India’s UPI and credit cards coexist and complement each other, new evidence suggests

Despite initial fears that India’s unified payments system would disrupt credit card usage, recent research indicates the two payment methods are expanding together, with UPI broadening the digital payments market without replacing traditional credit cards.

India’s unified payments system has often been cast as a threat to credit cards, but the evidence now points in a different direction: the two are growing together rather than replacing one another. That is the central argument of the Finextra commentary, which says UPI has broadened the market for digital payments instead of wiping out the older card model. Research cited in the related material also suggests a positive relationship between UPI adoption and credit card spending, reinforcing the view that the two channels can be complementary rather than purely competitive.

The contrast between the two products remains stark. Credit cards have long occupied the premium end of the market, carrying merchant fees, rewards and credit features that make them more suitable for higher-income consumers and larger-ticket purchases. UPI, by contrast, was designed as a low-cost, widely accessible system that any banked consumer or merchant could use. That difference matters in a country where digital payments were still relatively underpenetrated when UPI launched in 2016, and where the formal payments ecosystem was still far from universal.

One reason UPI did not displace cards is that it made digital payments visible to far more people. As UPI spread across everyday commerce, it normalised the idea of paying electronically for routine purchases, creating a wider audience for digital finance generally. That change appears to have benefited credit cards as well, because it helped consumers recognise the value of card perks such as rewards, deferred billing and airport lounge access. A linked discussion in Mint also points to the continuing appeal of those features even as UPI dominates small-ticket merchant payments.

Security and convenience have also shaped behaviour. Some consumers moved routine payments from cash or bank transfer to UPI without altering their card usage much at all. Others shifted part of their spending towards UPI because it felt quicker or simpler, but there is evidence that a portion later returned to cards, particularly as concerns about scams and fraud in UPI grew. At the same time, credit cards have become easier to use through contactless technology, reducing one of the payment method’s old frictions. In practice, many consumers now choose between the two depending on the transaction, not on ideology.

The business incentives are different as well. After India removed merchant discount rates on UPI in 2020, banks lost a direct revenue stream from those transactions, while card payments continued to generate interchange and merchant fees. That has encouraged lenders and payment companies to push harder on credit-card issuance and merchant acceptance. A Livemint report on RuPay credit cards linked to UPI noted that banks and fintech firms have stepped up efforts to sign up merchants, even though low-value transactions remain less attractive to monetise. The result is a more crowded and more active card market, not a weaker one.

There is also a broader policy question: UPI may not have been intended to function as a classic disruptor in the Christensen sense. Disruptive products usually begin at the low end, then improve enough to move upmarket and challenge the incumbent directly. UPI has certainly expanded, but it has not added the core credit-card features that would make it a substitute for premium card use, such as rewards, revolving credit and robust built-in fraud protection. Moreover, the payment system’s continued treatment as a public good, alongside the absence of any return to merchant charges, suggests the state has wanted it to remain a mass-market utility rather than a profit engine. That may explain why India’s card market has kept growing even as UPI has become the dominant payment rail for everyday transactions.