What should your first choice of payment be: Cash, UPI, debit card or credit card?

With Unified Payments Interface (UPI) going global, people rely more on online payments, so much so that transaction volumes through this mode recently touched a record high of 9.41 billion transactions.

Amit Kumar, CTO of Easebuzz, says, “UPI payments have also surpassed other modes, be it for transactions at local vendors, food courts, or online stores. Users still have the freedom to choose alternative payment methods such as credit or debit cards based on their preferences. Credit cardholders may use this method to utilize reward points or maintain a favourable CIBIL score. Consumers who want to control their expenditures and have a set budget can use debit cards for such purchases. Cash is preferred less.”

However, one must understand that each method has advantages and disadvantages. So, deciding which to use as the first choice has become more complicated.

1. Cash: This is the oldest and classic form of payment. Cash transactions are instantaneous and widely accepted, and they are excellent for small purchases made at street vendors or in areas with limited digital connectivity. Furthermore, using cash helps individuals maintain better control over spending, limiting overspending and accumulating debt. However, the downside is theft or loss and the problem of tendering exact change. “Cash may not be practical for large purchases,” says Rajalakshmi Raghu, Head of Strategic Relationships at Manipal Technologies Limited.

2. UPI: With the increasing adoption of mobiles and the transformation of the digital payment ecosystem in India, UPI is fast emerging as the most preferred mode of payment. UPI allows users to transfer funds directly from their bank accounts through a mobile application, enabling quick peer-to-peer or merchant transfer. UPI scores high on convenience and is ideal for online shopping, bill payment, and peer transfers. The advantages include real-time transactions, low or no transaction fees, and accessibility across banks. Satyajeet Kunjeer, founder and CEO of Deciml, said, “UPI has taken over Peer2Merchant and Peer2Peer transactions, making life much easier. Imagine travelling without cash or cards—all you need is your phone, and you’re ready! It’s super accessible, even for small shop owners who might not have card machines to accept payments. The best part is that it is instant, with zero fees.”

However, one downside is that both parties involved in the transaction must have UPI-compatible bank accounts and smartphones, which may limit its use in specific scenarios.

3. Debit card: Debit cards are widely accepted online and at physical stores. These offer the convenience of cashless transactions, providing enhanced security compared to cash, as transactions require a PIN. They are also quite popular because of features like cash-back offers, bonus points, free insurance coverage, etc.

Raghu says, “Using debit cards allows for better expense tracking without the risk of accumulating debt. On the downside, potentially fraudulent activities can lead to direct deductions from your bank account. Also, international debit card transactions may incur higher fees, and certain online platforms may not accept them. Also, using debit cards don't build your credit score."

4. Credit card: These can be empowering, offering unmatched purchasing power, especially for critical and significant expenses. They offer a wide range of benefits like cash back rewards and loyalty programmes option of repayment through equated monthly instalments (EMI).

Raghu said, “Credit cards offer better fraud protection. Also, using credit cards can help build your credit score. On the downside, overspending and not repaying on time can decrease your credit score. A credit card can be a better option for prudent users; overuse of credit cards can lead a person into an expensive debt trap.”

BT’s take 

To conclude, there is no one correct answer on the choice of payment method, as it depends on various factors, including personal preferences, type of transaction, and the level of convenience and security desired. Cash is a reliable option for small transactions and situations where digital payments are not feasible. UPI offers mobile users unmatched comfort, especially in countries with a robust digital payment infrastructure. Debit cards provide simplicity and better financial management, while credit cards offer greater purchasing power but require responsible use. Remember that with a debit card or UPI, you pay first and enjoy later; with credit cards, you enjoy first and pay later.