On Thursday, Paytm revealed that it had teamed up with SBI Card to introduce the Paytm SBI Card on the RuPay network. They assert that the goal of this new partnership is to transform the way credit is used in India by integrating ‘new to credit’ consumers into the formal economy and reaching out to non-urban markets.
In India, approximately 80 million credit cards have been issued to 20-25 million customers (many of whom have multiple cards). However, the majority of these cards are held by people living in cities, leaving tier II and III cities and towns largely untapped, even though these areas have a high demand for credit.
Nonetheless, given the rapid adoption of digital technologies and the prevalence of e-commerce systems in these areas, the growth potential appears to be significant. With UPI-linked credit cards, it is expected that low-value but high-frequency transactions will increase.
A PwC research paper from March 2022 predicted that by 2025–2026, there would be 145 million active credit cards, with tier 3 and tier 4 cities leading the way.
This card was introduced by three significant players in the business market. The card benefits from NPCI’s extensive network across India, the acceptance of RuPay credit cards, Paytm’s technological capabilities, and 25 years of SBI Card experience.
Credit cards have remained primarily an urban activity because customer acquisition was only possible in major cities. Paytm CEO and founder Vijay Shekhar Sharma said, “In small cities, it was always debatable whether the card launch should come before the card machine.”
Sharma anticipates that the new card will have a significant impact in non-urban areas because people who use the Paytm QR code will be able to use RuPay credit cards more easily.
According to Rama Mohan Rao Amara, MD & CEO of SBI Card, there has been an increase in demand for credit cards from these areas. “Approximately 70% of the credit card applications that the company receives come from tier II, III, and IV cities and towns.”
Experts believe that the issue of low credit card penetration in rural areas is more than just a matter of technology and infrastructure.
“Traditionally, banks have issued credit cards to customers with a CIBIL score of 700 or higher (an indicator of credit health and risk).” “It would be a good opportunity if Paytm could collaborate with SBI to address this underwriting perspective,” says Mihir Gandhi, Payments Transformation Leader at PwC India.
Gandhi suggests that credit card companies begin by offering lower-limit products to test these customers, backed by government credit support. He also proposes launching an innovative fixed deposit product in which customers have a specific type of fixed deposit with the credit card provider and their credit limit is determined by the deposit amount. The limit would be reset each month after repayment.
According to Rohit Arora, CEO and Co-Founder of Biz2Credit and Biz2X, “access to credit in India has always taken a cautious approach, with banks perceiving greater risks in terms of repayments.”
“Many MSMEs are forced to pay annual interest rates of up to 48% on money borrowed from the informal sector, posing a significant challenge for rural India in accessing credit.”
Arora, on the other hand, claims that digital lending platforms make loan availability simpler and easier. He believes that quick card issuance is advantageous because cumbersome paperwork and disbursement of smaller amounts frequently lead to delays.
