In a notable revelation, the Reserve Bank of India’s (RBI) recent data has illuminated a significant transformation in India’s payment dynamics, with Unified Payment Interface (UPI) transactions witnessing a robust 46% year-on-year surge in November.
Contrastingly, debit card transactions faced a disconcerting decline of 6.6% YoY in October, painting a vivid picture of the changing preferences in the Indian payment ecosystem.
In terms of value, the contrast is stark – UPI transactions soared to Rs 17 lakh in November, overshadowing debit card transactions, which settled at just one-third of that figure during the same period.
The Rise of UPI: A Paradigm Shift
The ascendancy of UPI transactions has not merely been a statistical blip but a transformative force reshaping the payment landscape. Increasingly, individuals are turning to the convenience of their smartphones over traditional debit card swipes. This shift is propelled by factors such as heightened security concerns, evolving consumer preferences, and the disruptive influence of fintech innovations that have revolutionized the payment ecosystem.
The allure of UPI, particularly for microtransactions, has played a pivotal role in diminishing the relevance of debit cards. The seamless and secure nature of UPI transactions has resonated strongly with users, fostering a surge in its adoption, especially in semi-urban and rural areas.
A report from PayNearby, a leading branchless banking and digital network platform, underscores UPI’s expanding footprint beyond tier-II regions. Transactions in retail stores have witnessed a remarkable uptick, growing by 118% in volume and 106% in value. This surge underscores the increased technological integration among small merchants, facilitated by the acceptance of mobile point-of-sale (mPOS) systems.
Credit Cards on the Rise: A Dual Narrative
While banks initially issued a substantial number of debit cards following the Pradhan Mantri Jan Dhan Yojana (PMJDY), which aimed to provide account holders with a debit card, the growth trajectory has plateaued. In contrast, credit card usage has experienced an upward trajectory, driven possibly by enticing rewards, cashback offers, and discounts.
Credit cards also offer users a grace period for payment or the flexibility to opt for instalment plans, making them a preferred choice for substantial transactions. The persistent decline in debit card usage, coupled with the growing popularity of credit cards and UPI, signals a noteworthy shift in the payment landscape.
Future Projections: What Lies Ahead?
Industry experts anticipate that this trend will persist into the upcoming year. The convenience, security, and incentives offered by UPI and credit cards continue to lure users away from traditional debit card usage.
Moreover, rapid advancements in fintech and the increasing penetration of digital payment solutions in rural and semi-urban areas are poised to expedite the decline of debit card transactions. Unless there is a substantial overhaul in offerings or a marked shift in consumer preferences, the downward trend in debit card usage appears likely to extend into 2024.
