India's credit card industry recorded near-flat spending growth in August 2026, with year-on-year expansion slowing sharply even as card additions held relatively steady, according to estimates from global brokerages HSBC and Jefferies. The data points to intensifying pressure on a sector squeezed between a dominant UPI ecosystem and cautious consumer discretionary spending.

Spending Growth Slows Sharply

HSBC estimated credit card spending rose just 5.9 per cent year-on-year in August, while Jefferies placed the figure even lower at 5.5 per cent — a marked deceleration from 7.1 per cent recorded in July. Both brokerages flagged muted spending momentum, intensifying competition, and pressure on profitability as key challenges facing the sector.

Card additions remained relatively stable, rising 10.3 per cent year-on-year in August, up marginally from 10.1 per cent in July. However, net additions slipped to approximately 1.2 million, slightly below the 1.3 million added the previous month. Notably, smaller issuers gained market share during the period, while larger issuers lost ground — a competitive shift that analysts say reflects both product differentiation and aggressive onboarding by challenger players.

UPI Continues to Dominate Digital Payments

Total spending across merchant networks — combining cards and UPI person-to-merchant (P2M) transactions — rose approximately 19 per cent year-on-year to ₹11.3 trillion in August, underscoring the sustained dominance of UPI in India's digital payments landscape. The contrast with credit card growth rates highlights how UPI has structurally outpaced cards as the default merchant payment method.

This divergence is not new: UPI's share of merchant transaction volumes has expanded consistently over the past three years, with credit cards defending their ground primarily through reward programmes and credit access rather than cost competitiveness.

UPI MDR Framework: Limited Relief for Cards

The upcoming UPI Merchant Discount Rate (MDR) framework, set to take effect from 15 October, could partially narrow the cost gap between UPI and credit cards. Under the new framework, a 0.4 per cent MDR will apply to eligible UPI P2M transactions above ₹2,000, with a maximum cap of ₹300 on transactions of ₹75,000 and above.

However, both brokerages remain cautious on the credit card segment. The new UPI rate of 0.4 per cent remains far below the typical credit card MDR range of 1–3 per cent, offering only limited competitive relief. Small merchants receiving up to ₹1 lakh per month via UPI QR codes will continue to attract no MDR charges. RuPay debit card transactions will similarly remain exempt. Critically, since nearly 96 per cent of UPI merchant transactions fall below ₹2,000, the vast majority of users and merchants are expected to remain unaffected by the new pricing structure.

What the Numbers Mean for Issuers

The slowdown in spending growth, combined with a structural cost disadvantage against UPI, puts credit card issuers — particularly large banks — in a difficult position. Revenue per card is under pressure as average transaction values stagnate and reward-programme costs remain elevated. The market-share shift toward smaller issuers suggests that incumbent banks may need to revisit their product and pricing strategies ahead of the festive quarter.

With the October MDR rollout approaching and the festive season spending cycle beginning, the next two months will be a critical test of whether credit card growth can re-accelerate or whether UPI's structural lead continues to widen.