KEARNEY India and Amazon Pay recently released a report — ‘How Urban India Pays’– that confirms what has been an open secret for long: Indians of all demographics and regions are now hooked on cashless transactions and digital payments. Just look at the numbers: 90 per cent of consumers with internet access prefer digital payment options for online purchases; 50 per cent digital payments for offline purchases; and 30 per cent digital wallets and cards for online purchases.
Conducted in over 120 cities through interaction with over 6,000 consumers and 1,000 merchants, what the study reveals is startling: UPI or Unified Payments Interface is the number one preferred choice, and 53 per cent use apps like Paytm or PhonePe for transactions. Apart from that digital wallets, and cards (credit, debit, and prepaid) are the second most preferred option by 30 per cent of Indians.
Consumer preferences
The study assessed consumer preferences across multiple strands where Indians spent the most money including food and groceries, medical expenses, children’s education transportation and, most importantly, electronics and blind shopping. Blind shopping as in impulsive, spontaneous spending when one is in a mall etc.
Surprisingly, cash continues to be king when it comes to daily needs like food and groceries, children’s education, Uber and Metro needs and daily chemist items, but for blind or discretionary spending that includes more expensive price tags items like electronics, clothes and shoes, there is a clear preference for digital payments (close to 84 per cent) preferring UPI over all other options).
In digital payments too, there are multiple strands. The clear option for smaller payments is the digital wallet mode where you store money from your bank account through UPI apps like PhonePe and GooglePay. But when it comes to big-ticket, items like electronics, the clear option is credit cards. Here again, the preferred option is the EMI scheme where you buy now but have the option to pay later in defined instalments over several months. Another illuminating fact is that anything under Rs 1,000 goes through the digital valet and anything above it gets the credit card EMI option.
All this should be no surprise considering credit card spending has zoomed by around 27 per cent year-on-year (Y-o-Y) to Rs 18.26 trillion in the financial year 2023-24 (FY24) from nearly Rs 14 trillion in the same period a year ago as reflected by the latest data from the Reserve Bank of India (RBI).
One of the prime reasons for this seismic trajectory, described by India Today as an ‘endemic’ is the huge jump in credit card numbers across the country. As the publication explained: “Just a decade ago, credit cards were a rarity, with stringent eligibility criteria. From two crore in 2011 to 10 crore in 2024, the number of credit cards issued in India has seen a phenomenal jump. With it has risen the spend on credit cards and the defaults. Now, India is facing a credit card pandemic.”
One of the great negatives in this trajectory of rising credit card usage is the rising defaults. According to RBI statistics in 2022-23, credit card defaults were Rs 4,072 crore–close to Rs 1,000 crore higher than the default in 2021-22. “Certain components of personal loans are, however, recording very high growth. These are being closely monitored by the Reserve Bank for any signs of incipient stress,” RBI Governor Shaktikanta Das said.
Fashionwear shopping
In February, the Indian Institute of Management (IIM) released a report, ‘Digital Retail Channels and Consumers: The Indian Perspective’. The report highlighted the fact that 47 per cent of men and 58 per cent of women shopped for fashionwear whereas 23 per cent of men and 16 per cent of women shopped for electronic devices.
“In doing exclusive shopping for fashion and clothing products, consumers in Tier-2 cities have the highest per capita spending. However, a higher proportion of consumers engaging in exclusive shopping are from Tier-3 and Tier-1 cities,” the TOI quoted the report as saying. Not just that, as the spending increases online, co-branded credit cards are gaining huge popularity, especially those issued in partnerships with e-commerce, travel, fuel, and entertainment institutions. These cards with offers and cashback programmes drive consumption.
For a nation that consistently preaches simple thinking and frugal living, this century will more than likely be the century of online acquisition, plastic money and consumptive consumption. This is clearly one of the fallouts of being a near $5 trillion economy with ambitions of doing $10 trillion by 2030.
India is changing and Bharat is outpacing it.
