Flash Your Debit Card

Citibank, which pioneered the credit card business in the country, is now all set to unveil the latest payment system a debit card called Maestro. An analysis.

It is evidently trying hard to live up to its claim as the bank that never sleeps. Come mid October, managers at the retail banking division at Citibank might finally get a chance to grab forty winks as Maestro, the countrys first on-line point-of-sale debit card finally rolls out in the market.

Citibanks decision to launch a debit card is significant for more reasons than one. For one, it ties in with Citibanks top-down market strategy of driving its retail business. Unlike its credit card business, Citis retail business is decidedly exclusive.

 

Limited by its six branch network, Citibank chose to tap a high network clientele, offering them a wide basket of products and services that bypass the limitation of a weak infrastructure. The debit card is, therefore, yet another tool to widen Citibanks ambit of services and enhance value perceptions.

Simply put, debit cards or stored value cards as they are sometimes referred to enable a cardholder to pay for goods and services by directly debiting his bank account at a time and place of his choice, without having to take the risk of carrying large amount of cash. It provides a quick, convenient and secure way to cash and cheques.

Launched world-wide five years back, debit cards have grown in popularity as they emerged as a new way to access deposits accounts.

The biggest convenience is that one card and one personal identification number (PIN) doubles up for all global cash and purchase needs. Maestro, a brand owned by Mastercard, will be supported jointly by Citibank and Mastercard.

Citis experiences with Maestro will be watched keenly from the sidelines. Already, Bank of India is in the process of unveiling its own debit card. Clearly, Citibank is banking on a first-mover advantage.

But the big question is whether Maestro runs the risk of cannibalising its credit card operations. The chances are meagre, says Sanjeeb Chaudhuri, head of Citibanking. To begin with, at a subscription base of over 1 million card holders, the credit card operation has already reached critical mass. Operations are expected to break even by the end of the year.

Citibank managers say that the overlap in customer profile of the two businesses is not very high. Almost 50 per cent of the clientele consists of non-resident Indians, who are looking for a global access point for cash and payments. So if there is some cannibalisation, it will be marginal.

Besides, the benefits delivered are likely to be different. Explains Chaudhuri, The credit card customers usage is clearly because of the roll over credit facility. A debit card customer is more interested in convenience.

What Citibank is doing is reducing the width of distribution for the debit card operation, keeping in mind the kind of purchases that its customer base will be skewed towards.

Citis retail base with its credit card terminals of more than 65,000 outlets will provide the foundation for its plans to launch the debit card with around 2,500 of these outlets and then extend the programme to another 7,500 outlets by the end of the year.

As for the profile of retail spread, the bank has planned to select member establishments for the first phase as those where customers prefer to have an option of availing credit or debit.

Such establishments would include supermarkets, big retail stores, petrol stations, utility companies etc. The roll-out would begin at Mumbai and Delhi and then quickly extend to other markets in India.

The roll-out of Maestro would include upgrading or establishing new point-of-sale terminals in outlets as the payment procedure is based on Electronic Data Capture machines which a regular swipe machine for credit cards does not have.

Interestingly, it is only in India that the banking institution has to provide EDMs (electronic data machines) to retailers. The incremental costs of establishing the new mode of payment are, therefore, significant.

A rough calculation shows that Citi would have to shell out around Rs 2.5 crore by the end of 1997 to realise its distribution target. This is so as the cost of upgrading the existing swipe machines by superimposing a PIN pad is around Rs 25,000 per machine. Given that the bank wants to tap its existing base of 10,000 retailers in 1997, the average expense is Rs 2.5 crore. This cost may also shoot up a bit in case the existing swipe machine does not have an automatic printer facility.

The debit card will also allow Citibank to increase its distribution width by ensuring a higher volume of business from the member establishment to justify the IT investments.

In fact, the second phase of the debit card programme would sift out new member establishments for which the bank would have to shell out Rs 65,000 per retailer the cost of a dual EDM which would also be used for credit cards.

Clearly, for Citibank the cost of introducing the debit card has to be weighed against the fact that a great many of the larger shopping establishments would sooner or later introduce their own debit cards, once their volumes grow. Of course, Citibanks strategy of introducing the product in India is not just to retain its existing clientele.

To tie in with the launch, Citibank will unleash a major advertising campaign to announce the arrival of Maestro, which will be yet anothe reason for potential customers to bank with Citibank. Says Ashoke Dutt, head, global consumer bank, Citibank, Debit cards could change the paradigm of the payments system in the country.

Citibank managers say that the overlap in customer profile between its credit card and retail banking business is not very high. Therefore, the risk of cannibalisation is marginal.