This post has been authored by Feby Thomas, the Research Assistant at Arthashastra Intelligence.

Credit cards have overtaken debit cards to be the new favorite mode of transaction for Indian consumers. The two metrics that can measure this credit card performance are the “Value of Transactions” and the “Volume”. The Value of Transactions is the total value in Rupees whereas “Volume” refers to the total number of transactions.

According to the Reserve Bank of India (RBI), the value of retail transactions on credit cards has increased at a CAGR of 25.20% in the last 2.5 years. From April 2021 to April 2022, this value has increased by a whopping 78.60%. However, for the same period, the value of debit card transactions has witnessed a growth of merely 15.80%. Additionally, the spread or difference between the value of credit and debit card transactions is noteworthy. In November 2019, the value of credit card transactions was merely 3.30% higher than debit cards. By April 2022, this has increased to 62.1%. That is a whopping 1,882% rise in the spread between credit and debit card transactions’ value.

The RBI data on the volume of credit and debit card transactions also tells a similar yet depressing story of debit cards. The volume of transactions of credit cards has increased by 26.51% from April 2021 to 2022. However, for the same period, the value of transactions on debit cards has decreased by 20.78%. Unlike the value of transactions, the volume of debit card transactions is 32.68% higher than that of credit cards. At the current pace of credit card volume growth, an overtake by credit cards is highly likely.

There are multiple reasons for this growth in credit cards in India. The primary reason for this increase was the issuance of the credit cards itself. According to the RBI, for the period January to April the issuance of credit cards has increased by 10%, 23%, and 34% in 2019-20, 2020-21, and 2021-22. The upward trend in credit card issuance is well transitioned into the increasing expenditure on credit cards.

Additionally, the rise in eCommerce shopping in 2021 also lead to an increase in credit card expenditure. According to the CRED insights report for 2021, the credit card expenditure of Indians on eCommerce soared drastically fuelled by festive season sales. The festive season sales through CRED alone reached a peak of Rs. 7,535 Crores in October 2021. The prime periods of this eCommerce trend were clustered around January to April and August to October in 2021.

The rise of fintech and the growing access to credit have been a major push in the growth of credit cards. According to an Invest India report, the market size in India for fintech companies was estimated to increase from $31 Billion in 2021 to $ 150 Billion by 2025. The rise of apps such as CRED is a major push for the Indian credit card market. According to a CRED report in 2021, Indians spend roughly Rs. 52,000 crores on shopping via the CRED app. A PWC report in August 2021, mentions the disruption by fintech, better mobile apps, contactless payments, and better credit risk models as the key factors contributing to the credit card growth in India.

Further, the COVID-19 crisis and the lockdown that followed also affected the spending habits of Indians. According to CRED Insights Report in 2021, the expenditure habits of Indians have changed with a surge in education and rent payments via credit cards from June to October 2021. In addition to this, the easing of lockdown restrictions led to an increase in spending on food and beverages in the latter half of 2021.

Other factors led to the rise in credit cards such as the lifting of an embargo on HDFC bank and economic recovery post-COVID-19 waves. The Wire suggests that this rise in credit card expenditure and financial deregulation resembles the financial capitalism of the United States in the 1980s. Unless the income in India is increased, this rise in financial capitalism might lead to a rise in household debt and a decline in savings and productivity similar to the United States. The latest announcement by the RBI allowing Rupay credit cards to be linked with the Unified Payments Interface (UPI) could also be a catalyst for this situation.

References

· How Sustainable is India\’s Rise in Credit Card Spending?: The Wire

· Cred users paid Rs 52,000 crore with credit cards for shopping in 2021: Economic Times

· The changing landscape of India’s credit industry: PWC

· India – A global FinTech Superpower: Invest India

· RBI Statistics

· RBI Consumer Confidence Survey