What’s Driving India’s Increase in Credit Card Use? – 10 crore cards expected by the end of 2023

India now has a credit card penetration rate of roughly 5.5%, or 77 million people, of its 1.4 billion populations. Despite the low penetration rate, there is already a market included that is greater than either Malaysia’s or Thailand’s entire population. India’s population of prospective credit card customers will continue to expand as its economy develops.


Over 8.6 crore credit cards were still in use as of April 2023, according to data from the Reserve Bank of India (RBI). This is an increase of roughly 15% from the 7.5 crore active credit cards in April 2022. By the start of the new year, according to industry experts, this amount might reach the 10-crore threshold.


The quick increase in credit card use in India is due to several causes. First, the ecosystem as a whole is expanding. To make using credit cards easier, there are more and more partnerships between banks, cards, and fintech companies.


Indians who are confident in their credit are using their cards liberally to make large purchases since reward points, cashback, free equated monthly installments (EMIs), and premium lifestyle perks encourage them to do so. The average transaction has been steadily increasing, which reflects this.


For a little annual charge of 299–500 rupees, credit card firms and banks sometimes subsidize Indians’ use of cards by offering significant cashback possibilities and other incentives. For instance, the HDFC Bharat Credit Card offers cashback on petrol, groceries, train tickets, cellphone recharge bills, and more, while the Kotak Delight Platinum Credit Card offers cashback on restaurants and movies. The HDFC Bank MoneyBack Credit Card offers a 500-rupee incentive that can be redeemed for cash.


Second, after the outbreak of Covid – 19 Pandemic, India is recovering quickly. In the first quarter, economic growth rose to 6.1%, ranking among the best of any major country. Despite Reuters’ recent claim that private consumption in India is “sluggish,” State Bank of India data suggests otherwise.


The industry average in April 2023, as reported by the RBI, was Rs 5,120 per transaction. The typical monthly expenditure per card in the market was Rs 15,388. The industry average card expenditure in April 2022 was Rs 14,070, while the average transaction cost was Rs 4,731. Similar to this, the total amount of credit card debt outstanding increased dramatically by 30 percent from Rs 1.54 lakh crore to Rs 2 lakh crore as compared to April 2022.


With 1.78 crore active cards, HDFC Bank leads SBI, ICICI Bank, and Axis Bank, which have 1.68 crore, 1.45 crore, and 1.22 crore active cards, respectively. Together, these four banks own a 71 percent market share in the credit card industry.


The purchase of Citi Bank’s retail assets by Axis Bank is one of the most significant changes to the credit card business. As a result, Citi’s credit cards have been transferred to Axis, which has seen a sharp increase in the number of outstanding cards of over 30 lacks. The Kotak Mahindra Bank has also advanced significantly.


According to Bankbazaar’s India credit card report from June 2023, smaller private banks like South Indian Bank, which recently entered the credit card market and is rapidly growing its retail assets, are the greatest risers. Bank of Baroda has had 63 percent growth among government banks, whereas Bank of India, Bank of Maharashtra, and Canara Bank all experienced declines.


Ways to use your credit card smartly


Do not make minimal payments – Pay off all of your card debt. Interest is charged on overdue amounts, typically at a rate of 40% annually.


Don’t be late – Your credit score might be reduced by 100 points with only one late credit card payment.


Keep your usage to a minimum – Maintain a 30 percent spending cap. When you’re certain that you’ll get paid in whole and on time, review it.


Understand the terms and conditions – Understand the costs, fines, and card terms and conditions. Never be caught off guard.


Protect your information – Safeguard passwords and sensitive credit card information like the card number, expiration date, and CVV.


Protect your card – Maintain its physical safety. Never go unattended with it. Inform the issuer as soon as possible if your card is misplaced.


Beware of Phishing – Check your credit card statements frequently for any unauthorized purchases.


Future credit card usage in India will be significantly influenced by the increasing integration of cards with the essential United Payments Interface payment rail. Due to UPI’s domination of the Indian payments scene, cards are almost certain to enter the Indian market considerably more deeply if they manage to establish a solid presence there. According to the National Payments Corporation of India, which runs the payments rail, UPI transactions reached a new monthly record in May of 9.41 billion, an increase of 58% year over year. In India, UPI is used by 50 million merchants and 300 million consumers.


While the use of credit cards is projected to continue increasing gradually in India, one problem that must be resolved before credit card use becomes common on UPI is the magnitude of the merchant discount rate, and the total amount of fees associated with some digital transactions. For instance, UPI payments do not have an MDR, whereas debit card transactions have a 0.9% MDR cap. For credit cards, there is, however, no MDR cap.


Additionally, Buy Now, Pay Later, sometimes referred to as BNPL, has been India’s biggest credit story in recent years. The BNPL boom in the subcontinent has been fueled by a huge demand for credit, but tougher regulation and slower development are now expected.


(Source – Money Control, Forbs, Business Standard)

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