Credit card

Credit card spending drops as India enters festive season – that’s what consumers could be doing instead


Consumers may switch from credit cards to other payment methods to make their discretionary purchases as India enters the festive season. Here’s what the experts think,

Credit card spending in the country dropped drastically just before India’s festive season – a period of around four months typically marked by people queuing for purchases of consumer discretionary items, vehicles to household appliances. Although some credit card providers are beating the general industry trend, could it be that people are spending so much but switching to other payment methods, such as cash or online banking?

Experts believe a combination of factors could be behind the drop in monthly credit card spending:

  • A change to RBI rules earlier this year requiring issuers to consider credit cards not used for more than a year as inactive
  • The emergence of new digital payment methods, such as buy-it-now and pay-later service providers
  • Improve savings
  • Improve customer knowledge
  • RBI data released late last month showed a 3% sequential decline in credit card spending in India. The decline comes at the start of the festive season in the country, at a time when lenders are optimistic about a recovery in business activity given the slowdown in the early years of the pandemic.

    “Digital payments are on the rise. Many consumers in middle and low income segments prefer to make digital payments. The rise of digital payments is certainly at the expense of credit and debit card payments,” Mukesh Kumar said. , COO of Shopping. Centers Association of India (SCAI), an industry body representing shopping malls across the country, said

    “Party shopping is at its peak in all regions. Demand during the festive seasons in 2020 and 2021 has been very subdued. However, this year it has been extremely good. It’s across all categories,” a- he declared.

    The availability of easier-to-use postpaid methods could drive the consumer away from credit cards.

    “Buy now-pay later makes life so much easier. It’s convenient for you, and you can easily meet the set dates for making refunds to avoid additional charges… It adds to the whole experience monthly grocery shopping,” said Pratibha Sharma, a Delhi-based housewife.

    The emergence of fintech and new non-bank lenders has accelerated during the pandemic, with several companies partnering with consumer-facing apps to attract customers. A typical BNPL service allows borrowers to make purchases without having to shell out money at the time and instead pay at a later date.
    As a short-term financing service, BNPL allows its clients to spread out their purchase payments without incurring interest.

    “The consumer in the post-COVID world has definitely become more discerning about the exceptional expenses that used to happen before. This is because there is a new goal for the middle/upper class to save for a rainy day that wasn’t the case earlier,” Finny Jose K, founder and CEO of financial services platform Neofam, said

    “Credit cards in the country are a very misunderstood and poorly sold product… Most users just see it as a liability,” he said.

    RBI’s findings come at a time when e-commerce retailers have once again lined up discounts and special offers to meet holiday-driven demand, dominating traditional brick-and-mortar based shopping complexes. However, malls are seeing an increase in walk-in visits given the low base due to COVID restrictions.

    “Many brands saw 25-20% growth in sales in 2019… Ethnic has taken center stage in some parts of the country, but it’s not limited to ethnic clothing. Shoes, jewelry , electronics and casual wear, and almost all categories, saw good traction. This is expected to continue through Diwali,” said Kumar of SCAI, whose members include Citiwalk, Lulu Mall, Nirmal Lifestyle and Oberoi Mall.

    Analysts are divided on the outlook for the payments space, although some see a possible recovery in the coming months on the festive boost – which normally leads to higher consumer demand and increased spending resulting.

    However, some are skeptical about whether the return of consumer demand will be reflected in credit card spending.

    “People can’t use credit cards even if they want to,” said Suman Bannerjee, CIO of hedge fund Hedonova. He believes that any negative impact on consumer spending in general can be due to two main reasons:

  • New RBI Regulations on Overseas Purchases and Recurring Credit Card Payments
  • Higher inflation begins to affect daily life, leading to lower purchasing power and smaller purchases
  • CLSA has an “underweight” position in the Indian payment space. He likes SBI Card’s business model, but believes the card issuer’s future is “not as rosy as the market expects”.

    SBI Card management expects credit card spending to improve over the next few months in terms of volume, i.e. number of transactions.

    The reduction in the total number of credit cards in August is due to the removal of inactive users, said SBI Card CEO Rama Mohan Rao. CNBC-TV18. RBI data also highlighted that SBI Card fared better than the rest of the industry in August, with a 35% increase in credit spending.