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Credit Card Usage

Context: The Reserve Bank of India (RBI) has recently issued a circular to all banks and card issuers, asking them to enable customers....Credit Card Usage

Context: The Reserve Bank of India (RBI) has recently issued a circular to all banks and card issuers, asking them to enable customers to choose among different card networks such as Visa, Mastercard, RuPay, etc. when they apply for a credit or debit card. This move is aimed at enhancing customer convenience and promoting competition among card networks.

Key Highlights:
  • UPI has become the most inclusive mode of payment in India with over 26 crore unique users and five crore merchants on the platform.
  • In May, UPI processed 5.95 billion transactions worth over Rs 10 trillion, a record high since its launch in 2016.
  • NPCI is looking to soon process a billion transactions a day.
  • Currently, Punjab National Bank (PNB), IDBI Bank (IDBI), Union Bank, State Bank of India (SBI), Bank of Baroda, Federal Bank and Saraswat Co-operative Bank provide the RuPay credit card.
What is Unified Payments Interface (UPI)?
  • Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.
  • It is an instant payment system developed by the National Payments Corporation of India (NPCI).
  • UPI is built over the IMPS infrastructure and allows the transfer of money between any two parties’ bank accounts.
  • At present, making UPI payments via a debit card or saving account is free.
  • The volume of digital payments in India has increased by 33% year-on-year (YoY) during the financial year (FY) 2021-2022. NPCI’s unified payment interface (UPI) was the most used platform for digital transactions during the period, accounting for 452.75 crore transactions with a value of ₹8.27 lakh crore, until the end of February.
Credit Card market in India
  • The credit card market in India is booming, RBI data shows. The outstanding amount on credit cards has reached Rs 2 lakh crore, a 29.7% increase from a year ago. As of April 2023, there are 8.65 crore credit cards in circulation.
  • Credit card payments have crossed Rs one lakh crore per month, with April 2023 recording Rs 1.32 lakh crore in transactions.
  • This reflects the rising consumer spending power in India, as credit cards enable people to buy what they need and want.
Significance of this proposal
  • It will help in deepening the usage of credit cards.
  • It is anticipate that credit card usage will be zooming up in India given UPI’s widespread adoption.
  • The move will provide a significant boost to overall spending via credit cards
  • currently, spending through the use of credit cards is more than double the average spending via debit cards. More spending is generally a force multiplier for the economy.
  • It will help in bolstering transactions and acceptance at more merchant sites.
  • Besides accelerating digital transactions this measure is also expect to affect the average ticket size of financial transactions.
  • It may require card issuers to invest in infrastructure and technology to support multiple card networks and ensure interoperability and security.
  • It may create confusion among customers who may not be aware of the differences and benefits of various card networks.
  • It may affect the market share and profitability of some card networks, especially those that have a dominant position in certain segments.

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