UPI’s Gain Is Debit Cards Fall

Mumbai: With changing consumer preferences shifting towards the use of credit cards and UPI, debit Cards as a payment medium have not been able to maintain pace. According to experts, the Reserve Bank of India's (RBI) recent push to enable UPI-backed cash withdrawals from ATMs, and the introduction of features such as delegated payments and interoperable card-less cash withdrawals would further make debit cards redundant.

The total number of debit cards stood at 98.57 crore in August 2024 compared to 97.80 crore as on August 2023, a growth of mere 0.78 per cent. The number of debit cards swiped at PoS fell 41 per cent during August 2024 at 10.61 crore from 14.95 crore transactions in August 2023. The value of these debit card transactions stood at Rs 29345 crore in August compared to Rs 34604 crore in August 2023 a fall of 17 per cent. In contrast to credit card growth, debit card transaction volumes and spends have grown sharply by 20 per cent and 6 per cent CAGR over August 2019 to August 2024 even as cards in force grew at a modest 4 per cent CAGR over the same period. According to the RBI data, on E-Commerce platforms, the number of transactions done through debit cards was down 61 per cent at 3.59 crore in August 2024 from 5.78 crore in August 2023 while the value of these transactions fell by 27 per cent to Rs 14009 crore from 17,839 crore in August 2023.

Debit card use is now mostly confined to a few specific cases such as large-value online payments, debit-linked EMI options, and transactions in areas where UPI may not yet be widely accepted.

On the other hand, UPI transactions have grown at a stellar pace of 75 per cent CAGR, while UPI spends has grown at 68 per cent CAGR over August 2019-2024. By 2024, UPI accounted for over 80 per cent of all digital payment transactions under Rs 500, driven by ease of use, zero merchant discount rates (MDR), and widespread QR code adoption. UPI payments surged to Rs 20.64 lakh crore in value in the month of September 2024. Developed by National Payments Corporation of India (NPCI), Unified Payments Interface (UPI) transactions increased to 1,504 crore in September, a growth of 42 per cent year-on-year.

Ram Rastogi, a digital payments strategist in an article said, “Debit cards, while widely used in India, come with maintenance costs for banks and fees for consumers. UPI, on the other hand, is largely free for both parties, except in rare cases where a nominal MDR may apply for certain credit transactions linked to UPI. As more users embrace UPI’s cost-effectiveness and ease of use, banks may also find it less viable to continue issuing debit cards at their current rates.”

“Merchant preference is also shifting toward UPI due to its zero MDR for debit transactions, compared to the one per cent charged on debit cards at POS terminals. This shift in merchant behavior, coupled with consumers' increasing comfort with UPI, is expected to further reduce the demand for debit cards,” added Rastogi.