84% use Credit Card for e-Commerce

According a survey by Nielsen, 84% of the online shoppers in India preferred the convenience of credit cards. India shared third spot after Turkey and Ireland where 91% and 86% online shoppers used credit cards.

The survey further said that,

Shopping on the Internet with the ease of a credit card is especially appealing to consumers in emerging markets who simply cannot find or buy items they want in their retail trade. The Internet has opened up a whole new world of shopping for these consumers.

Other means of payment for e-commerce shopping are, Cash on Delivery, Online Banking Money Transfer and very recently introduced mobile payment platform - PayMate.

Credit Card Merchant POS Organized Malpractice

It has come to light that their are several Point of Sale [POS]Terminals in India which are participating in Organized Credit Card malpractices.

For instance, this gentleman in Delhi provides cash when you swipe Credit Card at his POS terminal, but at a massive 4% of the total transaction as his fees in addition to bank charges. Lets assume the customer borrows Rs 100,000 or Rs 96,000 after charges from the Vendor with POS. Banks immediately call from a recorded line to the customer inquiring about the transaction. The vendor with the POS gets credit within a day so he is ready to go for the next day withdrawing cash from his account.

So why are people involved in such practices ? The answer is plain and simple - for cash advances on your credit card, banks charge interests as high as 34.8%. While for cash purchases the interest is somewhere between 12% to 20%, depending on your credit history. So if we assume your APR on purchases is 15% you would end up with 19% APR in the above said shady transaction.

This is a very well organized racket which will go bust very soon. We request the concerned authorities in the Indian Financial System to setup a watchdog and crackdown on such malpractices. They should also lobby with the RBI and Banks to make interest rates more affordable for customers.

Can Credit / Debit Cards Help Fight Corruption ?

In an article in NewYork Times, I read that the government of South Korea to fight corruption made it almost mandatory for all enterprises in the country to accept credit cards and offered huge tax incentives in return for everybody using credit cards. As a result in 2006, half of the $491 billion in private consumption was settled through credit card.

South Korea has 403,000 electronic cash registers for every million people which allows them to pay by credit / debit cards. Compare this to Japan which has mere 10,765 such terminals for every million people in the country. The program was a huge success in South Korea due to its educated and technology aware people. Credit cards are accepted at all the places from gas stations to hospitals. Most credit cards offer incentives which has now become a way of saving for the consumers.

Can this happen in India ? Well in parts it may, but rural India which forms the bulk of our economy is largely uneducated and with the Reserve Bank of India sleeping on credit card reforms and letting Banks and CC Companies rip off customers, we need to tailor the mechanism and develop a transparent e-Transaction system.