Credit card

How credit card spending is linked to consumer confidence

Consumer spending by credit card remained robust in January and February, even after the end of the holiday season, a sign of growing consumer confidence and a recovery in consumption, at least among wealthier customers.

Spending would improve further over time, according to trends, although February’s figures are a little lower than January’s, analysts said. Total credit card spend at point-of-sale (PoS) terminals and e-commerce websites was 69,113 crores in February, which, although lower than the 71,574 crore in January, is significantly higher than the 42,620 crores last February, according to data from the Reserve Bank of India (RBI).

Bankers are seeing some traction in credit card usage and card issuance is increasing, they said. After the lull in the first two waves of the pandemic, the recovery in credit card use underscores the segment’s resilience to competition from options such as buy it now and pay later (BNPL), experts said. experts. The BNPL offers borrowers the option of repaying in 15 days on e-commerce sites, although some companies also offer short monthly installments equivalent (EMI).

“The recovery in economic activity and the growing share of e-commerce transactions have enabled a strong recovery in spending. The increase in economic activity will maintain the dynamism of spending. We believe that players such as SBI Card, ICICI Bank and Axis Bank will continue to show strong performance. We expect HDFC Bank’s strong recovery to continue,” Motilal Oswal analysts said in a Jan. 31 note to clients.

Banks added 1.37 million new credit cards on a net basis in December, up 12% from the previous month, led by issuers including HDFC Bank, ICICI Bank and Axis Bank, according to the report. This brought the total number of credit cards to 68.9 million, a 14.2% increase over the previous year and the highest in 17 months. RBI publishes data on payment systems daily, but the credit card banking data mentioned in the Motilal report comes with a lag. Therefore, the December figures are the latest available in the data series.

A few banks have relaxed strict credit card issuing policies introduced during the pandemic, leading to a greater influx of customers, others said.

“The general feeling we have from issuers is that credit policy has been relaxed. Credit demand, however, has remained high even during periods of policy tightening,” said Adhil Shetty, managing director of financial services market BankBazaar has seen a surge in sales of co-branded cards, Shetty said.

Credit card spending held up even after the holiday season, but the consumer recovery is still a long way off, a senior banker said. Considering that credit card penetration in India is less than 10%, spending is not an accurate indicator of overall consumption, which is largely limited to urban and semi-urban areas, he said. According to the World Bank, credit card ownership in India was 3% of the population aged 15 and over in 2017-2018, but it has improved to around 5-6% now, according to a report by August from PwC. This is much lower than 66% in the US, 65% in the UK and 30% in Brazil.

“It is true that cardholders are spending more than last year. At least that’s what the first signs are telling us. However, there is not much recovery in discretionary spending yet and we hope this will improve in the coming months,” the banker said above.

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