Reward points and freebies push credit card spends to record levels

Average monthly spending through credit cards has doubled in three years from Rs 60,000 crore a month in FY’19-20 to Rs 1.2 lakh crore a month in FY’22-23, the Reserve Bank of India data indicates. The value of transactions touched a record Rs 1.4 lakh crore in May this year.

Even as other alternate instruments such UPI, debit cards or platforms like NEFT RTGS are seeing strong transactions, the sharp surge in credit card spending is seen in the last one year.

Experts say that a number of spending categories which didn’t exist earlier have seen a massive surge. “ These include areas like travel and entertainment (domestic only), luxury spends, rentals and now you will see education as a category emerging,” said Mohit Bedi, Co-founder & Chief Business Officer, Kiwi, a platform that offers UPI-enabled virtual RuPay Credit Card in partnership with banks.

Moreover partnerships like Flipkart and Amazon are accounting for 2-2.5 lacs new customers every month for the last one and a half years, he added.

Besides the fact that a large number of new users in the 30-40 age group who rarely used credit cards are now using credit cards in a big way, what is attracting the consumers towards credit cards over other instruments is the number of reward points, discounts and other freebies. Even smaller players in the market are jumping to offer such freebies.

“ Credit cards offer more rewards and other freebies because credit card is a 2-in-1 product with a loan and a payments option and hence has a higher earning potential for the bank as compared to a singular payment products like debit card,” said Chitrabhanu K G, Senior Vice President & Country Head- Retail Asset & Cards, Federal Bank saidEarlier this week Federal Bank for instance tied up with Collinson, owner of a dedicated airport experiences programme for India, and LoungeKeyTM, an international digital travel experiences programme to offer its card holders access to premium airport lounges and travel experiences.

Another factor contributing to credit card surge is the emergence of fintechs in this space. “On issuing side, players like OneCard, PaisaBazaar have fueled new customer acquisition with metal cards and secured cards, in partnership with banks,” Bhalla said.

They alone now contribute to 10-15% new sourcing. “On the acquiring side, it is actually fintechs that have been the leaders. For example, on PoS side, PineLabs, BharatPe, Paytm and now PhonePe PoS will reach out to more and more merchants. On the online side, PayU, Razorpay, BillDesk have enabled the whole startup ecosystem to gain acceptance. In fact, online spends are now 60% plus of all card spends” he added.

But what is worrying a section of players is that there could be some enacashing that could be happening surreptitiously as credit cards offer interest free credits. “ A lot of online players allow rent payments through their platforms. It is sometimes difficult to assess the use of funds due to the lack of identity of the counter-party. Hence as a matter of prudence, banks are keeping a check on the amounts transacted for rents and also charging the customers for rental transactions ” said Chitrabhanu.