Explaining why co-branded cards would have an edge over plain vanilla credit card products, RV Ramanathan, co-Founder and CEO, Hyperface, told Moneycontrol in an exclusive interview that as the market develops, the segment will witness faster growth than before. He attributed this to the ongoing evolution of regulations for co-branded cards and customer needs becoming better defined.
Pegging the credit cards segment at 200 million in volume terms by 2027-28, Ramanathan added that as more mass-market cards find preference, banks may also slow down in handing out high rewards points. Edited excerpts:
The Reserve Bank of India hasn’t been kind to co-branded cards lately. How do you see banks and non-banks addressing the regulatory concerns, including on data?
The regulations over the past few years have been driving clarity about roles and responsibilities. Several co-branded credit cards launched in the past year have scaled really well demonstrating that the regulation is in the right direction. We strongly believe that it will continue to evolve as the space grows and customer needs become more evident.
How do you see the economics evolve for the co-branding partner over time?
Co-brand partners aim to achieve brand enhancement, better brand visibility and recall value by issuing credit card programmes. Co-brand partners have achieved higher customer LTV (loan to value) and reduced churn rates as a result of their co-branded credit card programmes. We don't anticipate any significant change in the revenue share between banks and their co-brand partners.
With cashbacks and loyalty programmes driving the demand for co-branded cards, aren’t we repositioning cards from an elite product to a mass product, which can over time have repercussions on asset quality? Deterioration is already visible in a few pockets.
A credit card is an aspirational product for India. There is a strong pull for credit cards among the middle class which is swelling in India. India will witness credit cards growing to about 200 million by FY28. The reward rate of very premium cards tends to be much higher compared to the mass-market alternatives. We strongly believe that the overall reward spends of the banks will average down as they begin issuing more mass-market cards.
Why do co-branded cards have a better activation rate compared to traditional ones?
There are several reasons why co-branded credit cards tend to have better activation rates than the traditional ones. First and foremost, they are positioned towards the most loyal customers of a brand as opposed to a casual buyer. The loyal customers tend to transact far more than casual customers. This came out clearly in our discussions with the marketing leaders of the brands.
Secondly, customers tend to voluntarily apply for co-branded credit cards from their favourite brand websites and apps. Thus, the intent of the customer is very high from the very beginning of the process.
Thirdly, digital brands provide the customers with a highly integrated experience into their checkout flow. We have seen brands that show the discount very prominently on checkout pages just next to the co-branded credit card, thus resulting in customers choosing that option naturally.
Finally, there is the natural brand recall when the customer visits the brand property for a transaction which subconsciously nudges the customer to spend using the co-branded credit card. For these reasons, co-branded credit cards have an evolutionary advantage in activation over traditional ones.
How do you see the use cases evolve beyond fuel, online shopping and F&B?
The changing aspirations of the typical Indian consumer will lead to a variety of use cases targeting a significant segment of users. Today's consumer is much more choice-oriented. Gen Z is redefining lifestyle choices. New brands are gaining significant traction across industries that were previously considered niche in the commerce world—traditional clothing, organic food, DTH entertainment, hyperlocal shopping, urban transportation, affordable fashion, fast fashion, affordable cosmetics, astrology, grooming, household services, etc. While at the top end also we will see the emergence of new co-branded credit cards, we also anticipate the emergence of several co-brands in the sub-1-million customer segment as well.
Do you see co-branded cards making a dent even in the credit on UPI segment?
With the RBI permitting Rupay credit card on UPI rails, this is already turning out to be a big driver. The emergence of credit lines on UPI will act as a feeder to the credit card ecosystem. For the foreseeable future, credit cards will continue to serve the premium end of consumers. The universe of customers using UPI is much larger than credit cards. Credit lines on UPI will provide the necessary ramp for customers into the world of credit. As customers increase their creditworthiness, they will be offered credit cards by banks. We see credit cards and credit line on UPI coexisting for a foreseeable future. It will take a considerable while for the emergence of partnership programmes in credit lines on UPI.
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