RuPay Credit Cards May Help SBI Cards Gain Portion In UPI Spends: RBI Report
Recent Reserve Bank of India (RBI) data indicates that net addition of credit cards is running strong at 18 per cent year-on-year (YoY), but the growth in credit card limits is ahead of loans outstanding. Growth in lower limit cards is not increasing at that much pace.
The south and west have more usage. Also, online transactions are more popular than offline, with metros leading growth.
One significant trend in the financial sector could be the increasing usage of RuPay cards that operate on the Unified Payments Interface (UPI) platform.
However, another policy decision that might negatively impact the sector's short-term growth is the Reserve Bank of India's tightening of norms for unsecured loans.
If UPI is opened up to credit cards and existing cards are digitised to RuPay, it could lead to the addition of 30 million new acceptance points. Around 70 per cent of UPI Person to Merchant transactions (P2M) are Merchant-Discount-Rate (MDR)-accretive, which would benefit payment platforms and fintechs like Paytm, PhonePE, and Google Pay the most.
Card-issuers such as SBI Cards can also capture a share of UPI spends but may lose MDR on low-value transactions since RuPay MDR only applies to transactions above Rs 2,000.RuPay includes cards for existing users (as an add-on), as well as new card users. Credit card spends on UPI has doubled over the period May 2023 to October 2023 with a daily average of Rs 100 crore (Rs 150 to 200 crore on weekends).
This is about 2 per cent of credit card online spending. The RuPay card base is small at 8 million but growing fast with 25 per cent of monthly new issues.
If the current trend continues for the next 12 to 18 months, it is expected that around 35 million credit cards will move to UPI with payment volumes of USD 60 billion.
The monthly run rate for UPI merchant payments is over 2.5 times the credit card spends, which is Rs 4.4 trillion. Large ticket transactions, those above Rs 2,000, account for about 70 per cent of these payments. Even a 10 per cent penetration could result in an annualised USD 60 billion in incremental MDR-accretive spends.
However, the merchant's resistance exists due to the cost of MDR as opposed to free UPI. This is a significant risk for RuPay.
The model also includes an 8 basis points (bps) reimbursement to the payment app. This enables payment platforms to monetise the transaction on both consumer (8bps) and merchant (15 to 20 bps) ends. For instance, Paytm, with its largest merchant base on UPI and the 3rd largest consumer base, could see a 5 per cent shift in gross merchandise value (GMV) to credit cards on UPI, resulting in a 10 per cent gain in FY26 profit before tax.
Card players are expected to benefit from the wider acceptance network and UPI P2M spends. However, since UPI linkages only work on RuPay's network, it is necessary to issue RuPay cards to new and existing users. RuPay currently holds around 12 per cent of the 18 million-base of SBI Cards. SBI Cards is the only pure-play listed card issuer.
The MDR on UPI-linked RuPay card spends would be lower than normal spends, given that there is no MDR on transactions lower than Rs 2,000. Therefore, in the short-term, SBI Cards could lose MDR on small-ticket spends shifting from the Masterand Visa platform to RuPay. Around 75 per cent of online transactions are made via credit cards, with around 65 per cent of the value online.
About 70 per cent of the value and 80 per cent of cards outstanding are from metros. There has not yet been much apparent impact on spending due to the recent increase of risk weight by RBI.
