A few years ago, around 2016-17, everyone was predicting an imminent disruption in the payments space. Traditional payments products by banks, they said, would be overthrown by younger, nimbler payments companies.
Leading the pack of would-be soothsayers was Nandan Nilekani, payments maven and architect of the government’s unique ID system Aadhaar. “All banking products will be disrupted,” he said ominously in 2016.
Then came Vijay Shekhar Sharma, founder and CEO of Paytm*. “The cost that banks put on the payments [is big]. I don’t know… it’s your money, moving from your account to this account. Why it should be pricey and costly?” he asked in 2017.
Amitabh Kant went further. CEO of the government’s policy think tank Niti Aayog, Kant said debit cards and credit cards would become redundant by 2020. Instead, people would do financial transactions through their smartphones.
Cut to 2019, however, and the reality is markedly different. Payments companies are queuing up to partner with banks to issue credit cards—the very product they were supposed to disrupt. Last month, payments behemoth Paytm partnered with Citi India and cab aggregator Ola’s payments product Ola Money tied up with SBI Cards. Both are following in the footsteps of Amazon Pay, which launched its credit card with ICICI Bank last year.
For payments companies, the aim is simple—reach the 47.9 million credit card holders who form the lucrative capstone of the payments pyramid. Users spend Rs 12,000 ($171) a month on a credit card, whereas debit cards see a spend of Rs 679 ($9.7) a month, according to RBI data. Adding to the lure is the fact the credit card user base has grown 25% year-on-year, according to data from National Payments Corporation of India.
Companies like Paytm and Amazon Pay currently allow payments through Unified Payments Interface (UPI) or wallets. And while users use credit or debit cards to load wallets or pay through UPI, that’s where visibility ends for payments companies. Data about credit card users and the kinds of spends they make has, thus far, eluded payments companies.
These credit card partnerships are meant to change that. On the face of it, they’re just like any other co-branded credit card. Banks partner with merchants with strong, loyal user bases, creating an inroad to these customers. For payments companies, they are looking to drive higher spending and build loyalty. However, it is equally about finding a new revenue stream.
Payments companies started with a goal to align the incentives of banks with merchants—the former prefer digital due to the cost of handling cash, and the latter prefer cash due to the convenience fees of digital payments.