Transaction behaviour. Covid lows to now: Has UPI success dented the relevance of debit cards?

Anand, a lecturer from Visakhapatnam, uses debit cards only once a month — to withdraw cash for his parents who live in a small village in Andhra Pradesh. In the case of 37-year-old techie Suguna from Bengaluru, she has not used a debit card in almost two-and-a-half years! UPI is her preferred mode of payment.

Anand and Suguna are among the many who are moving away or have moved away already from debit card use. They are among a growing tribe that has adopted UPI payments in a big way.

Data available from the Reserve Bank of India (RBI) show that debit card transactions have de-grown about 8 per cent and 21 per cent in value terms for POS and e-commerce between March 2022 and January 2023. For the same period, UPI payments have zoomed about 35 per cent in value terms.

Does the growing popularity of UPI in India have the potential to make debit cards less relevant?

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One of the key reasons for the industrywide fall in debit card transactions is a shift in consumer behaviour as they moved small-ticket petty expenses to UPI, says Rishi Dhariwal, Group Head, Liability, AU Small Finance Bank.

According to him, not just cash, but even small-ticket debit card transactions have moved to UPI, thereby reducing the volume and value of debit card transactions.

Take, for instance, Kavitha Ramani from Mumbai who makes all payments below ₹5,000 through UPI. Also, Suguna from Bengaluru stopped using debit cards due to bad/fraudulent experiences in the past.

Not just the convenience factor, but consumers are moving from debit cards for various reasons such as the need to carry a physical card for transactions at POS, physical damage and expiry of card, charges levied for cards, and non-availability of debit cards for person-to-person (P2P) payments.

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But even though debit cards are going out of favour with many, there are still some like Karthik from Bengaluru who says he still widely uses debit cards for daily grocery needs, shopping, metro card recharge, any household bill payments, online shopping, etc.

It is with support from such people that AU Small Finance Bank has seen a rise of 14 per cent in volume and 9 per cent in value (March 2022 v/s January 2023) for debit cards. “For us, e-commerce transaction value has grown 20 per cent and POS transaction value has shown growth of 6 per cent,” Dhariwal adds.

According to him, debit cards will continue to be relevant despite the ease of UPI transactions. “In our experience, consumers have shown the adoption of UPI transactions largely to fulfill the small cash/petty expenses need. For large-ticket expenses, even today the consumer prefers debit card route of payment.”

Covid-era contactless convenience

Even though UPI was launched in 2016, the payment mode found widespread adoption during the Covid times, when people did not prefer cash payments due to the fear of the virus spread.

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It has now become the most preferred mode of payment in the country, accounting for almost 75 per cent of all digital payments, including P2P and POS transactions.

Between March 2020 and March 2022, data from NCPI show that UPI transactions grew over three times both in volume (333 per cent) and value (365 per cent) terms.

Admitting that customers are increasingly becoming familiar with the UPI mode of payment, Chitrabhanu KG, Senior Vice President and Country Head-Retail Assets & Cards, Federal Bank, says, “From small merchants to large businesses, UPI accessibility has reached all parts of the country and this has resulted in an increased usage of UPI as a payment option. Add to it, this being a no-cost option for the merchant makes him encourage this payment mode.”

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Sample this: the volume of UPI transactions has skyrocketed from 0.45 crore in January 2017 to 803.69 crore in January 2023. According to the RBI Governor, during this period, in value terms, UPI transactions grew from just ₹1,700 crore to ₹12.98-lakh crore.

With the increase in digital adoption and e-commerce penetration in the country, especially in the post-Covid era, customers have started increasingly looking for digital payment products.

Dhariwal points out the emergence and acceptance on BNPL (buy now pay later) payments.

“Customers who did not have access to credit card, now have access to credit in the form of BNPL during the shopping journey,” he says, adding that such products have impacted debit card transaction values.

Increased digital adoption has led to an ample demand for credit cards, says Mayank Markanday, Head of Credit Card Business, AU Small Finance Bank. “Post Covid waves, the application and approval process is back to normal and even getting is more seamless,” he adds.

According to him, almost 20 per cent jump in cards issuance and more than 30 per cent jump in spends year-on-year from FY22 to FY23 is expected, “which clearly shows upward strong trend in credit cards industry”.

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