Paytm-SBI Card on RuPay to transform non-urban credit consumption?

By | Edited by Aryan Prakash
May 20, 2023 12:57 PM IST

Why credit cards penetration is significantly low in non-urban markets even though demand is huge. Let's understand here.

Paytm announced on Thursday that it has partnered with SBI Card to launch Paytm SBI Card on the RuPay network. The aim of this new partnership, they claim, is to revolutionise the way credit is consumed in India by bringing 'new to credit' users into the formal economy and expanding to non-urban markets. (Read here: Paytm, SBI Card and NPCI unveil new Rupay credit card . See details)

Paytm CEO Vijay Shekhar Sharma launches Paytm SBI Card on RuPay network at an event in Mumbai on Thursday.
Paytm CEO Vijay Shekhar Sharma launches Paytm SBI Card on RuPay network at an event in Mumbai on Thursday.

Scenario of credit cards in non-urban markets

In India, there are approximately 80 million credit cards issued to 20-25 million customers (many of whom have more than one). However, the majority of these cards are held by individuals in urban areas, while tier II and III cities and towns remain largely untapped, despite the significant demand for credit from these regions.

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Nevertheless, given the rapid penetration of digital technologies and the prevalence of e-commerce systems in these areas, the opportunity for growth appears to be substantial. And now with UPI-linked credit cards there is expectation that low-value but high-frequency transactions will see a boom.

According to a research paper published by PwC in March 2022, the number of active credit cards is expected to reach 145 million by 2025–26, with the next wave of growth primarily coming from tier 3 and tier 4 towns.

'Paytm SBI card would be revolutionary'

This card is launched by three major players in the business market. The card benefits from NPCI’s extensive reach across India and the acceptance of RuPay credit cards, along with the digital infrastructure of Paytm and the 25 years of experience of SBI Card.

“Credit cards have remained predominantly an urban affair because acquiring customers was limited to big cities. In small cities, it was always a question of whether the card machine should come before the card launch,” Vijay Shekhar Sharma, CEO and founder of Paytm told Hindustan Times.

Sharma hopes that the new card will have a significant impact in non-urban areas because people using the Paytm QR code will be able to easily use RuPay credit cards.

There has been an increase in demand for credit cards from these areas, as pointed out by Rama Mohan Rao Amara, MD & CEO of SBI Card. “Approximately 70% of the credit card applications the company receives come from tier II, III, and IV cities and towns.”

What do experts say?

However, experts believe that the problem of low credit card penetration in rural areas is more than just a technology and infrastructure issue.

“Traditionally, banks have been issuing credit cards to customers with a CIBIL score (an indicator of credit health and risk) of 700 or above. If Paytm can work with SBI to address this underwriting perspective, it would be a good opportunity,” says Mihir Gandhi, Payments Transformation Leader at PwC India.

Gandhi suggests that credit card companies can start by offering lower-limit products to test these customers, with government support for credit. He also suggests introducing an innovative fixed deposit product where customers have a specific type of fixed deposit with the credit card provider, and their credit limit is assigned based on the deposit amount. The limit would be refreshed every month upon repayment.

“Access to credit in India has always followed a conservative approach, with banks perceiving greater risks in terms of repayments,” says Rohit Arora, Chief Executive and Co-founder of Biz2Credit and Biz2X.

“Many MSMEs are forced to pay up to 48% annual interest rates for money borrowed from the informal sector, which poses a significant challenge for rural India in accessing credit.”

However, Arora states that digital lending platforms make loan availability simpler and easier. He suggests that quick card issuance can be advantageous, as the cumbersome paperwork and the disbursement of smaller amounts often lead to

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