Credit Cards : Is it the Right Time?

Payment Industry in India is seeing a massive change. Not many years ago, it would have been a joke if people said that they were using smartphones for money transaction. Now, new forms of banks are being created. And new types of licenses are being given to new players in the market. There are mobile wallets, social media wallets as well as dozens of mobile banking apps. It’s not as if the companies are not able to predict a significant shift in transactional behaviour; the shift is imminent and hence there are scores of companies trying to take a part of the pie which such ecosystem change is about to provide.

But on such a shifting territory and the world of mobile banking, what roles will Credit Cards play? We have seen how Credit Card integration with PayTM became the reason why Uber could survive in India. We have seen many companies coming up with special credit cards for their employees. And we have seen spending capacity of individuals increasing on an average in India. This article tries to dissect the future of credit cards in India and provides some well-researched numbers which will be useful for both startup enthusiasts and active members of this ecosystem change, alike.

Some Facts and Figures

Let us have a look at deeper analysis of the breakdown of Credit Cards and Debit Cards penetration among Indians-

 

Credit Card

Debit Card

No. Of Outstanding Cards

22 million

643 million

Growth in No. of Cards (in FY15)

11.2%

28%

Number of POS Transactions (in FY15)

739 million

1064 million

Growth in No. of POS Transactions (in FY15)

26%

42%

POS Transaction Amount (in FY15)

INR 2.3 trillion

INR 1.5 trillion

Growth in POS Transaction Amount (in FY15) 25.5%

28.4%

Credit cards usage over time has increased from 1.8 in 2012 to 2.8 cashless transactions per month in 2015 while at least 86% of debit cards are not used at all for transacting online or offline. The amount spent per month on a credit card has gone up from Rs 5120 in 2012 to Rs 8650 in 2015 while the same for the debit card has declined from Rs 4952 to Rs 3482. The increase in the number of transactions, as well as the amount spent monthly through credit cards, is an indication of the growing confidence and acceptance of these cards as a reliable source of payments. Moreover, the declining average amount per transaction via credit cards from INR 6000 to INR 5000 clearly indicates adoption of credit cards among middle-class people as they spend fewer amounts per transaction. 

Credit vs Debit Monthly Transactions Credit vs Debit Annual Transaction

(Source: Reserve Bank of India)

The Growing Credit Card Culture

India clearly seems to have an indicative growth in numbers of credit card holders and transaction done by credit card compared to the last 5 years. So what has brought this significant change in the behavior of transaction among Indian consumers? Seeing the increase in spending capacity in India, companies are coming up with special credit cards for their employees. Benefits which a higher Credit Score brings with itself like increasing probability of Loan approval, also the discipline brought about by the Credit Bureau, coupled with the high demand from consumers due to the e-commerce and demand for consumer durables, has ensured that the credit card market will boom especially as the cost of issuing a card drops significantly with the introduction of online applications.Reward points are also an incentive for customers to use their cards as much as they can. Also, the middle class which strives to live much fuller lives on EMI are the perfect customers for credit cards.

What is your take on the future of credit cards in India? With the downturn in the tendency of an Indian consumer to pay via cash, will the plastic money take over the payments scenario or will the payments banks along with their m-wallets be the next big thing? Or do you think the aspect of Credit Cards controlling Indian consumer behavior is a long-shot, considering the cultural mindset of us Indians? Should we have a look at the West and do some interesting comparison to conclude where India will be in the near future? Do let me know what you think in the comments.

Infographics by: Fatima Bohra