Debit Card Issuance 101 - All You Need To Know

Debit cards are a very critical part of the payment ecosystem. As of January 2022, there were over 940 million active debit cards in India. Averaging a transaction value of 3.5 trillion Indian Rupees per month, the volume is much higher than that of credit cards.

Highly secure, debit cards are super easy and convenient to use. All you need to do is enter the PIN (Personal Identification Number) or tap the debit card for quick cashless transactions. As the debit cards are linked to bank accounts, they use existing account balances, so there is no question of falling into debt or paying interest charges. In fact, you can also keep track of spending and maintain a record of all your expenditures.

What are debit cards?

Debit cards are payment cards that are linked to bank accounts. They are issued by banks and NBFCs to individuals and corporate entities. And can be used for in-store and online payments, fund transfers, and cash withdrawals. The amount required for transactions must be in the cardholder’s bank account at the time of the transaction and will be transferred directly from that account to the recipient’s account in real-time.

Here are the key components of a debit card.

Types of debit cards

Banks and NBFCs issue different types of debit cards. They are classified based on payment platform, technology, and usage.

Payment platform

· Visa Debit Card-Debit cards that use the VISA card network

· MasterCard Debit Card-Debit cards that use MasterCard network

· RuPay Debit Card-Debit cards that use the RuPay network established by the NPCI (National Payments Corporation of India)

Technology

· Contactless Debit Card -Debit cards that are encrypted with Radio Frequency Identification (RFID) or Near-field communication (NFC) technology are contactless debit cards. There is no need to hand over the card at the POS terminal physically. Just a wave or tap will do.

· Chip & Pin Debit Card- Debit cards inbuilt with a chip that helps store and transact data in an encrypted format are called Chip & Pin debit cards. Transactions happen here with the help of a PIN (Personal Identification Number).

· Magnetic Stripe Debit Card- Debit cards that come with a magnetic band that is swiped past its reading head while a transaction takes place is a magnetic stripe card.

Usage

· Prepaid Debit Card- Prepaid debit card is pre-equipped with a fixed amount of money to spend and can be reloaded if required.

· Virtual Debit Card- This is a digital debit card that helps pay for online purchases. They can be used through mobile banking applications.

· Disposable Debit Card- This is a virtual debit card that can be created instantly. They are most suited for one-time online transactions.

· International Debit Card- This debit card is used to make payments and cash withdrawals overseas.

· Business Debit Card- Corporate entities can provide debit cards to their employees to make business purchases and cash withdrawals.

RBI directive on debit cards

Effective 1 July 2022, RBI brought in the following regulations for debit card issuance. Banks and NBFCs must strictly adhere to the directives.

· Non-banking financial companies (NBFCs) can issue debit cards virtually or physically after obtaining approval from the RBI.

· Banks shall only issue debit cards to customers holding savings/current accounts. Issuance of debit cards to cash credit/loan account holders is prohibited.

· Banks shall not force customers to avail the debit cards. However, if a customer does not want a debit card, they cannot be denied other services from the bank.

· Banks should develop a comprehensive debit card issuance policy and get approval from their boards and RBI. Subsequently, banks must roll out debit cards per this policy.

· Banks must provide options for disabling/blocking the form factor via internet/mobile banking, IVR, SMS, and/or other modes.

· In place of plastic debit cards, Scheduled Commercial Banks can issue other form factors after obtaining explicit consent from the customer.

In addition to the above regulations, RBI stated, “It will not preclude the banks from linking the overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana accounts with a debit card.”

Why banks and NBFCs issue debit cards?

Issuing debit cards provides several benefits to banks and NBFCs. Key advantages are listed below.

· Improve customer retention and engagement

· Increase review through

— Higher cross-selling opportunities

— Contextual conversion of transactions into pay later loans

· Removes NPA issues, as no interest or repayment charges are levied

· Promotes digital transactions and financial inclusion

· Holds a moral compass on enabling accountability, budgeting, and spending within means

Issues in legacy card issuance platforms

Gone are the days when banks issued debit cards using legacy infrastructure platforms. While the issuer’s focus is on catering to the needs of a versatile demographic with quick and customized card programs, legacy platforms are a huge hurdle. The legacy systems limit the agility and flexibility required to scale up multiple use cases, customize personalized card experiences, and quick go-to-market speed.

It takes several months or even a year to set up a card program, which causes a lag in launching the product. Thus, businesses suffer from increased cost and effort and grapple with the ability to offer consumers the best digital card experience.

Modern APIs to simplify debit card issuance

An API-first card issuing platform helps issuers develop unique debit card solutions customized to consumer expectations and business needs. The platform is hosted on a cloud infrastructure that accommodates scaling, as the Application Programming Interfaces (APIs) are amenable to changes in business logic and new use cases.

Boost GTM with our debit card ecosystem

Using our API-based card platforms, issuers can go to market(GTM) with a full-fledged debit card program within weeks. We provide a holistic debit card ecosystem that encompasses everything right from applying for BIN, card issuer processing, identifying a card printer and fulfillment supplier, mobile wallet tokenization, and a payment scheme contract. We also possess our own card switch on the issuer side (for routing transactions) and ACS system (authentication gateway), which are features most other API providers do not have.

Issuers can build a unique customer experience using custom controls, unique data-based transaction authorization, and issue virtual and disposable cards. APIs also help drive actionable, real-time transaction data to drive insights and program improvements.

We power comprehensive program management that cuts across core issuing, processing, technology with mobile-first API-based infrastructure, and back office operations that include recon and chargeback processing. We also provide support for marketing and customer service via a chatbot interface. All these programs are quite flexible, so issuers may opt-in based on their level of readiness and level of complexity in card processing, technology, operation, risk management, and customer service.

Want to know more about debit card issuance?

Write to us at business@m2pfintech.com

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