Diligent efforts by the Reserve Bank of India to shift to a cashless economy, compelling the use of plastic money, have yielded significant dividends. In India, with traditional modes of payment (cash) in circulation for decades, this is a boon, and the amount of credit card usage has surged between 2015 – 2016 and 2019 – 2020. Volumes of digitized payment have grown annually with a compounded rate of growth at 55.1%. In March 2016, 5.93 billion transactions were recorded for the previous 5 years, whereas in March 2020, 34.35 billion were reported for the past 5 years. Critics argue that Indians are just aping western trends of keeping plastic on hand, to buy everything from designer bags to going on holidays.
This isn’t entirely true. According to RBI data, users of credit cards rose almost a hundred percent from July 2020 to August 2020, showing a sustainable increase in the months leading up to the easing of lockdown restrictions. If you are wondering how to apply for a credit card online, the process is easier than it was in previous years, with a view to encouraging a more “digital India”.
The Indian mindset
Indians have discovered new means of doing things and have made their lives easier by adopting digital technology. This is how India has grown as a country, and in many ways, it continues to do so. With a drastic influx of global brands warming up the Indian marketplace, it’s not hard to fathom that Indians want better modes of payment to purchase quality products. Presently, banks like SBI offer credit cards with monthly interest rates of up to 3.35%, while ICICI Bank Credit Cards stand at 3.40%.
This is still considered high by many Indians who are in the average to low-income group segment. With affordability foremost in the Indian consumer’s mind, individuals want to use a credit card that offers the utmost in value, such as the lowest interest rate credit card. And why not? If you are buying a high-end item that you opt to pay for with a credit card, you don’t want to end up paying hefty interest amounts. You may just be paying for much more than the price of your expensive product in the first place! This isn’t cost-effective. In another context, you may buy an item at a discount, only having to pay a heavy interest amount, and so your “discount” becomes redundant. Interest rates in the region of 1.5% to 2.99% per month are considered low where credit cards are concerned.
Where interest kicks in
The majority of Indian credit card users want credit cards that offer low-interest rates. These can be of advantage to users in the following ways:
- Annual fee savings – Credit cards carry annual service fees. Cards with low-interest rates have lower annual fees than those that don’t.
- Interest Savings – In case the cardholder uses the facility of rollover credit (pays any amount lower than the total amount to be paid or just the minimum amount that is due), the cardholder will have to pay interest on the remaining amount. Banks and financial institutions may offer different kinds of credit cards, depending on the cash limit that you choose. SBI has a 1.99% interest rate per month on its Platinum Card. Other cards offer higher rates. The lowest that Citibank has to offer is 3.15% per month, which is too high for the average salaried Indian.
- Interest on EMIs – If the cardholder has bought a product on EMIs through their credit card, monthly rates of interest will be low and he/she won’t end up paying much more for the product due to high-interest rates.
Banks and credit card companies strive to lower credit card interest rates in the hope of compelling the Indian consumer to use credit cards more. Yet, as of FY 2018-19, the typical Indian hardly used any kind of loan through credit cards. Through 2020, the trend has shown more use, but it is a gradual rise and very low compared to many developed nations. There are only 3 credit cards for every 100 people in India, as compared to a penetration figure for America at 320. This is not necessarily bad, as India has a decreased debt/GDP ratio (11.6%) compared to many developed nations, all higher. This means that India is paying off debts with enough production to do so. Many Indians are reluctant to use credit cards as the majority of the Indian demographic lies in a relatively low-income group. Even in the higher income groups, many people claim that they don’t know how to apply for a credit card, or may not be eligible.