India’s consumer economy is undergoing a visible shift. Over the past decade, credit cards, digital payments and buy now, pay later (BNPL) financing have changed how households spend. Cashback offers, discounts and no-cost EMIs are now deeply embedded in retail and e-commerce. While these tools have improved access and convenience, they also raise an important question: are incentive-driven payment systems encouraging higher spending?
Reward-led consumption
India’s credit ecosystem has expanded rapidly. Credit card spending stood at ₹18.26 lakh crore in FY24, according to RBI data, and has since risen further to around ₹21 lakh crore in FY25, reflecting continued double-digit growth in card-led consumption.
This expansion mirrors broader behavioural changes. Credit cards, BNPL options and EMI-based financing are increasingly being used across categories such as electronics, travel and online shopping.
As access to credit improves, consumption patterns are also evolving. At the centre of this shift are reward structures. Cashback, loyalty points and merchant discounts create the impression of earning while spending. In reality, these benefits typically range between 1 per cent and 5 per cent of the transaction value. Despite being relatively small, they can have a disproportionate influence on purchase decisions.
Incentives change behaviour
Behavioural economics offers a useful lens. Consumers tend to favour immediate rewards over long-term financial outcomes, a tendency often described as immediacy bias. Cashback and discounts reduce the perceived cost of a purchase, even when the actual savings are limited. This effect becomes more pronounced during festive periods. High-value transactions tend to increase as retailers combine bank offers, discounts and EMI schemes to drive sales.
No-cost EMIs reinforce this behaviour further. By spreading payments into smaller monthly instalments, they make high-value purchases appear more affordable at the point of sale. When combined with cashback offers, these layered incentives can encourage consumers to upgrade or spend earlier than planned.
Rise of short-term credit
The growth of BNPL and instant credit lines is another important trend. These products allow consumers to defer payments without relying on traditional credit cards, making short-term credit more accessible. In practice, this ease of access is changing how credit is used.
With faster approvals and pre-sanctioned limits increasingly embedded within payment journeys, borrowing is becoming more frequent and transaction-linked rather than occasional. Fintech-led onboarding and seamless user experiences are further accelerating this shift, bringing a wider set of consumers into short-term credit usage.
Changing savings patterns
Macroeconomic data also reflects this shift. Household financial savings in India rose to around 6–7 per cent of GDP in FY25, from about 5.3 per cent in FY24, according to RBI data, with the earlier year weighed down by elevated household borrowing. At the same time, credit card use has continued to grow at a strong pace, with annual spending crossing ₹18–20 lakh crore in recent years, driven by higher transaction volumes and wider digital adoption. Together, these trends point to a system where expanding access to credit is increasingly supporting consumption.
A double-edged system
It would be simplistic to view cashback and EMIs purely as drivers of overspending. When used responsibly, they can improve financial efficiency. Cashback can reduce effective purchase costs, while EMIs can help manage large, necessary expenses. However, these incentives are also designed to increase transaction frequency and ticket sizes.
Digital payments reduce the friction of spending, making transactions feel less tangible than cash. For consumers who carry revolving balances, the risks are more visible. Interest rates on unpaid credit card dues remain high and costs can escalate quickly if balances are not cleared on time.
Striking the right balance
India’s evolving consumer finance ecosystem reflects both opportunity and risk. Incentive-driven products have improved access and flexibility, but they are also shaping how people spend.
For consumers, the key question is whether an offer genuinely reduces the cost of a necessary purchase or simply makes discretionary spending feel more attractive. For lenders and fintech platforms, the responsibility lies in balancing growth with sustainable lending practices and stronger financial awareness. Incentives can influence behaviour, but long-term financial stability still depends on the idea that spending should be guided by income, not rewards.
Adhil Shetty is CEO of Bankbazaar.com
