Credit is king as debit cards humbled by UPI
The use of credit cards zoomed 20% in the last one year, debit cards shrunk as much as 31%.
India, a country that traditionally reposed its faith in debit cards, is fast switching allegiance toward credit cards, recent data from the Reserve Bank of India has revealed. Credit cards upstaged debit cards in the first month of the current financial year when the Indian consumer swiped total credit cards 25 crore times in comparison to 22 crore times for debit cards.
This comes as a mighty blow to debit cards that have already been humbled by the UPI and startup brigade.
In value terms too, credit cards stole a march over debit cards by a far bigger margin. Taking into account the expenditure at physical stores as well as online sites, while a cumulative amount of Rs 53,000 crore was spent through debit cards, the expenditure through credit cards rose to Rs 1.3 lakh crore in the same month.
The growth story displayed an even more skewed picture. While the use of credit cards zoomed 20% in the last one year, debit cards shrunk as much as 31%.
The rise in the number of credit cards issued in the country also corroborates this trend. While there were only about 5 crore credit cards three years ago, the number rose to 7.5 crore – a rise of 50% — a year ago. That number has further jumped to 8.6 crore now.
RBI data reveals the steady nature of transactions from credit cards. Since April 2022 the number of transactions and their value have notched up the following numbers respectively – 21 crore transactions with a cumulative value of Rs 1 lakh crore in April 2022, 24 crore transactions with a value of Rs 1.1 lakh crore in September 2022, 25 crore transactions with a total value of Rs 1.2 lakh crore in January 2023 and 25 crore swipes with an aggregate value of Rs 1.3 lakh crore in April 2023.
Recent surveys have also indicated that the average debit card consumer is using debit cards less even to withdraw money from ATMs.
Experts confirmed that while the bulk of UPI transactions are low in value, credit cards are mostly used for bigger expenditures, and therefore, generate considerable revenue.
While almost all banks have undertaken drives to get new users of credit cards, some startups are also striking partnerships with established banks to launch cobranded credit cards. Two recent high-profile cases are those between Myntra and Paytm which have tied the knot with Kotak Mahindra Bank and SBI Cards. Another tie-up took place between Amazon Pay and ICICI Bank. Executive confirmed that these apps with a large number of consumers result in higher activation rates on credit cards.
However, the growth of credit cards comes with a word of caution. Personal finance experts never fail to emphasise that the expenditure incurred through credit cards is nothing but a high-cost loan that must be undertaken with discretion and repayment capacity.
The data from RBI also show that credit cards outstanding amounts rose fast over the past one year – from Rs 1.4 lakh crore in March 2022 to Rs 1.9 lakh crore in March 2023, which in other words is a jump of whopping 35%.