New Delhi, Sep 25: India’s credit card market is entering a more competitive phase as spending growth moderated in August, while UPI continued to strengthen its position as the preferred payment option for everyday merchant transactions.
Credit card additions remained relatively steady during the month, growing 10.3 per cent year-on-year, slightly ahead of the 10.1 per cent growth recorded in July. However, the pace of new card additions slowed, with around 1.2 million cards added in August, compared with approximately 1.3 million in July.
The numbers point to a changing payments landscape where expanding card ownership is not necessarily translating into similar growth in spending.
Spending momentum loses pace
Credit card spending increased by an estimated 5.5-5.9 per cent year-on-year in August, slower than the 7.1 per cent growth recorded in July.
The moderation comes amid increasing competition among card issuers, with smaller players gaining some market share while larger issuers saw their share decline.
Industry analysts have highlighted slower spending momentum, increasing competition and pressure on profitability as some of the key challenges facing credit card companies.
UPI continues to dominate everyday payments
While credit card spending growth moderated, India’s overall merchant payment ecosystem continued to expand.
Combined spending across merchant payment networks, including cards and UPI person-to-merchant (P2M) transactions, increased by around 19 per cent year-on-year to Rs 11.3 trillion.
The trend reflects the growing role of UPI in routine transactions, particularly among consumers and small businesses. Its convenience and widespread QR-code acceptance have made it an important part of India’s rapidly expanding digital payments ecosystem.
New MDR framework changes the competitive landscape
The upcoming UPI Merchant Discount Rate (MDR) framework, scheduled to take effect from October 15, is also expected to influence the competitive dynamics between UPI and cards.
Under the new framework, an MDR of 0.4 per cent will apply to eligible UPI P2M transactions above Rs 2,000. This compares with approximately 1-3 per cent typically associated with credit card transactions.
The relatively lower cost of UPI means the new framework may provide only limited relief to card issuers from the competitive pressure created by UPI.
At the same time, transactions involving small merchants receiving up to Rs 1 lakh a month through UPI QR codes will remain exempt from MDR charges.
RuPay debit card transactions will also remain outside the MDR charge. For applicable transactions, the standard UPI MDR will be 0.4 per cent, with a maximum cap of Rs 300 for transactions of Rs 75,000 and above.
Most everyday UPI payments remain unaffected
A significant portion of UPI merchant payments will continue without the new MDR charge. Nearly 96 per cent of UPI merchant transactions are below Rs 2,000, meaning the new framework is expected to have limited impact on the bulk of routine digital payments.
For credit card companies, the changing market could increase the importance of premium customers, higher-value transactions, rewards programmes and differentiated products as they look to maintain spending growth.
The August data therefore reflects more than a temporary slowdown in credit card spending. It highlights the broader transformation of India’s payments market, where multiple digital payment options are competing for consumer and merchant transactions.
As UPI continues to expand its reach, credit card issuers are likely to focus increasingly on segments where cards offer distinct value, while the wider payments industry moves towards a more diverse and competitive digital ecosystem.