With homegrown instant payment system Unified Payments Interface, or UPI, emerging as the most preferred payment method, consumers are not too keen to use debit cards, latest official data showed. For every ₹100 spent on debit cards, consumers spent over ₹1,900 via UPI in the year ended 31 March 2023.
Aggregate debit card transactions by value stood at ₹7.2 trillion in FY23, while the same for UPI was at ₹139.2 trillion. Debit card usage data was sourced from the Reserve Bank of India’s (RBI) 30 May annual report, and UPI transaction data from the National Payments Corp. of India (NPCI), the umbrella body for payment systems.
Debit card transaction volumes have also been declining over the past few years, from 4 billion in FY21 and 3.9 billion in FY22 to 3.4 billion in FY23. In comparison, UPI transaction volume in FY23 was at 83.8 billion, according to NPCI. The ease of making payments has led to greater popularity of NPCI-run platform while the use of debit cards has steadily declined, albeit for different reasons.
While for consumers it is mostly about the convenience of not having to carry their wallets to make a payment, merchants use UPI because of zero merchant discount rate (MDR) fees.
Industry insiders said that during the pandemic, customers were compelled to use contactless payment methods and, since UPI aided such transactions, people got familiarized with it and subsequently adopted it en masse.
“Merchants prefer UPI payments since they do not have to deploy expensive PoS [point of sale] machines for accepting payments. A simple QR print acts as an acceptance device, and, accordingly, UPI acceptance has become ubiquitous across the merchant ecosystem, fuelling a virtuous cycle for UPI payments,” said Rohan Lakhaiyar, partner, Grant Thornton Bharat.
Critically, UPI payments are free for merchants, whereas debit cards have inherent fees ranging from 0.5% to 0.9%, due to which merchants also nudge customers to UPI, Lakhaiyar added.
Besides, settlement of transactions is immediate, whereas for debit cards it happens the following day.
“The shift from debit cards to UPI in India can be attributed to the convenience, accessibility, zero fees for account setup and annual maintenance, and multi-app support,” said Anup Nayar, chief executive, domestic, at JP Morgan-backed payment solutions firm In-Solutions Global.
With UPI, users can transact directly using smartphones, eliminating the need for physical cards, Nayar added.
Some executives also believe that the ease of use and the propensity of consumers to use their mobile devices for a lot more activities than just communicating is behind this massive adoption of UPI.
“Today, UPI has cannibalized other bank debit payment mechanisms, such as debit cards, net banking, and NEFT, among others. Undoubtedly, UPI has impacted businesses of debit cards and issuance has not grown significantly in the past three years,” said Vishwas Patel, executive director, Infibeam Avenues Ltd, and chairman, Payments Council of India.
Patel said out of the total 940 million debit cards in the system, there are 672 million RuPay cards while the rest are Mastercard and Visa cards. “Spending on these debit cards is stagnant at around ₹1 trillion a month,” he added.
According to Mandar Agashe, founder and managing director, Sarvatra Technologies, placing a QR code is way easier, convenient, and cheaper, and as a result, there are more QR codes in the country than PoS terminals. “People largely use debit cards for cash withdrawals at ATMs, and UPI is the preferred method for merchant transactions.”
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