Strong growth in digital payments indicates a lasting shift in consumer payment behaviour

The Covid-19 pandemic had made many take to digital payments during the lockdown in 2020 resulting in the volumes as well as value of transactions showing a strong growth. But the change in payment habits appears to be more permanent. For digital payments have continued the same pace of growth in 2021, compared with 2020.

For instance, growth in volume of UPI transaction in September 2020, when compared with volumes in September 2019 was 88 per cent. But volumes in September 2021 grew at a more robust 103 per cent. Similarly growth in value of UPI transactions has also been very strong in 2021 at 98 per cent, compared with the same month last year.

While cash continues to grow in the economy with currency in circulation at over ₹29.1 lakh crore by August 27, almost all modes of digital payments including UPI, Immediate Payments Service, RTGS, NEFT and credit cards have also seen a sharp rise as consumers preferred to stay home and maintain social distancing.

Sharp growth

Data indicates that the sharpest growth of all has been seen by UPI, which accounts for nearly half the volume of digital payments this fiscal. According to mode wise analysis of the volume of digital payments, the share of UPI has steadily climbed up from 27.38 per cent in 2019-20 to 49.1 per cent in 2021-22.

Bankers and payment players point out that user behaviour has changed over the period and digital payment and banking have been fully accepted by customers and it is unlikely that they will revert to using physical modes of banking or use of cash for certain payments post the pandemic.

Digital payments are expected to see a further boom in the ongoing festival season, with bankers expecting credit card spends to see a sharp rise.

Credit cards

Usage of credit cards has also improved in 2021. Number of credit card transaction recorded a growth of 33 per cent in August 2021, compared with August 2020. Value of credit card transactions recorded a sharper growth of 54 per cent.

In an investor call post its second quarter results, HDFC Bank said credit card spends have increased 36 per cent on an annual basis and 27 per cent on a sequential basis. The first 10 days of October show 42 per cent growth in card spends over the same period in September driven by festival spend, it said.

Other banks are also expecting similar trends given the opening up of the economy and low Covid cases.

With offline digital payments now also being worked upon, it is expected that there would be a further boost in digital payments especially in semi-urban and rural areas where Internet connectivity and smart phone usage is still low.

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