Spending Habits & Trends in India
For many Indian citizens, it’s been a long journey from using only cash to using credit cards. Even in the 1990s, debit cards weren’t very popular and the credit card was a “niche” item, with very few outlets accepting them.
It’s safe to say that things have changed. These days, Indian businesses barely deal in cash. Although the Indian economy is sluggish and consumer sentiment low, credit, debit and pre-paid cards are robust and growing. From just 150 million in March 2008, today electronic card use tops 400 million. Spending via credit card has more than doubled between 2008 and 2013, and debit card spending is six times higher for the same period.
India Embraces Electronic Cards
The growth in electronic card use isn’t a because of increased consumption; it is actually a reflection of a larger shift — India is moving toward a cashless economy. With 19 million credit cards and 350 million debit cards in use in India, nearly all India residents who have a savings account also have a debit card (used mainly at the ATM.) According to MasterCard, 75% of India card payments are processed in its top 20 cities. Delhi and Mumbai alone account for 43% of use.
While debit cards dominate for routine expenses, credit cards like the Amex India card are often used for discretionary spends, with 30% of purchases made online. Ten to fifteen percent of customers use cards online exclusively. A Visa study revealed those in the monthly income range of Rs 75,000 to 100,000 use electronic cards most frequently. Rail and airfare are charged by 71% of users; durable goods at 61%; 49% charge their rent, 47% telephone and mobile, 46% for medical institutions. Clothing and footwear are charged by 44%, and refreshments and beverages by 35% of users.
Rethinking Credit Cards
While debit cards outnumber credit cards in India by a wide margin, this is also a global trend. However, with a ratio of 19 million credit cards to 350 million debit cards, India seems to be an extreme. Lower income levels keep credit cards out of the reach of the majority, although the internet is proving to be a catalyst for more credit card use. One-third of all Visa purchases in India are now from e-commerce, and growth continues. Smart phone and tablet sales will contribute to the momentum.
As electronic payments increase, banks and credit card companies are being pushed by the RBI for methods of reducing fraud and ensuring more secure card transactions. PIN numbers are required, and banks must also compensate cardholders within seven days in the event of fraud at non-compliant terminals. If the bank is late, there is a stiff daily penalty until the date of repayment.
While the RBI will do all it can to protect consumers, users must also be cautious. Dispute resolution for credit card fraud can take several weeks. As the economy slows and more layoffs occur, credit card balances will rise. From identity theft to monitoring personal spending, ultimately it’s up to the credit card holder to use their card responsibly.
From mobile payments to e-commerce to secure, affordable mobile swipe devices and technologies, electronic transactions in India continue to increase. With the Indian government supporting this trend as an alternative to expensive currency printing, a cashless economy in India seems likely if not imminent.