The Future Of Credit Card Usage Experience

Credit card usage is increasing in India, but it’s prudent to manage credit wisely

The last few weeks saw some frenetic action in the credit card space. In February 2024, India went past the milestone of 100 million cards in force. In March, the Reserve Bank of India (RBI) issued wide-ranging instructions pertaining to how cards can be issued or used. But soon, concerns were raised about aspects, such as non-performing assets (NPAs), co-branded cards, and reward devaluation. Here’s breaking down the key changes to understand the takeaways for consumers.

Growing Too Fast? In February 2020, there were 57 million credit cards in force. This has grown at 15 per cent annually, with concerns being expressed about the speed. The US, with about 1.1 billion credit cards and dues totalling $1.1 trillion, contrasts sharply with India’s 100 million cards and dues of $32 billion (Rs 2.6 trillion). Clearly, there’s potential for expansion in India, where only 3-4 per cent of the population owns credit cards, and per capita spend is just $23 compared to the US’s $3,200. India’s GDP per capita is also $2,600 compared to the US’s $83,000. So, the only way is up—and fast.

Responsible Credit Use: RBI has a history of nudging lending towards easier access and transparent charges for consumers, and lower stability risks for banks. In March, RBI focused on peer-to-peer (P2P) transactions and end-use of funds. Reportedly, many users were paying rent through credit cards via third-party accounts, to landlords not authorised to receive card payments. Likewise, some consumers recently reported their cards closed due to usage violations—for instance, using personal cards for business expenses just to hack the rewards game. RBI now wants banks to issue business cards separately as add-ons.

Co-Brands To The Fore: Despite the stir-up in March, more co-branded cards may be launched. Qualified non-banking finance companies (NBFCs) can now issue cards without having to seek RBI’s nod, though there is a nudge for greater compliance on partnerships. Also, your bank cannot allow your co-brand partner any unencrypted access to your data, nor control processes such as setting spending limits.

Consumer Protection: Card issuers now face a penalty of Rs 500 per calendar day for delays in closing accounts, if not completed within seven working days. Additionally, card issuers must provide clearer warnings about the consequences of making only minimum payments (the long-term compounded interest and the potential suspension of interest-free periods). Consumers can also alter their billing cycle once. Importantly, issuers need to secure explicit consent from cardholders before renewing or replacing cards. Lastly, cardholders can choose their preferred payment network during sale or renewal.

Devaluation Of Rewards: Much has been said on devaluation of credit card rewards. However, it has  happened many times in the past and will happen in the future, too. India is becoming credit-mature in a period of high inflation. Therefore, credit card issuers will have to revisit and tweak their rewards programs for sustainability, while providing the best possible customer experience.

NPAs Under Check—For Now: Concerns have been raised on card defaults. But data from December 2023 tells us that the NPA ratio (the per cent of dues past 90 days) was just 2 per cent. This means that the sector remains within the expected risk parameters. This wouldn’t be possible without India rapidly becoming credit-mature.

Personally, I use my credit cards regularly because of the benefits they offer—from acting as a buffer between my large payments and my bank accounts, to providing swift dispute resolution and payment blocking, to 30-day free credit period, and perks like no-cost equated monthly instalments (EMIs) and discounts. In conclusion, the proliferation of credit cards reflects India’s economic vibrancy. But as consumers, we must continue to manage credit prudently.

By Adhil Shetty, CEO, BankBazaar.com