Credit Cards Boom, Debit Cards Fade: What’s Driving India’s Payment Shift?

There was a time when debit cards used to be the default choice for millions of Indians for their simplicity, convenience, and direct threat to the bank account of users. However, the latest report by the Reserve Bank of India (RBI) paints a different picture; one where debit cards seem to losing their game to credit cards. 

Where credit card transactions have surged beyond 100 per cent in the last five years, debit cards have witnessed a sharp dive. But what is causing this shift, and what does it mean for the way Indians spend?

Credit Card Supremacy?

While once credit cards would have been a financial tool of luxury, it has grown to become a necessity for a variety of consumers, particularly the salaried class that may often rely on borrowing from the future to meet the expenses of today.

As of December 2024, the country has 10.8 crore credit cards in circulation, which has doubled from 5.53 crore in December 2019, according to RBI’s Payment Systems Report. The majority of these cards have been issued by the private sector banks, holding 71 per cent of the market share. These banks rode the market wave by aggressively pushing digital solutions and co-branded cards to attract urban, high-spending customers.

Public sector banks (PSBs), once cautious in the credit card space, are also stepping up to meet the market requirements. PSBs have increased their credit card issuance from 1.22 crore to 257 crore over the same period. Subsequently, Small Finance Banks (SFBs) have now entered the credit card market as well and they have been instrumental in devising cards that have reached underserved populations such as the gentry of rural or Tier 3 areas/cities.

Even as foreign banks scale back due to high fees and strict policies, India’s credit card ecosystem is looking at a thriving domestic market.

Growth in Credit Card Transactions: Indians have been swiping (or tapping) their credit cards more than ever in the last five years. The numbers tell a story; transactions have doubled over from 208.67 crore in 2019 to a massive 447.23 crore in 2024. The value of credit card transactions has soared from Rs 7.13 lakh crore to Rs 20.37 crore over the same period. 

As per the RBI report, this is a five-year compound annual growth rate (CAGR) of 16.47 per cent in volume and an even more impressive 23.37 per cent in value.

What has led to this surge? The report notes that this uptick can be credited to a shift towards online spending which has given individuals attractive and convenient payment plans - further pushing the transaction values.

Decline of Debit Cards

Debit cards, on the other hand, seem to be losing relevance in day-to-day transactions. The data shows that though the total number of debit cards in circulation has grown from 80.53 crore in 2019 to 99.1 crore in 2024, the transactions have plummeted. 

In 2019, debit card transactions stood at 495.32 crore, however by 2024, the same had fallen drastically to 173.90 crore. The value of these transactions also declines from Rs 6.83 lakh crore to Rs 5.16 lakh crore, amounting to a negative CAGR of 18.89 per cent in volume and 5.48 per cent in value.

Why such a decline? The debit card market has suffered due to changing preferences of customers from needing cash or cards to convenient digital payments such as Unified Payments Interface (UPI).

In today’s market, UPI has become a preferred mode for both small-ticket and big-ticket transactions, making debit cards less necessary for everyday payments. With UPI offering instant, scan-and-pay-like convenient services directly from bank accounts, the need to swipe a debit card for small purchases is fading fast.

What Does This Mean For Consumers?

This shift is a reflection of spending patterns by customers which can be understood with a few key trends;

Credit cards are becoming more accessible: As more issuers enter the market, including PSBs and SFBs, credit cards are no longer just for the affluent class but for people across varying income and social groups. As more consumers get access to credit, the need to use it responsibly becomes critical.

UPI is fast replacing Debit Cards: The ease of QR code (scan-to-pay) payments, and mobile transactions has made UPI the go-to choice for most people, reducing the reliance on debit cards for purchases.

Buy Now, Pay Later (BPNL): The growing acceptance of BPNL has ensured flexible repayment options with added customer-centric initiatives such as reward-driven spending. These in turn have made credit cards more attractive compared to immediate bank debits.

The report notes that e-commerce and digital services have boomed credit card usage, with nearly half of all credit card transactions occurring online.

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