Overseas credit card spending increased more than prepaid payment instruments (PPIs) and debit cards over the past two years due to a spurt in travel after the easing of travel restrictions after the Covid-19 pandemic and higher reward points given by card issuers.
The rise is despite the government bringing international credit card transactions within the ambit of the Liberalised Remittance Scheme, under which such transactions attract a higher rate of tax collected at source, at 20%. However, the industry is still struggling to implement it.
International credit card payments saw an increase of 63% between December 2022 and July 2024, while PPIs recorded a 53% increase. Overseas spending through debit cards increased only 8% during this period, according to data from the Reserve Bank of India (RBI).
“Banks promote credit cards more as the interchange revenue on international transactions is higher with DCC (dynamic currency conversion) and forex markup rates. It adds to 3-5% of the transaction and such high margins are not there for debit cards,” said Ananth Babu, head of cards and payments at CSB Bank. “From a customer perspective, credit cards are more preferred only because of the kind of rewards that come with it.”
Although credit cards have a higher international transaction fee, customers prefer them for the convenience and the rewards they offer. “Credit cards can be used anywhere and customers just have to activate their card for international usage. It is like roaming in our phone networks,” said Sanjeev Moghe, head of cards and payments at Axis Bank. International service is switched off by default in a credit card, according to a mandate by the RBI.
While transactions via PPIs have also surged since December 2022, the industry expects this growth to moderate because of the limited uses of these instruments.
“Prepaid payment instruments are majorly used by students, but I don’t see PPI growing as much as credit cards when it comes to international spends because its uses are limited. There are many fintechs who got into this and developed a PPI product that was heavy on features, but the Reserve Bank is not making it easy to innovate in PPI,” said Babu.
International expansion of the Unified Payments Interface (UPI) is also expected to gain market share, as more corridors open up. It will also offer better rates since it will be controlled by the National Payments Corporation of India.
“In the next five years, I think international payments via UPI will have a share of 10% of merchant spending given they will apply only to domestic and NRI (non-resident Indian) customers,” the head of digital payments at a large private bank said on condition of anonymity.
