Is UPI payment hampering the business of credit card companies?*

Personally, I’ve been using credit card as my go-to method of payment for 30+ years. While I’ve replaced some of my cash and NEFT payments with UPI, I’ve not used UPI for any payments that I normally make with credit card. Therefore, UPI has not dented credit card business in my case.

That said, I know a few people who find UPI more frictionless than credit card and have switched from credit card to UPI for some of their payments. But, intimidated by the growing incidents of fraud in UPI, some of them have switched back to credit card since it offers better fraud protection.

Banks make 2–3% interchange / MDR revenue on credit card payments. OTOH, ever since the #ZeroMDR regulation came into effect from 1 January 2020, they don’t make any money on UPI. As a result, I’ve noticed that banks have lately become very aggressive in signing up customers and merchants for credit card and POS terminals respectively.

That’s being reflected in actual numbers: For a long time, I used to hear that there are 40M credit cards in India. The number I hear now is 53M. That’s, like, a 25% growth of the 30-year installed base over just 1-2 years, which is staggering growth by any yardstick. There were 1.5M POS terminals in India when UPI was launched. There are 4.25M POS terminals in India now.

Actual credit card volumes are also showing a steady uptick.

Since credit card has a very low penetration in India (only 3%), it offers a huge headroom for growth.

Going by the above, I won’t be surprised if UPI is found to be a net positive factor for the credit card business in India.

*: This is the original question I answered. I’m repeating it to help me make sense of my answer in case it’s moved to / merged with some other question that I didn’t answer.