Indians have likely reverted to their old habit of paying by cash for small purchases with currency circulation improving to near pre-demonetisation levels, indicates an analysis of credit and debit card usage in the previous financial year.
Debit card payments raced past credit card usage in the months immediately after demonetisation in November 2016 that sucked out about 85% of the cash in circulation. With debit cards accounting for about 96% of all payments cards in use in the country, the government’s digitisation agenda got a helpful thrust.
But that didn’t last long. Credit card transactions inched past debit card payments in August last year as cash began returning to the system, and have stayed ahead since. In March this year, the value of credit card transactions peaked to a 15-month high of Rs 44,308 crore, as against Rs 41,857 crore for debit card payments, as per the latest data released by the Reserve Bank of India.
“Initiatives that should have been taken post demonetisation have not taken place, hence the reversal,” said Naveen Surya, chairman of the Payments Council of India, the industry body representing digital payments companies.
“When there was a supply issue with cash, people started using debit cards for regular transactions, and now they could be shifting back.”
Many people prefer using credit cards over debit cards, which are considered to be high-risk instruments because of their direct exposure to bank accounts, said industry experts. But given that only 37 million credit cards are in use in India — as against 861 million debit cards — their usage does not translate to mass adoption of digital payments.
Manish Patel, founder of Mswipe, which deploys mobile point of sales (PoS) terminals for small merchants, pointed out that credit cards, while adding up to only 4% of the total cards in use in India, account for 51% of the total value of payments. “Cash is a consumer behaviour and that cannot be changed easily,” Patel said. “Merchants pay no charge (to banks) if a transaction is less than Rs 2,000, but looking at this trend it seems customers still prefer cash over digital.”
In January 2017, at the height of the post-demonetisation currency shortage, the value of debit card transactions was more than 50% of the value of credit card payments.
The currency in circulation has since improved, to Rs 18.5 lakh crore as on May 25 from Rs 7.8 lakh crore in December 2017, at the height of the cash crunch, RBI data show.
Increasing smartphone-based payments at stores could also have contributed to the drop in the value of debit card transactions, said bankers. Transactions via the National Payments Corporation of India-run Unified Payments Interface (UPI), which allows for instant transfer of funds between bank accounts, surged to 189 million in May from 9 million in the corresponding month a year earlier.
“Digital payments are growing at arapid pace (from the equivalent of 2.6% of GDP in FY15 to 6.8% in FY18) and within that UPI is quickly gaining share (from 3% of digital payments in March 2017 to 20% in March 2018),” Morgan Stanley said in a report on digital payments in India titled, Blue Paper Revisit: Exponential Growth in Payments.
As per Morgan Stanley’s estimation, UPI would capture half of India’s digital payments market by 2023, by when digital payments would be equivalent to 20% of the country’s GDP.