I love Manu Joseph’s commentary on the society and his deadpan, ruthless delivery. That is also because I often agree with him. Like Manu, I have a pessimistic outlook of the society and life in general. So, when he asked himself a fintech question recently, Why is the credit card still around? (PressReader link), I also tried to attempt the question. Because I’ve been a proponent of credit cards since December 2021 when I first got one. I even convinced my girlfriend to sign up for an AMEX card, which is saying something because she rarely listens to me and is more of a Unified Payments Interface (UPI) person like many of my close friends and family.

This is not an attack on Manu or his opinion. I’m just publishing this as a way to share some information that was missed in the article, and which may benefit some readers. In any case, I believe both Manu and I can agree that a credit card is not for everyone.

Manu starts off by professing his love for UPI and its posterchild, Paytm. He says that he has been using UPI for both small and big purchases, for which the ease and convenience is unmatched when compared to other methods of payment in India. He finds himself using a credit card only when he has no other choice, like booking a hotel outside abroad in that specific nation’s currency. Most credit cards levy a fee of 3.5% (called forex markup) on such international transactions if the currency is not the Indian rupee. It’s a fair point because it’s also what makes some credit cards inefficient for such transactions. In addition to the forex markup, banks squeeze out more from the credit card holder by offering an arbitrary exchange rate, which is usually worse than the prevailing rate offered by the bank for its other high-margin products like the forex card. There’s also an 18% Goods and Services Tax (GST) on the forex markup. Such an international transaction then costs slightly more when you pay with a credit card.

Thankfully, there are solutions. And that is also the first reason why I believe the credit card is still around. A credit card is no longer a simple product today. It’s available in a variety of types and forms. There’s now a credit card on UPI on India’s RuPay network that you can link to your UPI app like Google Pay and use for eligible transactions. There are co-branded credit cards such as the hugely popular ICICI Amazon Pay and Axis Flipkart credit cards where businesses tie up with banks to offer dedicated cards intended for their biggest customers. There are fintech startups like OneCard that are trying to digitize the credit card system with shiny apps. There are even zero forex markup credit cards that are meant for the very type of transactions that Manu mentions in his article.

Zero forex markup credit cards essentially do away with forex markups and offer real-time exchange rates. For example, Scapia has a travel credit card on the Visa network that offers 0% forex markup and a real-time exchange rate provided by Visa. There’s also the Niyo range of debit and credit cards that offers 0% forex markup on international transactions. Such cards have threatened the existence of forex cards, which are prepaid cards issued by banks that you can pre-load with a currency of your choice and based on that day’s exchange rate. There are also multi-currency forex cards that allow you to configure more than one currency.

There’s no dearth in the varieties of credit cards that can solve the issue of having to pay extra on forex transactions. There are premium cards that offer a higher percentage of reward points than that of the forex markup, effectively making international transactions rewarding. However, such credit cards are hard to obtain and have steep annual charges. For an average person, opting for a card with zero forex markup would make most sense. Scapia card, for instance, is lifetime free (LTF). The term “LTF” is sort of a holy grail among credit card fanatics.

These solutions may seem like too much optimization for someone like Manu. It feels cumbersome to me and I do maybe half a dozen international transactions in a year, if I’m not traveling abroad. Having more than one credit card would also feel like an inconvenience to Manu, what with all the statements, due dates, and terms and conditions he would need to be mindful of. But if there’s a simple solution to avoid banking middlemen exploit my situation when all I’m trying to do is fly to the Maldives, then I’d take it. Not start to hate credit cards. Stopping to use one’s credit cards as a defiance against the forex markup seems silly to me.

The next issue that Manu highlights before concluding the death of credit cards is that of the need for credit. He says he’s never needed the ‘credit’ part of the credit card and also goes on to proclaim that most people don’t. He’s both right and wrong here. Sure, I have myself never needed the credit part of my credit cards. That’s because I use them as debit cards, not as free money. But I have in the past needed credit in the form of gold loans and a housing loan. Most people will need this kind of secured credit, especially in a consumerist market. And the humble credit card can be a stepping stone to building one’s credit-worthiness.

The credit score is perhaps one of the most important numbers in a person’s life today, along with their Aadhar number and Permanent Account number (PAN) if they’re Indian. I’m not counting replaceable numbers like one’s phone number or the personal identification number (PIN) that one uses to authenticate financial transactions. Maintaining a good credit score is key to being creditworthy in the eyes of lenders. Assuming that no one needs credit in today’s world is like assuming everyone is rich. Credit score has begun to influence other aspects of life as I found out just last week when a potential employer made a hard query against my PAN to the Credit Information Bureau (India) Limited (CIBIL).

Personally, I feel the credit card is the easiest way to build one’s credit score. I don’t know what my score was in 2016 when I first sought credit, a gold loan to pay for my first car. Since then, with a mix of secured and unsecured credits – all paid in time, I should note – I enjoy a score that’s just shy of being tagged as excellent. Tomorrow if I need an unsecured loan or a huge housing loan, my credit score will make it easier, and perhaps even get me a better deal. It is common for lenders globally to extended a lower interest rate than the average if you have a spotless credit history.

A reason why e-wallets and UPI have not killed credit cards so far is because the latter use proven gamification techniques to make users spend more. Why would a frequent traveller use UPI to pay for his flights and hotels when he can use a premium AMEX credit card and earn reward points in the process which are valuable enough to fund some of her spends? Why wouldn’t a breadwinner of a middle-class household funnel her annual spends of, say, 1 lakh, to a cashback credit card and earn at least 1,000 (1%) on it? That’s maybe a month’s power bill for such a household. Recently, I shopped at a Dmart store using my OneCard. The bill was roughly 1,700 rupees and I paid off that amount using OneCard reward points that I had accumulated since June 2022. Total spends on the card since then, which I would have anyway made: roughly 170,000 rupees.

Credit cards are still around because in the example in Manu’s article, the man, his close relative, defaulted on his first credit card bill. A finance-savvy person optimizing his credit card usage benefits from people like Manu’s close relative who default on their credit card bill payments, withdraw cash using their credit card, or do any of the many things that one is not supposed to do. A person who is forced to pay more than he spent on his credit card is who indirectly pays for my credit card treats.

I would feel better if credit cards commit suicide because of the pain and suffering of people who have credit cards but do not deserve it than them being forced to die. To be fair, Manu agrees that his relative should have been the last person to hold a credit card.

Manu also points fingers at potential forgetfulness in paying one’s credit card bills, at least before the due date. I think it’s a valid reason to avoid credit cards, which only reinforces why it should be in the hands of only the most disciplined of folks. But it’s not enough justification to wish credit card’s death. This just connects back to the point I made above where smart credit card users benefit from the poor decisions made by others on their credit cards. The interest rates on credit cards are too obscene, I agree, but look at it as a potential risk against all the benefits of credit cards.

Is the credit card a temptation offered by a sly moneylender? Yes. Are there people who game the system and milk out benefits that would could make the moneylender barf? Also yes. Just a casual glance at r/CreditCardsIndia on Reddit will show you what I mean by people who optimize their spends so much that they are able to extract over 5% out of their cashback credit cards across spends. It also causes them a lot of stress from all that calculations they have to make to time and optimize their spends, so I’m not entirely sure if I should be taking their example here.

I’m all about denying banks revenue from me if that means using free alternatives like UPI and cash. But when there are simpler options in abundance, it feels better to instead extract a part of the revenue from them. Another issue with using credit cards is the merchant discount rate (MDR), a fee that banks charge merchants for receiving payments through credit cards. MDR is usually between 1% and 3% and is a concern for many merchants. As a result, these merchants refuse payment via credit cards or ask the customer to foot the MDR, saying that their margins do not justify an additional fee. Jewellers, sneaky restaurants (mostly family-run establishments, in my experience), and automobile dealers rarely accept credit cards without charging the MDR as extra. If you took the time to go through that Reddit community above, you would know that there are people who use premium credit cards on such purchases. They agree to pay the MDR because they end up with reward points at a higher percentage. It’s better to pay 1 lakh for a motor bike using a credit card and footing a 2% MDR and earning 3% cashback on it than using UPI. It’s better to sometimes utilize a large part of your credit so that your bank offers you a higher limit in future.

It only takes a little bit of research to find out the best way to use all those reward points you accumulate on your credit card. Yes, banks push you to buy things that you don’t need from their poorly managed portals, but in my three years of holding credit cards, I have never used reward points to buy something I didn’t need. In most cases, I have received those points as real money, either as statement credit or Amazon Pay money.

The last nail in credit card’s coffin according to Manu is its higher vulnerability to fraud. Someone used his card to make transactions to the tune of 5,000 pounds, so he bid goodbye to it, of course, after ensuring that he got all his money back. What should have been a quality worth promoting got twisted and presented in a way that makes it exclusively bad. You can dispute a fraud transaction on your credit card and claim full refund of the amount that was lost. This is because with a credit card, you have zero liability. Banks assume full liability (up to a certain amount) on fraud transactions, which is not the case with UPI, cash, or even a debit card. Money lost to fraud via net banking is gone forever.

What Manu misses in his op-ed is another critical benefit of a credit card. The credit itself and its revolving nature. When you use a credit card to buy something, you are essentially using the bank’s money without touching your own. You have to pay it back only within a minimum of 30 days. There’s no interest on this “borrowing” if you pay back in time. For high spenders, this revolving credit means that their money continues to grow itself during that period. I can’t think of any other product that comes close to the technological marvel that is the credit card. Even in 2024 when all UPI does is needlessly protract my bank statements.^[1]I have a solution for that too if you’re wondering. I have a credit card on UPI and a secondary bank account for those times when UPI is the only option other than cash.

This was only an attempt to provide another perspective to Manu’s question. Even though I’m a proponent, I do not think everyone should have credit cards. They are only meant for people who don’t need credit, can use it as a debit card, and don’t have the propensity to buy things that they don’t need and then fall into a debt trap. Rising credit card usage in India with record-high outstanding credit worries me but for the sake of this argument, I’m happy to report all the reasons why the credit card isn’t dead yet.