Fintech lender Rupeek has launched a card that offers credit based on a customer’s pledged gold holdings such as jewellery and ornaments. Called Rupeek Prime, this is a secured and asset-backed card, unlike a normal credit card, which is unsecured.
What’s on offer?
Rupeek's card offering is powered by a Pre-paid instrument. Since fintech lenders cannot issue cards, a tie-up with a bank is necessary. The card uses the domestic Rupay network. Customers can get a card by pledging their gold jewellery. Rupeek offers a credit limit of up to 75 percent of the pledged gold’s value. The maximum credit limit is Rs 50 lakh.
The card is offered in cities including Hyderabad, Mumbai, Pune, Chennai, Kolkata, Jaipur, Rajkot, Vadodara, Chandigarh, Ahmedabad, Surat and Bengaluru. Applications can be made online for virtual and physical cards.
According to Deepak Singhal, senior vice president - business, at Rupeek, individuals such as salaried employees and retirees (who own gold) have opted for this card to use in an emergency. Additionally, small business owners have applied for this card.
Rupeek gold-backed card charges
Rupeek Prime works just like a credit card, except that there are no application fees and annual renewal charges.
But there is interest to be paid for bills not cleared on time. The card offers an interest-free credit period of 37 or 45 days, as per the scheme chosen. After the interest-free credit period, the digital lender charges 2.5 percent interest per month (30 percent annual interest) on outstanding dues. This works just like a credit card.
Card holders can even withdraw money (up to 100 percent of the sanctioned credit limit). The money is transferred to their bank accounts. A processing fee of 1 percent is charged. Singhal said that normal credit cards charge a higher processing fee for cash withdrawals as they are unsecured.
The card appeals to those who find it difficult to get a normal credit card.
“By repaying dues on time using this card, you can easily build a credit history and can make yourself ready to get an unsecured credit card in the future or a home loan or auto loan,” said Pranjal Kamra, CEO of Finology Ventures.
It’s easier to subscribe to and get this card because it is backed by pledged jewellery. Normal credit cards subject potential customers to a stringent screening process to make sure, at least reasonably, that they will pay their bills on time.
All stores that are on the Rupay network will accept Rupeek Prime. It can also be used to shop online. For every Rs 200 spent, one reward point is earned.
Rupeek stores the pledged gold in CMS, BRINKS and SIS vaults. It bears the storage costs.
Rupeek allows customers to take back their pledged jewellery or gold temporarily for purposes such as attending a wedding, although the credit limit on the gold card gets adjusted accordingly.
Singhal said, “We have set up a robust grievance and support mechanism for customers to exercise their rights and seek resolutions for their grievances with the issuer bank.” He adds, a customer can always exercise RBI's integrated ombudsman scheme for any escalation.
What doesn’t work?
Interest of 30 percent annually is charged on a bill that is not paid on time, just like any other credit card. However, this rate is significantly higher than the gold loan rate of 7-12 per cent.
Parijat Garg, a digital lending consultant, says that this is a disadvantage as “the interest rate (APR) on gold powered card is almost closer to unsecured credit cards. If APR remains higher, it will limit the customers getting attracted towards this card.”
He explained that availing credit for shorter tenure (free period of 35-45 days) is reasonable, but for long tenure it’s expensive.
Not paying dues also affects one’s credit score.
What’s worse: In case of defaults, Rupeek can auction the pledged gold as a measure of last resort.
Who should apply for a gold-powered card?
A person who is eligible for an unsecured (normal) credit card shouldn’t block capital (gold) and take a loan to get a secured credit card.
“This card is not meant for consumers with a good credit score,” said Kamra.
This card allows you more convenience rather than a long-term credit or long-term aspirations.
“Don't buy longer-term assets on the card, which will kind of put your financials into trouble,” Garg warns. He says that for large purchases where one would pay over several months, if you must borrow as a last resort, then it would be better to take a gold loan by pledging your gold directly with a bank or NBFC or even with Rupeek. Or best, use a normal credit card, if required convert large purchases into EMI and then pay your bills on time.
Customers must also make sure that they know the exact number of days after which Rupeek can sell pledged gold in a worst-case scenario.