Young Indians' purchases pay off for card companies

Credit card transactions surged 30% year-on-year in January despite regulatory restrictions on some business payments through this mode as reward points offered by banks were lucrative, as were the repayment terms, said experts.

Reserve Bank of India (RBI) data showed that credit card transactions increased to ₹1.7 lakh crore in January from ₹1.3 lakh crore a year ago. In volume terms, the increase was 26%, to 330 million from 260 million, during this period.

Ecommerce transactions and bill payments formed more than half the total transactions, the data showed. Experts said the bulk of the online purchases were by the younger generation who also enjoyed the additional credit benefit of equated monthly instalments (EMIs) and ‘buy now, pay later’ (BNPL) schemes.

Young Indians' online purchases pay off for credit card companies

Significantly, card spends as well as transactions increased despite the RBI prescribing higher risk weights on unsecured loans, including credit card outstanding.

“This is typical of any country which is moving from a savings economy to a credit or a consumption economy,” said V Balasubramanian, CEO of Financial Software and Systems, a payments technology provider. “The younger generation owns a bigger pie of the credit card ownership as well as spends. They are active buyers on ecommerce platforms.”

Ecommerce platforms saw a 37% year-on-year jump in transactions in January and accounted for 65% of card spends during the month compared to transactions on point-of-sale machines, which had a less than 30% share.

“Most of the payments transactions on the Amazons of the world are through credit cards. Now we have BNPL, which is catching up. Also, there are EMI schemes which are popular among card users. All this is allowing card users to buy more and repay through instalments,” said Balasubramanian.

Banks are comfortable as the payments infrastructure is conducive. “Thanks to the improved digital ecosystem, banks are able to improve the overall sourcing of business,” said Chitrabhanu KG, country head, retail assets and cards, at Federal Bank.

“The merchant ecosystem is now quite evolved and is ready to migrate from cash to card-based payments which may be helping the growth in spends. Also, credit on UPI is adding to more merchants getting onboarded in the credit card ecosystem.”

Roy Walsh

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