After pandemic, payments through credit cards outstrip debit card use

Consumers are now choosing credit cards over debit cards, marking a major shift in card usage after the pandemic hit the country.

Reserve Bank of India (RBI) data shows that credit card payments jumped from Rs 6,30,414 crore in fiscal year (FY) 2020-21 to Rs 10,49,065 crore in the first nine months of FY23. In the same period, debit card payments fell from Rs 6,61,385 crore to Rs 5,61,450 crore.

December year-over-year payout data provides another indicator of this shift. Payments by credit card jumped from Rs 65,736 crore in December 2019 to Rs 1,26,524 crore in December 2022 — an increase of more than 92 per cent. It was Rs 63,487 crore in December 2020 and Rs 93,907 crore in December 2021.

Debit card payments, on the other hand, fell from Rs 83,953 crore in December 2019 to Rs 58,625 crore in December 2022, down 30 per cent, according to the latest RBI data. The figure is Rs 65,178 crore in December 2020 and Rs 66,491 crore in December 2021.

In the first nine months of this fiscal year (April to December 2022), the total amount owed on credit cards increased by 22 per cent, or Rs 32,301 crore, to Rs 1,80,090 crore.

On a year-on-year basis, the amount in circulation increased by Rs 38,339 crore, a jump of 27 per cent from December 2021, when it reached Rs 1,41,751 crore, according to RBI data. Outstanding credit cards were Rs 1,10,350 crore in December 2020 and Rs 105,905 crore in 2019.

Another metric that demonstrates this shift is the number of cards issued. According to the RBI, the number of credit cards in the system rose to 8.12 crore in December 2022 from 6.89 crore in December 2021, 6.04 crore in 2020 and 5.53 crore in 2019. Meanwhile, the number of debit cards remained stagnant in 93.94 crores. in December 2022 as compared to 93.77 crore in December 2021. It becomes 88.64 crore in 2020 and 80.53 crore in 2019.

Experts feel post-Covid-19 credit card usage spiked due to increased spending habits. However, customers still prefer debit cards for ATM withdrawals. Debit card withdrawals reached Rs 2,78,923 crore in December 2022. Credit card ATM withdrawals reached Rs 392 crore only.

“The surplus that households maintain with banks in savings and current accounts has fallen after Covid-19. When I have a lower balance in my account, I don’t use my debit card, I swipe my credit card for all my expenses. This is a trend we are clearly seeing,” said a senior official at a private sector bank who wished to remain anonymous.

Bankers also attribute the surge in credit card usage to the longer repayment facilities that customers get for their outstanding balances. “Customers who shop via credit card get credit terms ranging from 30 to 40 days and even then without paying any interest. So, they took advantage of the facility,” said a senior public sector bank official who requested anonymity.

During the pandemic, banks started issuing credit cards to customers with a much lower risk profile and better ability to pay. They also reduced some customers’ credit limits during this time.

“Right now, what we’re seeing is a pretty normal scenario with respect to credit cards,” the private sector bank official said. The increase in the number of credit cards issued and in circulation was also due to banks entering a new customer segment, he said.

Furthermore, payments through UPI (unified payment interface) systems, including wallets, have increased as customers increasingly use mobile applications to pay for merchant transactions.

The increase in credit card use has occurred despite high interest rates, reaching more than 42 percent annually in some cases if customers do not pay within the 30-40 day credit-free period.

And usage tends to go up even more. A major factor was RBI’s decision to allow credit card linking to the UPI (Unified Payment Interface) last year. Although RBI initially allowed Rupay credit cards to be linked to UPI, this facility will likely be extended to other card networks.

UPI currently facilitates transactions by linking savings and current accounts via debit cards.

In the BHIM app, customers can link their RuPay Credit Card to UPI. Other apps are upgrading their technology platforms to allow credit card linking. “UPI on credit cards will most likely be a game changer because we will see an increase in the number of transactions at UPI with a credit card as a means of payment. Initially, this will only be allowed for RuPay credit cards and going forward we hope other scheme credit cards can also have this UPI link,” said Mihir Gandhi, Partner & Leader, Payment Transformation, PwC India.

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