Banks, fintechs push FD-tied credit cards, slash limit to secure more users

Banks in partnership with fintechs are aggressively pushing a new type of credit card backed by the user’s own deposits, allowing untapped sections to get access to the payment instrument. They are also lowering the limit on such credit cards — to as low as Rs 90 — as they seek to expand the market, while keeping risk under check, said people with knowledge of the matter. This compares with the usual starting limit of Rs 25,000-50,000.

Of the 1-1.1 million credit cards issued each month, about 100,000 would be such cards, which are secured against fixed deposits. SBM India Step Up Card and Supercard are among those offered with low limits.

Paisabazaar’s Step Up Credit Card, co-branded with SBM Bank India, requires a fixed deposit of Rs 2,000 and grants a credit limit of up to 90% of that amount.

Supercard is a co-branded card issued by Flipkart-backed fintech venture Super.money and Utkarsh Small Finance Bank secured against 90% of the FD amount, offering a minimum credit limit of Rs 90.

ETtech

By offering secured credit cards with a low credit limit, banks are trying to bring more customers within the fold of formal credit without risks piling up. With RuPay credit cards being accepted for Unified Payments Interface (UPI) payments, customers are also finding ways of using these cards at local retailers and for online shopping.

“There are approximately 5 crore unique credit card holders, there could be roughly 50 crore UPI users,” said Rohit Chhibbar, chief business officer, credit cards at Paisabazaar, a credit marketplace. “A secured credit card could be offered to 30 to 40 crore users at least — that is the market being targeted.”

Super.money founder Prakash Sikaria said his company is looking to get a substantial chunk of the market for secured cards.

“From the older version, which was to make your bank account better, it has now morphed because of RuPay and UPI, into an interest-bearing wallet,” said Sikaria. “Within six months, we have captured a 15% share of secured credit cards ever issued and it is increasing every month. So, if I play it out for the next two years, I believe we will have a massive share of secured cards in the market.”

Credit scores

Interestingly, some large fintechs and banks are offering secured credit cards as a means for customers to improve credit scores. According to Manish Shara, cofounder of Peak XV Partners-backed fintech startup Zet, many of his customers are doing this, by scrupulously adhering to repayment schedules. Their credit scores fell during the pandemic because of financial disruption.

“The unsecured credit card market has become very competitive,” Shara said. “The base is not increasing at the same pace anymore, so large banks are also pushing secured credit cards, for those customers who might not qualify for an unsecured one.”

However, the path from secured to unsecured cards remains narrow. Industry executives estimate that fewer than 20% of secured card holders become eligible for unsecured credit cards. This is because secured cards typically have limits as low as Rs 2,000, while banks do not issue unsecured cards with limits under Rs 50,000. “Even with a (credit) score of 680 or 700, many of these customers are not equipped to handle a Rs 50,000 unsecured credit product,” an industry executive said.

Customer acquisition tool

For banks and fintechs, secured credit cards serve as a low-cost customer acquisition tool. They also help banks boost deposit volumes in a small way, through the fixed deposits backing these cards.

“A secured card doesn’t really make money for anyone, but the acquisition cost is lower,” said a fintech founder. “Generally, the cost of acquisition for an unsecured credit card is anywhere between Rs 1,500-2,000. For secured credit cards, my best case would be around Rs 700-800.”

Also, a large chunk of the secured credit cards are being issued on the RuPay network. This enables these cards to be used on all QR codes, which means they can be used for even small transactions.

“If the customer is paying via a credit card instead of his bank account, there is some revenue to be generated for the lenders, which is otherwise zero on UPI,” said the founder of another fintech startup.

The credit card industry has faced strong headwinds over the past year, with an overall tightening of unsecured lending and a rise in non-performing assets (NPAs) across card portfolios.

Also Read: ETtech Explainer: Why are fintechs and VC going chasing secured loans?

In this backdrop, secured cards have started gaining traction as an option for first-time borrowers and those looking to build or repair their credit scores, especially since a large section of India’s population either lacks a credit history or has scores too low to qualify for unsecured cards.