Credit Card Spending Growth Slows in August as UPI Continues to Dominate Digital Payments

Growth in India's credit card spending remained subdued in August, with the industry facing intensifying competition from UPI and increasing pressure on profitability, even as the number of credit cards in circulation continued to rise.

According to industry reports, credit card additions increased 10.3 per cent year-on-year in August, marginally higher than the 10.1 per cent growth recorded in July. However, net additions declined to around 1.2 million cards from approximately 1.3 million in the previous month.

Smaller card issuers continued to gain market share during the month, while some of the larger players saw their share decline, pointing to increasing competition within the credit card market.

Spending growth also lost momentum. HSBC estimated that credit card spending increased 5.9 per cent year-on-year in August, while Jefferies estimated growth at 5.5 per cent, compared with 7.1 per cent in July.

Both brokerages have highlighted subdued spending growth, intensifying competition and pressure on profitability as challenges for the credit card industry.

The broader digital payments market, meanwhile, continued to be driven by UPI. Combined spending across merchant payment networks, including cards and UPI person-to-merchant (P2M) transactions, rose around 19 per cent year-on-year to Rs 11.3 trillion in August.

The upcoming changes to the UPI Merchant Discount Rate (MDR) framework from October 15 could narrow the cost difference between UPI and card payments for some transactions, although the impact on credit cards is expected to remain limited.

Under the new framework, a 0.4 per cent MDR will apply to eligible UPI P2M transactions above Rs 2,000. This remains significantly below the roughly 1-3 per cent MDR typically associated with credit card transactions.

Small merchants receiving up to Rs 1 lakh per month through UPI QR codes will continue to be exempt from MDR. RuPay debit card transactions will also remain outside the MDR framework.

The standard UPI MDR has been set at 0.4 per cent, with a maximum cap of Rs 300 for transactions of Rs 75,000 and above.

However, the changes are unlikely to affect most everyday UPI transactions, as nearly 96 per cent of UPI merchant transactions are below Rs 2,000.

The August data highlights the increasingly competitive environment in India's digital payments ecosystem, where the rapid expansion of UPI continues to put pressure on traditional card-based payments even as credit card adoption itself continues to grow.