The low starting point of digital payments, has led to mass adoption of all types of digital payment products and are growing at a healthy pace in their respective playing fields. Market share gains of UPI in digital payments should be seen as an expansion of digital payments in customer or merchant segments that have not been target credit card segments. In this backdrop, let us examine what SBI Credit Cards is doing to wade off the onslaught from UPI & Mobile Wallets.
Credit Cards are meant for P2M (person to merchant) payments and not for P2P (person to person) payments. Most of the rapid rise in UPI payments belongs to the P2P category. Data on UPI payments in P2M categories started to be reported from April 2020. UPI P2M payments have also seen a strong rise although the value of spends is broadly comparable to credit card and debit card spends.
Why a merchant payment is done using either a debit card or UPI instead of a credit card ?
- The customer does not have a credit card. Note that credit card penetration is only a fraction of bank account and debit card penetration.
- The merchant does not accept credit cards due to an absence of card acceptance infrastructure (true mainly for remote markets or small merchants.
- The merchant does not accept credit cards (or seeks to recover the MDR from customers) due to higher fees the merchant has to pay (1.5-2.0% known as merchant discount rate or MDR) on credit card transactions vis-a-vis debit cards (0.4-0.6% and maximum of Rs 150 for any transaction) and UPI (MDR is currently zero).
- Customer prefers to use the debit card or UPI owing to specifically attractive rewards
In our view, points 1) and 2) are likely to be the key reasons driving the growth of UPI over credit cards. Indeed, all through the pandemic over the past year, UPI has been the most popular cashless and contactless way to pay small vegetable and fruit vendors, small local grocery stores known as kirana stores, local medical shops, small scale service providers like barbers, carpenters, plumbers, doctors etc.
Ease of Transaction – UPI Vs Credit Card
Zero cost and an easy form factor have led to UPI adoption – payments can be made to a mobile number, a unique alphanumeric strong known as VPA, or by scanning a QR code image that can also be sent electronically without payer and payee required to be in front of each other.
The limitation with credit cards is that either a PoS machine is needed or an electronic link is required (which many merchants are either unable to or not enabled to generate); The adjacent issue being the MDR cost as well as fixed and recurring costs associated with PoS machines.
Credit Cards coming on UPI Platform
Certain UPI apps are now supporting credit cards of certain issuers. This will enable credit card payments to merchants registered with UPI. Importantly, the large QR-code-based payment platform will also open up to credit cards. Two key advantages for merchants in the use of QR codes is that they can start accepting payments with near-zero fixed investment and zero maintenance costs on point-of-sale (PoS) devices, and it is contactless.
SBI Cards has tied up with Google Pay recently such that its credit card can be loaded onto Google Pay, we note that many small vendors on the UPI network are not registered merchants for payments to be cleared to them via VISA rails.
SBI Card continues to invest in its digital and mobile capabilities to enhance its credit cardholder experience.It has directed its efforts to proactively build a complete thread of digital journey for customers, starting from new customer acquisition to customer onboarding, customer servicing, and collections. 92.3% of its statements for FY 20 were issued as e-statements. 96.6% of its bill payments for FY 20 were via digital modes.
E-Credit Card – A proprietary instant e-credit card product that enables SBI to immediately send an e-card to its new credit cardholders, generate an electronic PIN, and complete a quick onboarding. Using eCARD, customers can also link their card to the SBI Card mobile app and create a virtual card on their mobile device. This virtual card functionality is branded SBI Card Pay, and can also be used to transact on PoS machines.
Mobile App for SBI Card Holders – Once a credit cardholder has registered for this service, they can make payments by simply unlocking and tapping their eligible Android smartphone on NFC PoS terminals. As of FY20, 76% of the company’s active credit cards were Tap and Go enabled.
The proliferation of UPI payments / debit card payments should be seen as a positive for credit cards over the longer term as these payment forms are expanding the market for digital payments by getting “new to digital payments” customers. As these customers get more comfortable with the idea and usage of digital payments, credit card adoption by them at a later stage will be easier and comes with host of advantages.
Credit Cards will remain a major payment channel in their target representative market. This is supported by growth in credit card issuances (higher penetration) and a rising pool of customers with creditworthiness that will drive the migration of customers from using debit cards and UPI to using credit cards.