Cash Back on Debit Cards

In a move to increase Debit Cards usage in India various banks have offered cash back’s in the range 2-5% depending upon the amounts spent on the card, i think its better starting using more of our debit cards instead of the unknown charges frilled credit cards.

State Bank of India (SBI) recently introduced a cash-back scheme on debit cards that’s valid till October 31. Purchases above Rs 10,000 earn up to 5 per cent cash-back. For spends from Rs 501-5,000 and between Rs 5,000 and Rs 10,000, the cash-back rates are 3 per cent and 4 per cent respectively. “In India, the trend is that people use debit cards mostly for withdrawing cash rather than for making purchases. This is why we are coming up with schemes to help customers increase their usage of debit cards,” says Narayanan Raja, chief general manager of SBI. SBI isn’t the only one doing this.

Since July, Standard Chartered has been trying to lure customers with new offers. “Apart from cash-back, discounts and reward points, we are also planning to come up with a new set of debit cards which will focus on one particular (retail) chain,” says Sandeep Das, head of wealth management with Standard Chartered.

Other banks are also working overtime to see that they don’t lose business to rivals. ICICI Bank is not thinking cash-back, but other goodies. ICICI is currently waiving the 2.5 per cent surcharge (or Rs 10) on car fuel transactions. You need to use your ICICI-HPCL debit card at HPCL pumps and swipe them on an ICICI Bank terminal to save on the surcharge. The card also offers a per day transaction limit of Rs 50,000 for ATM withdrawals and Rs 1,00,000 for point-of-sale (POS) transactions.

HDFC Bank is coming up with various discounts and reward points to increase customer usage of debit cards at merchant outlets. “We keep sending customers various brochures informing them about the discounts and reward points they can get from using their debit cards so that they start using them at merchant outlets,” says Aseem Dhru, executive vice-president and head of business banking at HDFC Bank.

But don’t count on the incentives staying forever. Since debit cards mean dipping into your own cash, banks earn no money by lending you the money - as they do with credit cards. They thus lose money by offering incentives on debit cards.

SBI’s cash-back is for a limited period up to October 31, 2007 and it is obviously not available for cash withdrawals from ATMs. There is also an upper limit of Rs 1,000 on cash-backs during the offer period, though the two highest spenders every day get two free return rickets on Air Deccan.