Credit card spending in India is sliding towards pre-covid levels as more consumers switch to online shopping during the pandemic and consumer confidence increases.
Bee ₹64,737 crore in January, spending via credit cards is ₹1,836 crore shy of the January 2020 level, just before the covid outbreak in India left millions out of work. The data showed that spending in January of this year was still higher than in February and March last year. It is also higher than last October, the height of the holiday season in India. The total number of credit cards issued rose from 56 million a year ago to 61 million in January.
While credit card spending is an important gauge of consumer confidence, some of the increase in passes can be attributed to a surge in online shopping and the overall decline in cash use. “As the economy progresses, we can expect credit card spending to increase, but sentiment has yet to fully recover. Even for consumers with stable income, sentiments have not returned to pre-covid levels, with people still reluctant to spend, “said Parijat Garg, a digital lending expert.
Still, the rise in spending is an encouraging sign for the economy, as studies have shown that households tend to pull their wallets in times of economic uncertainty. In fact, in its March bulletin, the Reserve Bank of India pointed out the inverse relationship between households’ financial savings rate and economic growth.
Household financial savings amounted to 10.4% of the country’s gross domestic product (GDP) in the three months to September, up from 21% in the quarter ending June.
Garg said that in recent months, people have started to spend money and move out of their homes to shop and dine, but the second wave of covid infections has dampened feelings yet again. This change in sentiment, he said, will be reflected in spending in March and April.
New cases of Covid-19 continue to increase unabated in Maharashtra and Madhya Pradesh.
Some experts said the growth in credit card spend follows the overall growth of digital payments. “Credit cards are also seen as an ambitious product. Consumers using other forms of digital payment now want a credit card. I think offline transactions can catch up with online transactions once demand is back in full swing, ”said Vivek Belgavi, partner and fintech leader, PwC.
Belgavi said payment companies are making significant investments in offline devices and infrastructure, ready for the next wave of growth.
Consumers have also gradually moved from retailer spending to online spending. For example, in March last year, credit card spend at point-of-sale (PoS) terminals, op ₹26,656 crore, was higher than what people spent through other channels. But since the start of the pandemic, card swiping at POS terminals has lagged behind other modes, and the trend continued into January this year.
“Many have experimented with buying groceries, vegetables and medicines online instead of going to stores. Several of those who were so far cautious about spending money online have crossed that bridge, ”said Garg.