India is traditionally a cash-based economy. However, as a result of government initiatives, banks’ efforts and growing consumer confidence in digital payments, the total number of card payments (debit, credit and charge cards) increased by almost four times from 2 billion in 2015 to 7.8 billion in 2019, according to GlobalData, a leading data and analytics company.
GlobalData’s report, ‘India Cards & Payments: Opportunities and Risks to 2023’, reveals that the introduction of the Pradhan Mantri Jan Dhan Yojana (PMJDY) program to offer low-cost banking services, the appointment of banking correspondents, the launch of payment banks to offer banking services and the reduction of merchant fees facilitated the growth of the card payments over the last four years.
Ravi Sharma, Senior Payments Analyst at GlobalData, comments: “Credit cards are the most preferred card type for payments in India mainly due to the associated pricing benefits such as reward programs and discounts. Although debit cards are mainly preferred for cash withdrawals at ATMs, they are now increasingly used for payments as well, supported by growing banked population and rising merchant acceptance.”
Despite lower penetration, consumers are increasingly using credit cards for payments in India, primarily due to value-added services such as reward points and discounts offered by banks. Installment payment facilities and loans on credit cards are also supporting growth.
The value of credit card payments is expected to increase from INR7.7 trillion (US$110.6bn) in 2019 to INR16.6 trillion (US$237.9bn) in 2023. Debit cards are also increasingly being used for payments with their value set to rise from INR7.3 trillion (US$105.1bn) in 2019 to INR16 trillion (US$229.3bn) in 2023.
The government is taking steps to encourage the acceptance and usage of debit card payments. Effective from 1 January 2018, the merchant discount rate was capped at 0.4% for debit card transactions below INR2,000 (US$28.7) for merchants with annual turnover of less than INR2m (US$28,733.6). For merchants with a higher annual turnover, the rate is capped at 0.9%.
Sharma concludes: “The government’s financial inclusion efforts, growing consumer awareness, and improved payment infrastructure will continue to push debit card use in the country.”