Payments through debit cards remained sluggish owing to a surge in digital transactions post the Covid-19 pandemic. Unified Payment Interface (UPI) has emerged as the popular mode to transfer money, particularly for small-value transactions.
According to Reserve Bank of India (RBI) data, total debit card spends stood at Rs 2.81 trillion in July 2020 as compared to Rs 3.15 trillion in July 2023, reflecting a growth of 11.96 per cent. During the same period, UPI spends have seen a strong growth of 428 per cent to Rs 15.33 trillion from Rs 2.90 trillion, three years ago.
“The increased usage of UPI for micro transactions due to convenience has caused a serious dent in debit card usage, with customer preference undergoing a shift from debit card to UPI,” said Sunil Rongala, senior vice president, head of Strategy, Innovation and Analytics at Worldline India.
In August, UPI transactions hit 10 billion for the first time in a month. Monthly UPI payments are clocking more than Rs 15 trillion.
Debit cards issued by banks in the last three years grew from 852.35 million in July 2020 to 970.74 million mainly because of the Pradhan Mantri Jan Dhan Yojana (PMJDY), which gave account holders a debit card during the opening of a Basic Savings Bank Deposit Account.
“A multi-fold increase seen in UPI transactions in the past decade is driven primarily by an increased user base due to higher penetration seen towards rural India. This was also supported by expanding account base in terms of linkage with savings accounts, Rupay credit cards and current accounts, no additional cost on transfers, hassle-free transactions and also by increased internet and smartphone penetration in India,” said Aniket Dani, director of Research at CRISIL Market Intelligence and Analytics.
With the increased importance given to digitisation by the government, the growth in UPI transactions is likely to continue with expectations of transactions rising up to 20 billion per month within the next one year. UPI transactions crossed 10 billion a month for the first time in August 2023.
“Over time, P2M (person-to-merchant) transactions will drive UPI transactions growth, and it will be no surprise if UPI transactions hit 20 billion a month in 18 to 24 months,” Rongala added.
Meanwhile, credit card usage continues to remain buoyant, with spending rising to a record high of Rs 1.45 trillion in July 2023 as compared to Rs 0.45 trillion in July 2020.
“In order to avail benefits in the form of rewards, cashback or discount, more Indians may have started putting their big-ticket and mid-sized spends such as travel, dining, groceries, shopping, etc., on their credit cards instead of paying in cash. The rise of co-branded credit cards may have also contributed towards driving the growth of credit cards,” noted Rohit Chhibar, head of Credit Cards at Paisabazaar.
Further, bankers have observed a significant change in the spending patterns among Indians after the Covid-19 pandemic.
Parag Rao, country head of Payment Business, Consumer Finance, Technology and Digital Banking and Marketing at HDFC Bank, recently talked about ‘revenge spending’ among Indians post-pandemic, which the bank is trying to capitalise on.
“To address the growing demand for credit cards, banks are also coming up with credit cards that help users save on everyday categories like groceries, shopping, utility bill payments, fuel, etc. They are also increasingly entering into tie-ups with established brands to offer benefits to loyal consumers, and we expect more such collaborations to drive credit card growth,” Chhibar added.
The growth in UPI spends is expected to expand further in the medium term with a large user base yet to join the platform. The main challenge in the trend is continuous reliance on cash, which still contributes to a significant portion of customer transactions.