India is one of the fastest-growing economies in the world but there exists a significant gap in accessing formal credit, especially when compared to other developed nations. Banks and financial institutions (FIs) are working on filling this gap by introducing new payments products and instruments that would make it easier to access formal credit. Traditionally, formal credit was restricted to financial products such as home, auto and personal loans. However, banks and FIs have recently shifted their focus towards instruments like credit cards, buy now, pay later (BNPL) and credit EMIs. New FinTech players have disrupted the market by introducing new and innovative products and offerings to consumers.
Credit cards, BNPL and credit EMIs have witnessed large-scale issuance and growth in usage. Traditional banks and new start-ups are focusing on acquiring new customers by allowing access to credit for the unbanked/underserved segment.
India has traditionally been a debit card market. However, the growth in credit card issuance in the last decade has changed this narrative and credit cards are being used prominently. This growth is further accelerated by the various products and services being offered by FIs, and such products are being increasingly used by customers, especially the millennial population.
Credit card issuance has grown significantly in India at a compound annual growth rate (CAGR) of 20% in the last four years. The number of credit cardholders increased from 29 million in March 2017 to 62 million 1 in March 2021. It has further grown by 26% and 23% respectively in 2019 and 2020. However, the COVID-19 pandemic affected the growth rate of India’s credit card industry and it grew by only 7% in 2020–21. The growth rate is expected to improve marginally in FY21–22 but will remain slow due to the restrictions on card issuance by some large banks and payments networks.
Similarly, credit card transactions were growing at a CAGR of 16% till 2019–20 but went back to the 2018–19 levels in FY20–21, as depicted in the figure above. The growth rate was low during the first half of 2020–21 though it gained momentum during the second half.
Unified Payments Interface (UPI) has become one of the most popular payments systems in India. The volume of UPI transactions was much higher compared to debit or credit cards in 2020–21. However, the value of transactions recorded was similar for all the three modes of payments during the same period.