Key Highlights:

  • Credit card spending growth eased in August, with HSBC estimating 5.9% YoY growth and Jefferies putting it at 5.5%, down from 7.1% in July.
  • Card additions rose 10.3% YoY, slightly up from July, though net additions dipped to around 1.2 million from 1.3 million.
  • Smaller issuers gained market share while larger issuers lost ground.
  • Total merchant network spending, including cards and UPI P2M, rose around 19% YoY to Rs 11.3 trillion.
  • The new UPI MDR framework, effective October 15, is expected to offer only limited competitive relief to credit cards given the far lower 0.4% rate.

Spending Growth Loses Momentum

India's credit card industry's spending growth eased in the month of August, even as card additions remained relatively steady, rising 10.3 per cent year-on-year, up slightly from 10.1 per cent in July.

Key Challenges Flagged by Analysts

HSBC and Jefferies flagged muted spending momentum, intensifying competition and pressure on profitability as key challenges for the sector, according to reports, painting a picture of an industry facing structural headwinds even as the overall card base continues to grow.

A Modest Slowdown in New Additions

Net additions stood at around 1.2 million for the month, slightly lower than the 1.3 million added in July, while smaller issuers gained market share, as larger issuers lost ground, suggesting a shifting competitive landscape within the industry itself.

Diverging Estimates on Spending Growth

Spending growth remained subdued, with HSBC estimating credit-card spending up 5.9 per cent year-on-year in August and Jefferies putting growth at 5.5 per cent, down from 7.1 per cent in July, with both brokerages pointing to a clear deceleration compared to the previous month regardless of the exact figure.

UPI's Continued Dominance

Total spending across merchant networks, including cards and UPI P2M transactions, rose around 19 per cent YoY to Rs 11.3 trillion, signalling sustained dominance of UPI in digital payments, a figure that starkly contrasts with the much slower growth seen specifically within the credit card segment.

A New MDR Framework on the Horizon

The upcoming UPI Merchant Discount Rate framework could cut the cost gap between UPI and cards from October 15, but both brokerages remain cautious on the credit card segment, suggesting that even this regulatory change is unlikely to meaningfully shift the competitive balance in credit cards' favour.

Why the Relief May Be Limited

As 0.4 per cent MDR applicable to eligible UPI P2M transactions above Rs 2,000 is far lower than roughly 1-3 per cent for credit cards, the move only offers limited competitive relief for the latter, underscoring the persistent cost advantage UPI continues to hold over card-based payments even under the new framework.

Exemptions for Small Merchants

The transactions undertaken by small merchants receiving up to Rs 1 lakh per month through UPI QR codes will also not attract any MDR charges, ensuring that the smallest merchants remain fully insulated from the new fee structure.

RuPay Debit Cards Remain Exempt

RuPay debit card transactions will similarly remain exempt from MDR. The standard rate has been set at 0.4 per cent, with a maximum cap of Rs 300 on transactions of Rs 75,000 and above, giving a clear ceiling on the fee's impact even for larger transactions.

Most Users Unaffected by the Change

As nearly 96 per cent of UPI merchant transactions are below Rs 2,000, most users and merchants are expected to remain unaffected by the new framework, reinforcing that this regulatory change, while notable, is unlikely to meaningfully alter the broader competitive dynamics between UPI and credit cards that are currently weighing on the card industry's spending growth.