With UPI shining, will debit cards become history?

Post Covid-19, debit card usage has come down. The reason for this is UPI. Banks that earn a chunk of their revenue from payment aggregators and from card companies like Visa and Mastercard, are now complaining. Because their customers have now migrated from debit cards to UPI. Though UPI has been around for quite sometime now, it was only during Covid that people started using contactless payment methods and had got used to it. Now, we probably cannot imagine life without UPI.

To corroborate this, the Reserve Bank of India and the National Payments Corporation of India said that a total of 7.2 lakh crore rupees worth of transaction was done through debit cards. While the transaction value for UPI was 139 lakh crore rupees. This is a clear indication that UPI has become the most preferred mode of payments and customers have slashed the usage of debit cards. Adding to that consumers have spent more than 1900 rupees through UPI has against every 100 rupees spent through debit cards.

Now when we look at the transaction volume, then debit cards has seen a steady decline over the years. In FY 21, the number was at 4 billion. In FY 22, the volume slipped to 3.9 billion and as of FY 23, the transaction volume declined to 3.4 billion. On the contrary, in the financial year 2022-23, there were 83.8 billion transactions through UPI.

Another interesting fact to note is that earlier person used to go to ATM 16 times on an average in a year. Now a person visits the ATM only 8 times. This is as per an SBI’s Ecowrap Research report.

Increase in usage
According to a report by consulting giant PWC India, there will be 1 billion transactions through UPI every day in the country by 2026-27. It also says that with the increase in UPI transactions, its share in total digital transactions will increase to 90% by 2026-27. This share was 75 per cent in the financial year 2022-23.

Dent on card usage

From small ticket size transactions like 50 rupees to large size transactions worth up to 1 lakh rupees are being made on UPI. The biggest boost for UPI payments have been the increasing usage of smartphones. Unlike debit cards, there is no need to carry a wallet or a purse. From large retail outlets to small carts, QR codes have been installed everywhere, so transactions can be done in a matter of seconds. The customer does not have to pay any fee for using UPI. In contrast for debit cards, they will have to pay an annual fee to the banks. At present, there are more QRs than PoS terminals in the country..

Merchants on the other hand say that QR is easy, convenient and cheap. And owing to factors like instant payment, easy payment collection, quick settlement, low cost and high security, they too prefer UPI.

These are the reasons why UPI is shinning bright, while debit cards are rusting away. And looking at the foreseeable future, it looks like the end is not too far away for debit cards.