NPCI leans on bank partnerships to push RuPay credit cards

According to two senior bankers in the know, NPCI is working closely with a clutch of major banks to find out ways to push the usage of these credit cards and has set an internal target of cornering around 10% of the overall monthly credit card spends in the next year.

“RuPay has hardly moved the needle in its credit card business, but the recent regulatory nod for RuPay credit cards on UPI transactions is opening up fresh use cases,” said one of the bankers quoted above. “Currently, it will have around 1% of the overall spends, the target for NPCI is to push it up 10 times.”

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In April 2023, Indians spent Rs 1.3 lakh crore through their credit cards across point of sales terminals and ecommerce transactions, RBI data shows. As per industry estimates, around Rs 1,300 to Rs 1,500 crore could be processed by RuPay currently. The target would be to take it up to Rs 15,000 crore per month.

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“The credit card market in India has opened up, so overall new card issuance and card swipes is going up, RuPay wants to ride this growth by leveraging UPI,” the other banker quoted earlier said.

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Among the large banks, ET understands that Axis Bank, HDFC Bank and SBI Card are front runners in building these partnerships with RuPay. SBI Card has already announced its co-branded proposition with Paytm on RuPay card rails.“The UPI – credit card linkage programme is an extremely powerful and unique way to bring structured credit to the millions of DTA (direct to account) transactions which happen every month …thus offering a large opportunity to source new credit cards as well as enhance consumption,” said Parag Rao, group head, payments, consumer finance, technology and digital banking, HDFC Bank.

He further added that the bank already has a multi-channel strategy to give cards to millions of customers on the UPI credit card programme and will join its fintech partners where appropriate. NPCI did not comment on ET queries. Emailed queries sent to Axis Bank did not elicit a response till press time Sunday.

Opportunity for fintechs

With RuPay credit cards on UPI, fintechs are also sensing fresh business opportunities. A bulk of them like Slice and Uni were impacted when last year the RBI cracked down on credit offerings through prepaid cards. Now with a co-branded proposition, fintechs are hoping to get back into the card game.

ET understands that players like Fibe (previously EarlySalary) and Paytm are scouting for co-branded partnerships. While Paytm launched its new card with SBI Card, the others are still evaluating. New-age fintech Kiwi is also looking to issue bank-branded RuPay credit cards to its users.

“For newer fintechs, which are looking to enter the lending space, the UPI on RuPay credit card use-case gives them the opportunity to build up their assisted books, and offer something new to customers (in the form of physical cards). However, the larger focus for most of these fintechs will be personal loans from their own books, because that’s where the margins are eventually,” said a fintech founder on the condition of anonymity.

Cards give a strong brand presence to fintechs, which is why few of them are showing enthusiasm. However with co-branded cards the role of a fintech gets restricted to just being a distributor. In such cases, the margin of the game goes down.

“The entire UPI on credit card strategy will also open opportunities to make revenues on UPI for fintechs, especially through aspects like late payment fees, interest on revolving (credit) lines and one-time charges for card issuing. Now, over the next 12-18 months, the industry will start to see the usage patterns on this setup and business lines will evolve accordingly. As the banks start making money, the revenue share model with fintechs will also evolve,” said Siddharth Mehta, co-founder of Kiwi, which just raised $6 million from Nexus Venture Partners and Stellaris Venture Partners for its credit on UPI proposition.

Kiwi is looking to go live with its offering in June for wait-listed customers, and is targeting the millennial segment of 28-40 years to issue bank-branded credit card on the RuPay network.

Another founder of a large fintech pointed out that while he was excited at the prospect of such cards, he is more keen to tap into digital credit on UPI, which the regulator spoke about in April. Here there will be no card, but consumers can get credit lines from an NBFC in the backend to be used through UPI transactions.

With UPI on RuPay credit cards, the penetration of credit in the country can get pushed up 30%, the founder added. Further to sweeten the deal, there will be rewards and benefits.

There are some experiments being planned though. The first founder quoted in the story said that he is looking to create a card that does not have the number printed on it. This will force the customer to go to the fintechs’ app for transactions, thereby helping the startup control the user experience. He did not come on record since the product is still in the development stage.

As most fintechs are looking at co-branded cards as a strategy to retain users through loyalty and rewards, the UPI on credit use case can also foster the shift for the industry to issue virtual cards to customers instead of a physical one. Further, with most fintechs looking to woo the millenial and Gen Z segment with their card strategy, it is yet to be seen how business models evolve based on usage patterns.

Much needed for NPCI

NPCI is riding the wave in terms of adoption of its products with UPI. But with the government making MDR zero for all RuPay debit card transactions and UPI, the growth of NPCI’s card products has been slow. Recently, Payments Council of India wrote to the finance minister asking her to consider bringing back MDR on RuPay debit card transactions at least.

“Large banks prefer to issue other cards, compared to RuPay, so NPCI needs the credit proposition to grow to help it corner a larger share of the card market,” said one of the bankers quoted earlier.

With RuPay credit cards, banks can get MDR and consumers can also get to use them on UPI. NPCI is hoping to ride this dual wave of popularity to corner a larger share of the market.

Industry insiders say the future of digital payments is smartphones. This is already happening in the UK and other countries where people use tap and pay through their NFC-enabled phones. In India, smartphones are getting used for QR code-based payments. But all those are debit transactions. Going forward when consumers will understand the use case of tap and pay or scan and pay with their credit cards too, RuPay will have an advantage.

“Banks will need to adopt this product and enable it on their banking apps and their partner third-party apps, once that gets done co-branded propositions will get adopted quickly too,” said one the bankers quoted earlier.