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.

Challenges

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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