Sometimes, numbers can be deceiving. Around the same time last year, the financial services industry was celebrating that the number of debit cards in circulation in the country had touched 998 million, and was in sight of a billion cards, a record by itself. However, one year down the line the scenario has changed. The figure quoted as of October 2019 is 843 million, which represents a 15% shrinking of the debit cards population.
According to a Times of India report, this is because banks have been replacing the old magnetic strip-based with the new EMV chip-based cards, as mandated by the Reserve Bank of India.
The reason for such a steep fall in the number of cards is the banks used this opportunity to stop issuing cards in respect of those accounts which have remained dormant. If an account is not being operated for very long periods and the debit cards issued earlier from those accounts are now not being replaced.
Dormant accounts are also a nuisance for the banks since it leads to banking frauds and in some cases for money laundering. By stopping the issue of new debit cards, the banks have virtually closed these accounts. Only in cases where the account holders themselves have approached the bank branches to issue the new debit cards, the branches have not done so.
This has resulted in this drop of 155 million debit cards being made invalid for use. Most banks, especially the private ones have ensured that the new EMV chip-based cards are NFC-enabled. NFC stands for near field communication and these cards need to be just tapped on the POS machines instead of being swiped or inserted in the machine.
Explaining the reason for such large number of dormant accounts, it is believed that many of those employed in the private sector open their bank account as zero-balance salary accounts. Once they leave that company and join another, they may open another account with the bank that the new employer is dealing with. The old account remains inoperative. When millions of such employees do this, the numbers stack up as it has happened today.
Another myth being floated around is that the indiscriminate opening of Jan Dhan accounts is the reason for inoperative accounts. But the bankers say this is wrong. They say there has been an increase in the use of debits cards issued under Jan Dhan cards by the poor and in rural segments by an impressive 13% YoY to 374.7 million.