Average annual spends on credit cards have stagnated in the past three years, but the mode of payment is here to stay and is unlikely to witness any major disruption despite competition from emerging payment modes, according to a report on Indian payments by CLSA.
The usage will be driven by the lure of reward points, free credit period and continued merchant adoption as they would prefer to give customers a choice of all payment options.
“We see no meaningful disruption in the credit card business. Alternative payment sources like Buy Now Pay Later (BNPL) and wallets may eat into some market share, but the business model is not dying,” CLSA said.
For the past three years, average annual spends per card have stagnated at about Rs 140,000 and ticket sizes of spends remained in the range of Rs 3,000-3,500 for a large part of the past decade, the report said. Ticket sizes exceeded Rs 4,000 only in FY22.
For the next five years, CLSA expects credit card spends to grow at a compound annual growth rate (CAGR) of 19 percent, down from the 24 percent CAGR in the past five years. The growth will be driven by a CAGR of 15 percent in the number of credit cards outstanding and a CAGR of 3-4 percent in the average annual spends per card.
“We see a trend of credit card companies tapping customers from smaller towns and cities where per capita consumption is lower. Hence, we believe growth in annual spends per card would be low,” the report said.
In the past five years from FY16 to FY22, the number of credit cards has grown at a CAGR of 20 percent and spends have grown at a CAGR of 26 percent.
Debit cards in India, on the other hand have been a victim of the massive adoption of the Unified Payments Interface (UPI) transactions which saw a 35 percent growth in FY22. As per CLSA, debit card payments will remain stagnated at a CAGR of only 7 percent for the next five years, same as the last five year period.
Reserve Bank of India (RBI) Governor Shaktikanta Das announced on June 8 that RuPay credit cards will now be allowed to be linked to UPI. Until now, customers could only link their debit cards to UPI. The move is expected to boost the usage of RuPay credit cards as linking them to UPI will make usage faster and easier.
Dilip Asbe, the MD and CEO of the National Payments Corporation of India (NPCI), which operates UPI, recently said that the RuPay credit card-UPI linkage is likely to be operational in a couple of months.
BNPL a Rs 2 lakh crore market
BNPL, a term used for the EMI and other models of pay later, has seen increased acceptance over the past two years for both small and big ticket purchases.
According to CLSA, the market size of digital BNPL (excluding loans from NBFCs like Bajaj Finance) stands at around Rs 38,000 crore. The report says that the segment can grow at a CAGR of 40 percent over the next five years to reach Rs 2 lakh crore by FY27. However, the growth will depend on good asset quality outcomes.The Indian consumer digital lending space includes players like Slice, ZestMoney, LazyPay, Uni, Axio (formerly Capital Float), PostPe, Paytm Postpaid etc. The RBI is expected to soon regulate the space with the long-awaited guidelines on digital lending.