UPI (unified payments interface), the homegrown payments system, continues to grow month after month due to its ease of use and instantaneous nature of transactions. However, the growing popularity of UPI has had an impact on debit card transactions, which have seen a sizeable drop.
Debit cards and UPI have one thing in common—the money gets debited instantly from the linked bank account. But UPI is far more convenient as there is no card involved and payment can be done by just scanning a QR code from a phone or money can easily be transferred from one mobile number to another. That is perhaps why debit card transactions, where one needs to carry a card and swipe it over a POS machine, are losing sheen.
According to the latest India Digital Payments Report by Worldline, for the first half of 2023, the number of UPI transactions doubled to 9.3 billion in June 2023, compared with 4.6 billion in January 2022. Transaction value over UPI has also increased sizeably to Rs 14.7 trillion in June 2023 from Rs 8.3 trillion in January 2022.
On a comparable basis, the volume of UPI transactions in the first half of 2023 rose 62 per cent to 51.91 billion from 31.95 billion in the first half of 2022. Transaction value increased 47 per cent to Rs 83.17 trillion from Rs 56.59 trillion in the same period.
"A key driver for this growth has been the near-ubiquitous acceptance of UPI for both personal and payment transactions from the user/buyer standpoint as well as high acceptance by merchants. Also, there has been greater penetration of UPI in rural India," said Worldline.
In contrast, debit card transactions saw a 28 per cent decline to 1.379 billion transactions in the first half of 2023. The value of debit card transactions also fell 14.8 per cent to Rs 3.17 trillion in the same period.
Even prepaid cards have seen a decline in the volume as well as value of transactions. Prepaid card transactions in the first half of 2023 were at 0.711 billion, a 9.2 per cent drop over the first half of 2022. The value of prepaid cards transactions also declined 32.8 per cent over the first half of 2022 to Rs 325 billion in the first half of 2023.
"It appears debit card transactions are a casualty of the upswing in UPI transactions, while prepaid could be a mixture of UPI transactions as well as guidelines on prepaid cards issued by RBI in June 2022," Worldline said.
In June last year, the Reserve Bank had forbidden fintech companies and non-banks from loading credit lines on prepaid card instruments.
While growing UPI transactions may have hit debit cards, the same has not been the case with credit cards. Generally, people use credit cards for higher-value transactions and these continue to see traction in both volume and value.
In the first half of 2023, credit card transactions stood at 1.550 billion, up 19.6 per cent when compared with the first half of 2022. Transaction value on credit cards touched Rs 7.94 trillion in the first half of 2023, a 30.5 per cent jump, the Worldline data showed.
The average ticket size for all cards rose 22.6 per cent year-on-year to Rs 3,117 in the first half of this year. Average ticket size (ATS) of credit card payments rose 9.1 per cent to Rs 5,122, debit card ATS rose 18.3 per cent to Rs 2,303. The ATS of all UPI transactions declined 10 per cent to Rs 1,604 in the first half of 2023 from Rs 1,774 in the first half of 2022.
While the number of credit cards has grown 13 per cent to 88.68 million in June 2023, the number of debit cards rose 6 per cent to 975.8 million.
Private sector banks dominate credit card issuance; 70.1 per cent of credit cards were issued by private sector lenders. State-owned lenders lead in debit cards, with these banks accounting for 67.4 per cent of debit cards issued.
The top five issuers of credit cards are HDFC Bank, SBI Cards, ICICI Bank, Axis Bank, Kotak Mahindra Bank. On the other hand, State Bank of India, Bank of Baroda, Canara Bank, HDFC Bank and Bank of India were the top five issuers of debit cards.
"The contrast between private sector banks dominating credit card issuance and public sector banks dominating debit card issuance is clear suggesting the risk appetite among the former is higher, while the latter is focused on providing accounts to a larger section of the population, including the unbanked," Worldline said.
In UPI, three entities—PhonePe, Google Pay and Paytm—continue to dominate in terms of volumes and value. In terms of volumes, the three accounted for 95.68 per cent of all transactions, up from 94.55 per cent a year earlier. In terms of value, the three accounted for 93.65 per cent in June 2023, compared with 93.38 per cent in June 2022.