Credit Card Use, Emissions Rise Despite Rising UPI

The unified payment interface is the undisputed leader in digital payments, but credit cards still find takers.

In fact, despite the growing adoption of UPI and alternatives like Buy Now Pay Later, most banks are optimistic about their credit card portfolios and believe the segment will continue to grow. This is evident in their comments on fourth quarter earnings as well as the recent acquisition of Citi’s consumer banking franchise in India by Axis Bank.

A recent report by Kotak Institutional Equities indicates that the share of cards (credit and debit) in private final consumption expenditure has increased from less than 4% in 2013 to around 12% in 2021. The share of IPU in the PFCE is also at a similar percentage of 12%.

Official data reveals that UPI was widely accepted and accounted for 52.5% of all payments made through digital modes in 2021-22. It rose further to approach the ₹10 lakh crore mark in April with transactions valued at ₹9.83 lakh crore last month.

Credit cards are a small part of digital payments, but issuance and spending are on the rise.

In absolute terms, the value of credit card transactions increased by almost 26% to ₹222.2 crore in 2021-22 from ₹176.47 crore in 2020-21. However, in percentage terms, it was less than 2.56% of all digital payments in 2021-22, down from 3.18% in 2020-21.

According to data from the Reserve Bank of India, credit card issuance grew by 16.3% year on year to ₹7.71 crore at the end of February 2022.

“Digital payments such as UPI and credit cards are seeing an increase in usage and customers given the huge under-penetration of financial services and credit. The pie is getting bigger and so these two segments are growing” , noted one banker, adding that credit cards are the preferred method of payment for larger expenses.

The average credit card transaction size also increased to ₹4,122 in 2021 from ₹3,653 in 2020, according to Worldline India’s 2021 Digital Payments Annual Report.

The report, however, indicates that UPI P2M transactions have significantly eroded the share of cards and other payment methods. “UPI became consumers’ most preferred payment method with a P2M volume market share of 56% while its transaction value share was 41%,” he said.

Debit cards

However, a bigger impact appears to be on debit cards where data indicates spending is down even though they continue to have a strong base.

The total number of debit cards increased by 4.6% to reach 93.5 crores at the end of February 2022, compared to 89.4 crores a year ago. However, expenditure fell to ₹396.89 crore in the 2021-22 financial year from ₹411.49 crore in the previous financial year. It is relevant to note that debit cards still held a larger share of the digital payments pie at 4.57% in 2021-2022 compared to credit cards.

The average ticket size of debit cards in 2021 was ₹1,804 compared to ₹2,568 in 2020. Although the average ticket size and transaction value of credit cards are higher than those of debit cards, the latter remain consumers’ preferred payment method thanks to its huge exceptional base, Worldline’s report notes.

Published on

May 13, 2022