The convenience and simplicity of online transactions have significantly propelled the widespread adoption of credit cards in recent times. With the exponential growth of e-commerce platforms and digital services, consumers are drawn to the ease and speed of online purchases. Raj Khosla, Founder and MD of MyMoneyMantra.com, talks to Navneet Dubey of BT Money Today about the attraction of credit cards, especially during the festive season, and the continued relevance of debit cards. Edited excerpts:
ND: How does the shift from debit to credit card spending during Diwali 2023 reflect the changing consumer behaviour and economic trends in India?
RK: The shift reflects a significant change in consumer behaviour and economic trends. It underscores the growing comfort with credit, indicating a shift in financial attitudes towards deferred payments and embracing debt for aspirational purchases. It highlights increased financial literacy and confidence in future income, suggesting optimism about repaying credit. Additionally, this change mirrors India’s broader digital finance adoption and a move towards a more credit-oriented economy. This evolution in spending habits during a major festival like Diwali marks a transformative phase in India’s consumer culture, aligning it with global economic patterns.
ND: What are the reasons for the growing popularity of credit cards among Indian consumers?
RK: The growing popularity of credit card usage among Indian consumers, particularly during the festive season, is driven by multiple factors. Increased financial literacy and the allure of reward programmes, cashback offers, and discounts exclusive to credit cards enhance their appeal. The festive season, a time for significant spending, encourages consumers to leverage these benefits. Additionally, the convenience of digital transactions and the evolving consumer mindset towards credit as a tool for managing cash flow contribute to this trend. The rise of fintech and e-commerce platforms offering easy access to credit cards also plays a crucial role in this shift.
ND: What other factors, apart from the festive season, might be contributing to the rise in credit card usage?
RK: The proliferation of digital payment platforms and the ease of online transactions encourage credit card adoption. Enhanced financial inclusion initiatives and aggressive marketing by banks also play a significant role. The bling of reward programmes, cashbacks, and EMI options on big-ticket purchases appeal to a broader consumer base. The growing middle class, with increasing disposable incomes and changing attitudes towards credit, further fuels this trend. Additionally, the Covid-19 pandemic accelerated the shift towards contactless, digital payments, further embedding credit card usage in everyday transactions.
ND: What are some features and benefits of debit cards that are appealing to consumers?
RK: Debit cards appeal to consumers due to their straightforward, direct access to funds, ensuring spending is limited to available account balances, thus promoting financial discipline. They offer ease and safety in transactions, eliminating the need to carry cash. Debit cards are widely accepted for both online and offline purchases, providing convenience. They often have lower fees compared to credit cards and do not incur interest charges, making them cost-effective. Additionally, debit cards provide instant access to cash through ATMs. Many also offer reward programs, cashback, and discounts on purchases, enhancing their appeal. Their simplicity and direct link to personal funds make them a popular choice.
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ND: How can banks and financial institutions make debit cards more attractive to consumers, especially during the festive season?
RK: To make debit cards more attractive, especially during the festive season, banks and financial institutions can offer tailored rewards and cashback programs on festive shopping. Introducing special discounts and partnerships with popular retailers and e-commerce platforms can enhance their appeal. Simplifying and promoting zero-fee transactions can attract cost-conscious consumers. Banks could also offer temporary increases in withdrawal and spending limits during festivals.
ND: What is the future of debit cards in the Indian market?
RK: The future of debit cards in the Indian market, despite the rising popularity of credit cards, remains robust. Debit cards are likely to continue being popular due to their direct access to funds, fostering financial discipline among a significant segment of the population wary of credit debt. Their appeal is reinforced by the ongoing digitalisation of payments and the push towards financial inclusion in rural and semi-urban areas. Furthermore, innovations like contactless payments and integration with mobile wallets, along with enhanced security features, will keep them relevant.
ND: Visa’s analysis indicates that debit cards are gaining traction for festive spends. Why do you think debit cards are still popular?
RK: Debit cards retain popularity for festive spending due to their intrinsic budgeting control. This is particularly appealing during high-expenditure periods like festivals. Additionally, many banks offer festive-specific incentives like cashbacks, rewards, and discounts on debit card transactions, enhancing their attractiveness. The simplicity and familiarity of debit cards, coupled with their wide acceptance online and in stores, make them a convenient choice. Moreover, the security features of debit cards, such as fraud protection, provide a sense of safety for consumers amidst the increased transaction volume during festive seasons.
ND: How are credit card companies adapting to meet the evolving needs of Indian consumers?
RK: They are introducing innovative card types like Buy Now Pay Later (BNPL) cards and secured credit cards. BNPL cards cater to the trend of flexible, interest-free credit for short-term purchases, aligning with younger consumers’ preferences. Secured credit cards, backed by the user’s fixed deposit, are gaining traction among those building or repairing credit histories. Alongside these, companies are enhancing traditional credit cards with targeted rewards, digital-friendly features, and robust security measures.
ND: What are some of the trends that you expect to see in the credit card industry in India?
RK: In the future, India’s credit card industry is expected to embrace several innovative trends. Virtual credit cards will become more prevalent, offering instant, online access without the need for physical cards, streamlining the process of card issuance and usage. Spend analytics and controls will likely be integrated more deeply, allowing consumers to manage their finances more effectively.