SBI still wants to save them

Episode Date: May 10, 2024

When it comes to debit cards and ATM networks, no one can beat the State Bank of India. But being the market leader of debit cards in India is actually turning out to be a problem for the public lender. With Indians becoming more open to credit cards and UPI swamping the market, debit cards are dying a slow death. In fact, a lot of industry experts agree that debit cards, in their current physical form, may actually become obsolete in the coming decade. And by being the biggest player in this market that is fading away, SBI is also taking the largest beating from its decline. But instead of cutting its losses, SBI is still doggedly trying to save this dying product. Why?Tune inDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.P.S. -- Tell us your stories of great friendships at work here!

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Close to one billion.

That is the number of debit cards that are currently in circulation in our country. To put this in perspective, this is 10 times the number of credit cards. out there. And the State Bank of India or SBI controls the biggest chunk of this market, nearly 30%. And that's not it. SBI also has the largest network of ATMs and CRMs or cash recycling machines. Even if you combine the number of ATMs that India's top three private banks, AGFC, ICICI and Access Bank have, it is still not as much as SBI. Now, this is obviously a clear advantage for SBI because ATM withdrawals make up for more than 80% of annual debit card transactions. So SBI is winning. I mean, at the end of the day, after all the quarterly result wars and the

marketing campaigns, it ultimately boils down to who has the largest share of the market, right? But what if I told you that being the market leader of debit cards in India is actually a bad thing for SBI? Hear me out. Debit cards might be a head of credit cards in terms of circulation. But I'm sure you've noticed this too, that they are dying a slow death in the Indian market. Think about it. How often have you been using your debit card lately? In the three years between 2020 and 2023, debit cards pending actually flatlined in India. In fact, a lot of industry experts agree that debit cards in their current physical form may actually become obsolete in the coming decade or so. So basically, by being the biggest player in this market that is fading away, SBI is also taking the largest beating from its decline. But the I-Ne does not end there. Instead of cutting its losses, SBI is still directing all its efforts to try and save this dying product.

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dhaas Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. By the way, daybreak episodes also drop on Tuesdays now featuring my new colleague, Rahal Philipose. Today is Friday the 10th of May. SBI has been pushing its customers to make more transactions using debit cards. For this, it is using a barrage of socialization.

social media campaigns, YouTube ads and daily emails for things like online payments and in-store purchases. For example, throughout the ICICI men's cricket World Cup and also the weeks leading up to Diwali, it ran an aggressive reward points campaign called the SBI Rewards Carnival Double Dumbaga. Users could get double the usual number of reward points if they bought jewelry, clothes, electronics or spent on travel using debit cards both online and offline. But you might think there's nothing unusual about banks flooding their customers with festive cashbacks, instant discounts and rewards, right? But for SPI, this was one of the final chances to at least start stalling, if not reversing,

the decline of its share in debit card spendings. You see, according to the Reserve Bank of India figures, yearly debit card transactions have remained stagnant at around 7 lakh rupees in the last three years that ended in 2023. And on top of that, overall debit card payments are also declining. And that is because of two main reasons. First of course is the UPI wave that has swept the country. And second, Indians who are generally skeptical of dealing in credit are actually warming up to the idea of credit cards.

So as a result of this, a new consumer spending pattern is emerging. The Ken reporter Narayanan spoke to a senior executive at private lender federal bank. He said that post-pandemic, people have been using UPI for smaller merchant payments of up to $2,000 and credit card for transactions above $10,000 to $15,000. So debit cards now have to exist in this very tricky space. A lot of bankers did tell us that people might actually stop using debit cards in their physical form to make payments in the next five to six years. which is why you can understand why for SBI being the biggest player is actually a burden instead of a blessing. The lender lost nearly 60 million debit card users between March 2019 and September 2023. And between April and September last year, it also saw the largest fall in value of debit card transactions among many other banks.

And this was for both card machine transactions and ATM withdrawals. But then again comes the mean question. Why then is SBI pushing so hard for a product that might eventually become extinct? Stay tuned to find out. Hi, this is Rahil, your co-host. And I want to tell you guys a fun fact about you. By you, I mean the daybreak audience. Almost a quarter of you guys are actually under the age of 25.

Which means you're probably in the first few years of your career. navigating the tricky stuff of first jobs. You know, dealing with imposter syndrome, promoting yourself, finding mentors, making mistakes, and finding friends at work. Friendships at work can be messy, but if you have a great work friend, you'll agree that it's worth it.

Over at the first two years, an early careers podcast from the Ken's Newsroom, my work friend, Akshya, is researching how young professionals like you, pursue great work friendships without letting it interfere with your career. If this is you and your friend, why don't you share your story with us? There's a link to our survey in the show notes. It won't take you any longer than five to seven minutes.

So go on, fill it out and tell us why your work friend is the absolute best. Now, back to Snigda. The answer as to why SBI is trying so hard to keep its debit card business. alive is basic economics. Yes, debit cards are slowly dying, and yes, UPI and credit cards are eating away at their customer base. But SBI still cannot ignore the revenue that its debit cards still generate. Let us look at the two main ways that banks make money of debit cards.

First, depending on the kind of card and its usage, SBI charges an annual fee anything between $120 to $350 to $350. rupees. Now, if you multiply that number by the number of users of SBI debit cards, you will see there is quite a bit at stake there. And then there's also the interchange fee. SBI gets this when users make a point of sale transaction, meaning that the fee it gets when debit card machines are used to make payments in stores, restaurants, etc. And it also gets a marginal interchange fee when people use its ATMs to withdraw money from a card that was issued by a card. another bank, and especially in rural areas where many private banks do not have ATMs.

And this could be a good enough amount considering SBI has the advantage of having the most number of ATMs amongst all its rivals. And not to forget, another reason why banks love debit cards is a thing called float funds. This is the money that people keep in their savings accounts that are linked to their debit cards. These funds act as an easy source of funds, for banks to carry out their day-to-day banking activities. Now, this is just the revenue side of things. There's also a whole lot at stake when it comes to costs. So to keep generating the revenue from debit cards,

SBI has to spend quite a lot on the whole infrastructure on which debit cards depend. In the year that ended in March 2023, SBI spent nearly 9,000 crore rupees on the maintenance of ATMs, debit cards, CRMs and other technical expenses. And revenue and cost aside, there is also actually one more thing that might be keeping SBI hooked to debit cards,

at least for the near future. Hang on for the next. UPI is everywhere now. And the level of convenience that it offers is hard to match. But let's not forget that on the flip side, debit cards are still the mainstay when it comes to withdrawing cash from ATMs. because how else are you going to get cash?

Checks? Obviously, that is the last option. Which is why in 2023, 80% of debit card transactions were ATM withdrawals. So while debit cards may be going out of fashion while making payments, SBI still has an advantage in operating 65,000 ATMs across the country for cash withdrawals. But unfortunately for SBI, this cannot be a long-term bet. And that is because UPI-based ATMs have entered the scene. In September last year, Hitachi Payment Services Private Limited

launched the country's first UPI-based ATM at the Global Fintech Fest in Mumbai. And even though users are currently wired to withdrawing cash using debit cards, it's only a matter of time before UPI's user-friendly interface replaces that. As things stand, it looks like for India's biggest lender, it is going to be a question of when if not. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by, Nikda Sharma and edited by Rajiv Siyah.