In recent years, India's payment landscape has experienced a notable shift, with international credit card spending significantly outpacing expenditures on prepaid payment instruments (PPIs) and debit cards. This trend is primarily driven by a surge in travel activities post-Covid-19 and the attractive rewards offered by credit card issuers.

Surge in International Credit Card Spending: Data from the Reserve Bank of India (RBI) reveals a remarkable 63% increase in international credit card spending from December 2022 to July 2024. This growth starkly contrasts with a 53% rise in spending on PPIs and a mere 8% increase in overseas debit card transactions. The substantial increase in credit card usage can be attributed to several factors, including the post-pandemic travel boom and the appealing reward programs offered by card issuers.

Factors Driving Growth:

Travel Resurgence: The relaxation of travel restrictions and the rebound in global tourism have led to a sharp increase in international travel. As Indians travel abroad more frequently, the use of international credit cards has surged to cover expenses, particularly in countries where credit cards are widely accepted.

Reward Points: Credit card issuers offer various reward programs, including cashback, air miles, and travel-related benefits, which incentivize spending. These rewards have become a significant factor in driving consumer preference for credit cards over other payment methods.

Higher Interchange Revenue: Banks benefit from higher interchange revenue associated with international credit card transactions. This includes revenue from dynamic currency conversion (DCC) and foreign exchange mark-up rates, making credit card transactions more lucrative for financial institutions.

Government Regulations and Tax Implications: Despite the government's inclusion of international credit card transactions under the liberalized remittance scheme, imposing a higher tax collected at source (TCS) rate of 20%, credit card spending continues to rise. The TCS is intended to regulate and track high-value international transactions, but it has not deterred the growing trend of credit card usage.

Industry Insights: Mr. Ananth Babu, Head of Cards and Payments at CSB Bank, highlights that banks are actively promoting credit cards due to the higher revenue from international transactions. The convenience and benefits associated with credit cards further drive customer preference. Mr. Sanjeev Moghe, Head of Cards and Payments at Axis Bank, emphasizes that credit cards offer greater convenience and are widely accepted, contributing to their popularity.

PPI Usage and Future Trends: While PPI usage has grown since December 2022, its growth is expected to slow due to limited applications. The expansion of the Unified Payments Interface (UPI) into international markets is anticipated to capture a larger share of the payment market. UPI's international expansion, overseen by the National Payments Corporation of India, is expected to offer competitive rates and potentially impact the future of credit card spending.

Conclusion: The surge in international credit card spending in India reflects a broader trend influenced by travel recovery and attractive credit card rewards. As the payment landscape evolves, the expansion of UPI and regulatory changes will continue to shape the dynamics of international transactions. While credit cards remain a preferred choice for many consumers, the growth of alternative payment methods and evolving financial regulations will play a crucial role in the future of international spending.

Also Read : Salary Disparity and Workforce Trends in India's Global Capability Centres (GCCs)

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