How credit cards are driving Tier-II & III cities as growth engines of the economy?

Card Payments

As the services sector started its precedence over manufacturing and agriculture in the late 90s, the lack of employment opportunities, career growth, and crumbling infrastructure in India’s smaller cities and towns drove the country’s youth to metros like Mumbai, New Delhi, Bengaluru and others. However, in recent years the latest trends suggest that tier II & III cities offer better economic revival and growth opportunities making them the next big market for companies. 

One of the biggest contributing factors has been the availability of easy credit to most parts of the country, with the advancement of technology, the youth is making out the best with various credit facilities being made available to them via credit cards, BNPL, online loans, and no cost EMIs.

In the recent times, the trend has been enhanced on account of the work from home facility provided by multiple companies. Employees are earning the same amount as they were in cities but are spending it in their hometowns. The adoption of work from Home has been so popular that some employees do not want to re-join their offices in metro cities. Companies have also been flexible in giving a permanent work from home option to employees.

The trend of reverse migration

Since the 2010s, the overcrowding, pollution, and higher cost of living in the tier-I cities have compelled people to move to the cities that offer better prospects to live. At the same time, with an improvement in infrastructure and low cost high quality internet availability, these cities have turned into lucrative spots enabling more people to stay back and even return from metro cities. Most upcoming start-ups find these cities business-friendly as the initial cost is much lower, the availability of skilled resources is abundant and their retention is affordable.

Service expansion in Tier-II cities

Growing e-commerce space attached to various retail and supermarket chains makes modern retail easily accessible. Even in the tier-II cities, the opening of malls and multiplexes, pubs, and fast food joints have exposed the younger population to these big-city charms. 

Food delivery, e-commerce players and cab-hailing apps have also targeted their services to these smaller cities which were only enjoyed so far by big-city residents. This gradual boom in consumption led by these cities in all verticals is making them the actual growth engines of the country. As consumption increases, the customers look for convenient methods to pay for these services.

Also, the change in consumer behaviour to use credit to fuel purchases along with an increase in consumption on account of easier availability of services has led to a fast growth of credit cards in smaller towns and cities. The aspirational customers want the same lifestyle as their metro counterparts with the convenience of staying in their hometowns.

How much do we depend on credit cards?

The average credit card spend per month has gone up by about 30% in the last 5 years (data as per RBI). With the ease of making digital payments, the millennial & Gen Z prefer technology over any other source. As they have experienced the tech like no one else, they prefer ways which are faster, efficient, and easy to access. With UPI and credit cards, they have the freedom of speeding up their financial needs with fast credit, resolution, and approval. Added with facilities like Buy Now Pay Later (BNPL), the youngsters try to get the best out of all product-based schemes while spending online. Credit cards offer a wider range of accessibility, as they provide rewards & discounts across platforms.

The last financial year has seen a 19% growth in the number of credit cards outstanding, the major contributors to this growth has been the flexibility of repayment options for big-ticket purchases, payment of utilities, enhanced discounts on merchant partners and an upgrade of lifestyle with value added benefits. Since the pandemic struck, the demand and dependence on e-commerce has paved the way for easier payment methods, majorly credit cards. The increase in number of issuers has also enabled credit cards to those customers who did not possess the same earlier.

Credit cards adoption has increased significantly on account of multiple reasons like better acceptance infrastructure in smaller cities, increased penetration of ecommerce, easier credit norms for issuing cards and adoption of technology to monitor transactions. 

The increased penetration of credit cards has led to growth of consumption which aids the local economies of these cities. The governments push for financialization of savings has also enabled more customer to enter the formal banking channels. The future prospects of the industry are bright on account of the under penetration of credit cards where only 7 crore cards are issued for a population of 140 crores. RBI is also enabling a more customer friendly approach by means of the issuance of the recent credit card guidelines.

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