RBI pushes for UPI-based Cash withdrawals, Is the end for Debit Cards?Â

According to payment industry executives, the Reserve Bank of India's (RBI) push to enable UPI-backed cash transactions from ATMs is likely to cause a significant drop in debit card usage. UPI, which is already the desired mode of payment in stores and for limited online purchases, is now prepared to eat into the debit card's last strongholds of cash withdrawals.

The value of merchant UPI transactions in February 2022 was Rupees 1.63 trillion, far exceeding the value of debit and credit card money transfers at the point of sale (POS) stations, which was Rupees 1.43 trillion.

A recent HDFC Securities report says that UPI accounts for nearly three-fourths of all transaction volumes below Rupees 500.

Cash withdrawals at ATMs are the primary mode of use for the vast majority of debit cards issued in India, with merchant payments using debit cards falling every year. The number of debit card-based ATM transactions fell to 527 million in February 2022, down from 551 million in February 2021.

Consumers may eventually see no reason to carry debit cards because they incur an annual or quarterly fee to maintain them, whereas UPI is practically free.  

The whole scenario is explored and evaluated by experts and they have their own vision about the things. To cut a long story short, "Only the online payments where people may not be too comfortable using UPI on a particular device or where it's quite a large-value transaction or where the person is leveraging the benefits available on a particular debit card, such as debit EMI, might be the instances where a debit card is used," said independent fintech expert Parijat Garg. He also added that it may take a few months for banks to upgrade their ATMs and other back-end systems to support UPI-based withdrawals However, once that occurs, the utility of debit cards for a large number of customers will be practically nil.

At the end of the day it seems reasonable to add that according to Harish Prasad, FIS's head of Banking, "banks' issuance of debit cards has increased significantly over the last five to seven years, with 935 million outstanding cards as of February 2022. As a result of high UPI use for merchant payments and saturation in card issuances, this may now begin to flatten out".

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