In recent years, India has witnessed a remarkable transformation in consumer payment choices. Debit cards, once the preferred option for most Indians, are gradually losing dominance. In contrast, credit cards are steadily gaining traction, propelled by the growing spending power of consumers and a growing appetite for financial flexibility and rewards.
The latest data from the Reserve Bank of India (RBI) for July 2024 back this trend, revealing a significant increase in monthly credit card usage in India across multiple platforms, from cash withdrawals at ATMs to digital transactions on e-commerce websites.
A key factor contributing to the increasing popularity and usage of credit cards in India in recent years is the surge in their issuance by banks and financial institutions. In July 2024, the number of outstanding credit cards increased an impressive 16.4% YoY to reach 104.57 million (10.46 crore).
The growth in credit card transactions in India is in stark contrast to debit cards, which saw a mere 1% YoY increase, bringing the total number of issued debit cards to 980.46 million (98.05 crore) last month. This disparity suggests that more Indians are opting for credit cards, attracted by their various benefits, such as interest-free periods, reward points, better fraud protection mechanisms, and the opportunity to build a credit history.
The impact of this shift is evident in spending patterns as well. In July 2024, credit card spending in India surged by an impressive 19% to ₹1.73 trillion (₹1.73 lakh crore) across 384.63 million (38.46 crore) transactions.
On the other hand, debit card spending witnessed a notable decline, dropping by 8.6% YoY to ₹2.94 trillion (₹2.94 lakh crore) across 649.70 million (64.97 crore) transactions in the same month. This decline indicates that even though debit cards dominate the Indian payments industry, they are increasingly being overshadowed by the rising appeal of credit cards.
However, it is important to note that despite the growing adoption of credit cards, they still trail behind the Unified Payments Interface (UPI), which continues to dominate India’s digital payment sector.
In July 2024, UPI transactions (P2M) soared 55.7% YoY to an astounding 9.0 billion (899.96 crore) in volume. The cumulative value of these transactions also increased 53.9% YoY to ₹5.92 trillion (₹5.92 lakh crore). This phenomenal growth highlights UPI’s unmatched convenience, with zero transaction fees, instant transfers, and extensive adoption across both urban and rural areas.
It’s important to note that we have compared the value and volume of credit card transactions with payment-to-merchant (P2M) UPI transactions only because a majority of credit cards are typically used for merchant payments only.
UPI’s success is further bolstered by the fast internet connectivity provided by telecom giants like Airtel and Jio, ensuring reliable and widespread access. Its effortless integration with multiple bank accounts and mobile apps makes it the preferred method for everyday transactions, far surpassing both credit and debit cards in terms of transaction volume and value.
To gain a deeper insight into the growing use of credit cards in India, it’s essential to explore the key areas where this spending is occurring. Let’s examine how credit cards are being used across different platforms, including Point of Sale (POS) terminals, ATM cash withdrawals, and online shopping platforms.
Understanding the Shift: Where Are Credit Cards Gaining Ground?
The evolving payment behaviour of Indian consumers reveals fascinating insights into how credit cards are used across various transaction channels.
In July 2024, credit card transactions at PoS terminals reached 197.09 million (19.71 crore), amounting to ₹622.84 billion (₹62,284.1 crore). These transactions increased a strong 37.4% YoY in volume and 25.1% in value. This surge in CC spending through PoS is largely driven by the increasing penetration of PoS machines and the growing number of merchants accepting credit cards at physical retail locations.
Thanks to companies like Paytm and PhonePe, who have installed their PoS devices that support various payment methods, including credit cards, debit cards, and UPI, thereby broadening their acceptance.
In contrast, credit card transactions on online and e-commerce platforms stood at 186.68 million (18.67 core) with a total value of ₹1.10 trillion (₹1.10 lakh crore) in July. These transactions grew an impressive 38.6% YoY in volume and 15.8% YoY in value, respectively.
What’s particularly interesting is that although credit card transactions at PoS terminals accounted for a larger volume share (51.2%) compared to e-commerce (48.5%), the value share of e-commerce transactions far exceeded that of PoS transactions in July.
Specifically, the value of credit card transactions on e-commerce platforms accounted for a whopping 63.8% of the total, whereas PoS transactions made up only 36%. This disparity suggests that while credit cards are used more frequently for everyday purchases at PoS, the average transaction value is significantly higher for online purchases.
Gone are the days when expensive products such as televisions, refrigerators, computers, and washing machines were predominantly bought offline at physical stores. Although many Indians still prefer the traditional method to “touch and feel” products before purchasing, the rise of e-commerce giants like Amazon and Flipkart has transformed the shopping landscape.
Today, online shopping now offers more than just eye-catching discounts; it provides flexible payment options like EMIs on credit cards, robust customer support, and easy return policies, often within seven days of purchase. These factors make purchasing big-ticket items online more attractive, contributing to the higher value of credit card transactions on e-commerce platforms compared to PoS.
However, the relatively lower average transaction value at PoS terminals compared to e-commerce platforms may also hint at consumers opting for alternative payment methods, such as UPI, for larger offline purchases. However, it’s quite unlikely, given the current trends of UPI favouring smaller, everyday transactions.
The convenience, security, and additional benefits of using credit cards – especially for larger purchases – remain strong incentives for their use, particularly in the digital domain.
Another surprising trend is the increasing use of credit cards for cash withdrawals at ATMs, contrasted with a notable decline in debit card withdrawals. This pattern has been consistent over the past few months. In July 2024, cash withdrawals at ATMs using credit cards rose an impressive 12.6% YoY in volume, reaching 0.85 million (8.54 lakh), and 21.4% YoY in value, amounting to ₹4.33 billion (₹433.31 crore).
In contrast, cash withdrawals at ATMs using debit cards fell 9.3% in volume and 7.1% YoY in value, totalling 504.01 million (50.40 crore) transactions worth ₹2.49 trillion (₹2.49 crore), respectively.
This trend, however, is quite concerning, given that credit card cash withdrawal comes with the highest interest rate. An increasing number of Indians opting to withdraw funds from credit cards is a sign of sinking deep into debt.
One must note that despite the double-digit growth in credit card ATM withdrawals, they still represent a very small fraction of total credit card transactions – less than 0.5% of both volume and value in July 2024. This minor share indicates that even though credit cards are slowly becoming more popular for cash withdrawals, they are still predominantly used for other transactions, such as those made at PoS terminals and online platforms.
On the other hand, ATM cash withdrawals constitute the largest portion of debit card transactions across all channels, accounting for 77.6% share of the total transaction volume and 84.8% share of the transaction value in July. This higher share indicates that most Indians still use their debit cards for cash withdrawals.
The Rise of Co-Branded Cards: A Game Changer
Another important factor that has pushed the adoption of credit cards in India is the introduction of co-branded credit cards by large fintech and e-commerce companies.
The credit card landscape in India has evolved significantly from a time when cards were exclusively issued by banks to a diverse ecosystem where companies across various sectors partnered with financial institutions to offer co-branded credit cards. These sectors include fintech, e-commerce, online travel, food delivery, grocery delivery, and telecom.
Companies like Paytm, PhonePe, Swiggy, Zomato, Airtel, Jio, and Myntra have joined forces with banks to introduce these co-branded cards, providing their customers with outstanding discounts, rewards, and offers tailored to their specific spending patterns. This strategy not only boosts customer retention by adding value to their everyday transactions but also fosters deeper customer engagement.
Therefore, the significant surge in credit card transactions in India can also be largely attributed to the increasing popularity of co-branded credit cards in recent years. Even though UPI will remain dominant in the digital payment landscape, credit cards are carving out their own space by catering to specific consumer needs and preferences.
