Earlier this month, Visa and Mastercard, an international duopoly that accounts for 90% of global card transactions (excluding China), decided to suspend its network services in Russia in protest against its invasion of Ukraine. Their actions kicked off a debate in India, whose neutral stand on the war highlighted similar risks it could face in a wider geopolitical conflict.
That conversation revolved around whether India was overly dependent on businesses that could shut shop in a trice. In payments, India and Russia are similar in some aspects. While cash accounts for about a third of payments at the point of sale (PoS) in both countries, credit and debit cards—the operating space of Visa and Mastercard—account for 36% in India, against 51% in Russia.
E-commerce, however, is changing the payments landscape in India. In e-commerce transactions, digital modes like e-wallets and instant payment apps account for 45% share in India, compared to 28% for credit/debit cards. In other words, while there is dependence on payment networks like Mastercard and Visa, that space is evolving with digitisation.
Russia has held up even after this action by the two payment networks. Having previously faced economic sanctions, it built a national payment card system and stipulated all domestic transactions go through it. Mir, its local rival to Visa and Mastercard, accounts for 30% of debit cards in circulation. However, it is facing challenges in international transactions, and is reportedly in talks with China’s UnionPay. Similarly, India launched RuPay in March 2012, but it’s not reached a point to overcome the challenges of a sudden withdrawal by global players.
The usage of RuPay, the card network from National Payments Corporation of India (NPCI), has increased about four times at PoS terminals and about 15 times on e-commerce sites in the last five years. According to the Reserve Bank of India, in the overall credit/debit cards segment, the share of RuPay in cards issued has increased from 15% in 2017 to 60% in 2020. However, in transaction value terms, its share is reportedly 30-35%, almost entirely from debit cards.
RuPay debit cards received a boost from the government launching the Pradhan Mantri Jan Dhan Yojana in 2014 to provide bank accounts to the poor. To encourage digital transactions, banks were asked not to charge transaction fees on the RuPay network, a move that Visa and Mastercard said was protectionist. Visa and Mastercard dominate the credit card market, reportedly accounting for 95% of credit cards in circulation in January 2022.
While the number of debit cards in India is higher, credit cards dominate in transaction value. As of January 2022, there were 940 million debit cards and 70 million credit cards. However, while ₹60,025 crore worth of transactions were done using debit cards that month, ₹87,769 crore worth of transactions were done using credit cards.
The credit card market in India continues to expand, though it is facing challenges from digital modes. In the last five years, the number of credit cards has grown about 87%. Credit card spend in the first 10 months of 2021-22 has crossed pre-pandemic, full-fiscal levels. Banks have preferred Visa and Mastercard for their credit cards because of their long-standing relationships. The transaction fee is market-driven, and banks get most of the share. Therefore, RuPay doesn’t have the advantage it has in debit cards. Customers also tend to prefer Visa and Mastercard for their global acceptance.
However, the payments landscape has changed significantly, mainly because of the launch by NPCI of the Unified Payments Interface (UPI) in April 2016. The transaction value over UPI has consistently surged, with an initial impetus coming from demonetization. According to RBI, in January, the share of UPI in all retail payments was 18%, against 3% for debit, credit and prepaid cards.
Innovation is now primarily reorienting around data analytics to assess credit risk and offer other products. This is a big shift for banks that took to credit cards for fees and interest income, but can now look at other opportunities. Indian fintech companies raised a record $6.9 billion across 194 deals in 2021, according to Venture Intelligence. While there is no substitute for robust infrastructure—provided by Visa, Mastercard and NPCI—the data-centric approach to payments could fundamentally change business models and the payments industry.
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