After pandemic, payments through credit cards outstrip debit card use

Data on payments for the month of December over the years provide another indicator of this shift. Payments through credit cards surged from Rs 65,736 crore in December 2019 to Rs 1,26,524 crore in December 2022 — a rise of over 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, a decline of 30 per cent, showed the latest RBI data. The figure was 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 outstanding amount on credit cards rose by 22 per cent, or Rs 32,301 crore, to Rs 1,80,090 crore.

On a year-on-year basis, the outstanding increased by Rs 38,339 crore, a jump of 27 per cent over December 2021, when it stood at Rs 1,41,751 crore, according to the RBI data. Credit card outstanding was Rs 1,10,350 crore in December 2020 and Rs 105,905 crore in 2019.

Another metric that indicates 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. The number of debit cards, meanwhile, remained stagnant at 93.94 crore in December 2022 as against 93.77 crore in December 2021. It was 88.64 crore in 2020 and 80.53 crore in 2019.

Experts feel the use of credit cards after Covid-19 has jumped owing to increased spending habits. Customers, however, continue to prefer debit cards for ATM withdrawals. Debit card withdrawals stood at Rs 2,78,923 crore in December 2022. Credit card ATM withdrawals were just at Rs 392 crore.

“The surplus which households are maintaining with banks in the savings banks and current account has been falling 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 spending. This is a clear trend we are seeing,” said the senior official of a private sector bank who didn’t wish to be identified.

Bankers also attribute the surge in credit card usage to the longer repayment facility that customers get on their outstanding amount. “Customers spending through credit cards are getting a credit period ranging from 30 to 40 days and that too without paying any interest. So, they are availing the facility,” said a senior public sector bank official, requesting anonymity.

During the pandemic, banks began issuing credit cards to customers with far lower risk profiles and better paying capacities. They also reduced the credit limit of some of the customers during this time.

“Now, what we are seeing is a fairly normalised scenario with respect to credit cards,” the private sector bank official said. The rise in the number of credit cards issued and outstanding is also because banks are entering into newer segments of customers, he said.

Further, payments through the UPI system (unified payment interface), including wallets, have been rising as customers are now increasingly using mobile apps to pay for merchant transactions.

The rise in credit card usage comes despite a high interest rate, which works out to over 42 per cent per annum in some cases if the customer doesn’t repay within the 30-40 day credit-free period.

And usage is likely to go up even more. A major factor is the RBI decision to allow linking of credit cards to UPI (Unified Payment Interface) last year. While 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 through debit cards.

On the BHIM app, customers can link their RuPay Credit Card to UPI. Other apps are enhancing their tech platforms to enable linking of credit cards. “UPI on credit cards is likely to be a game changer as we will see an increase in the number of transactions on UPI with the payment instrument being credit cards. Initially, it will be allowed for RuPay credit cards only and going forward we expect that other scheme credit cards may also have this UPI linkage,” said Mihir Gandhi, Partner & Leader, Payment Transformation, PwC India.