A powerful tool for democratising credit access

Credit card growth does not conflict with real-time payment systems, but complements them and offers consumers more payment options

India has made significant progress in the democratisation of digital payments over the last five years. However, millions still rely on cash, and even more lack access to formal credit. Credit cards play an important role, as they can serve as a powerful tool in democratising credit, and empowering individuals and small businesses.

In recent years, credit bureaus, alternative data, and technology-based underwriting capabilities have matured and evolved, providing new opportunities to the financial services sector. According to a 2022 CIBIL study, over 50 per cent of the country’s credit-eligible adults do not have access to credit, and 160 million consumers are underserved. Over 240 million have credit scores and credit histories. However, the credit-card base is about 82 million; and unique cards are under 40 million. In credit-card usage and acceptance, we lag significantly behind other comparable economies such as China (800 million) and Brazil (408 million). The degree of under-penetration is quite significant even among the prime and near-prime populace.

Rising aspirations for quality products, lifestyle experiences, and well-being services have contributed to the growth of the consumer class, and credit cards can help individuals finance these aspirations. Interestingly, fintechs and non-banking financial companies have been responsive to this opportunity, and instrumental in driving credit expansion. Despite the rise of alternative forms of digital payments, the card payments market here is poised for significant growth.

GlobalData estimates that the market will grow at a compound annual growth rate of 18.7 per cent between 2022 and 2026 to reach Rs 43.3 trillion ($581.2 billion) in 2026, driven by increasing consumer preference for electronic payments, improving payment infrastructure, and efforts to boost cashless payments.

The Reserve Bank of India’s Digital Payments Index counts credit-card growth as one of the parameters that captures the extent of digitisation of payments. Their growth and popularity are also on account of innovative variants and features being constantly introduced to meet the diverse needs of consumers. These include secured credit cards (against deposits), flexible credit limits, “buy now, pay later” cards and dynamic annual percentage rate (for cash borrowed against cards), among others. Banks and merchants are offering curated customer value propositions on cards; and co-branded credit cards in particular are a big draw for value-conscious consumers. Virtual-credit cards, mobile tap-to-pay, and contactless payments have all contributed to the increased adoption.

Contrary to myth, credit-card growth does not conflict with real-time payment systems, but rather complements them and provides consumers with payment options. Payment flows across consumer, commercial, and government sectors in India are too large and diverse for a single homogeneous payment rail. Thus, cards and card-rails will continue to play a critical role in expanding payment options across domestic and cross-border use-cases.

The technology stack and data-driven approach adopted by the card industry also allow them to offer solutions that meet the unique needs of consumers and businesses. In partnership with credit bureaus and other stakeholders, they can help individuals and small businesses build their credit score, access credit, and manage their finances.

A well-established mechanism for charge-backs, refunds, and dispute resolution gives cards many additional benefits. Commercial cards support customisation that enables end-use monitoring and controls, reconciliation, flexible credit periods, etc.  Among the oldest and most recognisable forms of digital payments, credit cards provide instant credit, are flexible, and can help individuals build their credit profiles. As India strives to become a digital-first nation, credit cards will play a crucial role in empowering its citizens to make their aspirations a reality.

The card payments market has a bright future, and credit cards will continue to drive economic growth as the country marches towards a $5-trillion economy.
 

The writer is country manager (India and South Asia) for Visa International