On August 24, the Reserve Bank of India lifted the 15-month restriction placed on American Express to acquire new domestic customers. The central bank had imposed restrictions on American Express and Diners Club for non-compliance with its April 2018 circular on the storage of payment system data. It lifted the ban on Diners Club in November 2021.
While American Express was banned from issuing new credit cards, the credit card market witnessed a significant upsurge during this period. A Business Standard analysis found that 76.9 million credit cards were operational till May — a 23 per cent increase compared to last year.
“There are four reasons for this push towards cards. One, the digital payment infrastructure has been increasingly improving. Two, Covid has brought about a behavioural change. The number of devices has also increased. There is a direct correlation between the number of devices and credit cards in the country. Finally, the number of regulatory controls have eased, and fraud management has improved, leading to a quicker uptake and more usage,” said Ashvin Parekh, founder and MD, Ashvin Parekh Advisory Services.
Moreover, credit card outstanding in the country had increased 30.7 per cent in June to Rs 1.53 trillion from Rs 1.17 trillion in June 2021, outstripping the pre-pandemic growth of 27 per cent in June 2019.
The increase in credit card usage is evident from the volume of credit card transactions for e-commerce and bill payments. Data from RBI shows that as debit card transactions for e-commerce and bill payments have declined consistently, credit card transactions have risen. In May, credit card volumes for e-commerce and bill payments jumped 38 per cent, whereas debit card volumes fell 18 per cent. Until last year, credit card volumes were half of the debit cards; in May, they were nearly equivalent.
E-commerce and bill payments accounted for Rs 71,248 crore worth of transactions in May. In terms of value, credit card payments for e-commerce and bill payments were 3.3 times of debit card transactions. They were at parity two years ago.
“Credit card uptake is singularly influenced by Covid. Increase in disposable incomes of the salaried segment has certainly contributed to the rise. Besides, the number of youth using digital transactions has also had an effect. The younger generation is more credit savvy as well,” said Himanish Chaudhuri, partner, Deloitte India.
Offers on credit cards, interest-free EMIs, and better deals have also helped. The country’s two most prominent e-commerce players have partnered with banks for co-branded cards, which offer additional discounts and cashback.
Since June 2014, credit card outstanding has risen 5.7 times. The notable fact, however, is that even though the share of credit card outstanding in the personal loans category has nearly doubled, it remains minuscule at 4.3 per cent.
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