UPI is king but 75% of online transactions are still through credit cards

Credit cards also appeat to be most dominant in West and South India as 75-80% of credit cards are issued in Western and Southern India.

Two-thirds of the spends through credit cards is for online transactions, while for debit cards it is one-third, according to a recent report by Kotak Institutional Equities. At least 75 per cent of online transactions are through credit cards, while it is 50 per cent in offline transactions. 

75% of online transactions are through credit cards while it is 50% in offline transactions: Break-up of debit cards transactions value (online: offline), November 2019-September 23 (%)

"The RBI data broadly suggests that the impact of UPI appears to be a lot stronger in hurting the growth of debit card transactions over credit cards at this point. Our conversations with credit card issuers are also suggesting that credit cards on the UPI platform are gaining traction," said M B Mahesh, CFA at Kotak Institutional Equities. 

 

Credit cards also appear to be most dominant in West and South India as 75-80% of credit cards are issued in Western and Southern India.

Proportion across geographies on cards, March fiscal year-ends, 2QFY19-2QFY24 (%)

Meanwhile, the outstanding share of credit cards issued by banks (excluding SBI Cards) has been relatively modest at 18 per cent on year. "We are seeing some early impact of the recent guidelines from the RBI, which forces card issuers to close inactive cards (no transactions in the year and also new customers who have not activated their cards)," said Ashlesh Sonje, CFA at Kotak. 

However, while this growth has been modest, the overall spends and receivables and limit growth remain quite healthy at 20-25% CAGR. 

"We see card issuers getting a lot more comfortable in issuing higher limit cards for their consumers. This could be a reflection of better avenues to spend or greater comfort to use cards over other forms of payments," added Sonje.

About 20 per cent of the cards issued in the lowest ticket size (<Rs25,000) contribute to 3 per cent of the total receivables for the sector.  At least 60 per cent of the overall credit cards have limits between Rs0.025 mn and Rs0.2 mn ( Rs 25,000- Rs 2 lakh.)

"Post Covid, we saw the fastest recovery in the higher ticket sizes and the slowest growth in lower-ticket-size loans. However, we saw a catch-up in the lower-ticket-size credit cards in FY2022. There appears to be a slowdown in overall growth from the peak levels today in nearly all the ticket sizes. While we acknowledge that 35-40% growth is perhaps unsustainable, we are a bit surprised that the smaller ticket size credit cards have already started to show signs of decelerating trends as well," said Mahesh. 

The fastest growth is in the Rs 2-5 lakh credit card limits (30 per cent of receivables.

As per the Global Travel Intentions Study 2023 by Visa, a leader in digital payments, offerings like travel miles, cashback, rewards, high acceptance, foreign exchange rates, and high limits on spending remain the key factors that drive international credit card usage. The survey revealed that 99% of Indian travellers prefer to use cards (including credit, debit and prepaid) during their international travels.

"It's clear that cards are persistently simplifying cross-border transactions, emerging as the favored choice for consumers seeking to amplify their overall travel experience, particularly for those journeying outbound from India. Consumers are increasingly wanting to substitute cumbersome procedures with secure, safe travel experiences. The security offered by a trusted brand’s card, and the convenience of the widest global acceptance remain paramount, effectively removing complexities associated with exchanging and carrying the foreign currency", said Sridhar Keppurengan, Business Head of Cross Border Payments, India & South Asia, Visa.

In October 2023, credit card spending touched a record Rs 1.78 trillion in October aided by strong festive season purchases on e-commerce platforms. Total spending via credit cards jumped 38.3 per cent year-on-year in October and 25.4% month-on-month. 

"The RBI data suggests that the card spends at shops and on e-commerce sites for this October surged by approximately 17% compared to October 2022. Electronic products like mobile phones, TVs, fridges and washing machines saw a surge in demand during the festive season and trends suggest that online order sales also went up during the festive season. The rise of online shopping has made it even more convenient for consumers to purchase big-ticket items during the festive season. Many online retailers offer tie-ups with banks and financial institutions, making it easy for consumers to apply for loans at the checkout stage," said Adhil Shetty, CEO of Bankbazaar. 

To encourage consumer spending during the festive season, banks and other financial institutions provide a wide range of alluring loan options with low-interest rates, flexible repayment options, and enticing cashback or reward schemes. This makes credit more affordable and appealing to customers and they purchase expensive items through EMIs. 

During Amazon's recent Great Indian Festival sale,3 in 4 Prime members opted for Amazon Pay ICICI Bank co-branded credit card to avail of exciting cashback offers; usage for Amazon Pay ICICI Bank co-branded credit card grew 25% when compared with 2022. '

Promotions and offers by banks on EMI purchases on cards are another driver for growing card usage in India. In the first 48 hours of Amazon's Great Indian Festival sale, EMI payments emerged as the top choice, with one in four shopping orders placed in instalments. 

"No-cost EMIs" and flexible loan tenure have contributed significantly to the rise of consumer loans in India. These options have made credit more affordable and accessible to a wider range of consumers, especially those with lower incomes or limited credit histories. These options give consumers more flexibility to choose a repayment plan that fits their budget," said Shetty.  

Given this trend of rising personal loans, it is not surprising that India's central bank has tightened norms for personal loans and credit cards.

The Reserve Bank of India has increased the risk weights for banks and non-bank financial companies (NBFCs), or the capital that banks need to set aside for every loan, by 25 percentage points to 125% on retail loans. This implies that loans will get costlier and likely curb growth in these categories.