RBI, NBFCs in early talks to open up credit card business in India

RBI, NBFCs in early talks to open up credit card business in India:

The growth in digital lending and BNPL has prompted the central bank to explore allowing shadow banks into this space.

The RBI is exploring allowing non-banking finance companies to issue credit cards on a standalone basis, according to reports. Currently, shadow banks can issue co-branded credit cards with banks.

The central bank is in talks with a few shadow banks for this. NBFCs are constrained from the credit card market on account of high-access barriers, especially regarding the issuance of general credit cards. They are barred from issuing variants of other cards, like charge cards, debit cards, and stored-value cards.

There has been a growth explosion in the digital lending space with BNPL capturing a big pie of the market. India’s buy-now-pay-later (BNPL) industry is booming and set to surge over ten-fold within four years as tens of millions of online shoppers get lured by interest-free credit with fewer hassles.

Redseer estimates India’s BNPL market will rocket to $45-50 billion by 2026 from $3-3.5 billion now. The research firm also estimates that the number of BNPL users in the country may rise to 80-100 million customers by then, from 10-15 million currently.

FinTech lenders active in the BNPL space are now issuing physical cards to customers to push usage in the offline mode. PayU Finance, Slice and Uni Cards have tied up with banks to issue BNPL cards, which are essentially prepaid payment instruments (PPIs) bearing a credit line.

Credit card potential

Despite the huge number of people with credit bureau histories the credit card market is largely untapped. At end-November last year, there were 67 million credit cards, as against nearly 550-million customers who have credit bureau histories.

Over half the 67 million credit cards that are in circulation have been issued to a sub-segment of cardholders, despite credit cards being for over three decades.

Earlier, three leading NBFCs – Bajaj Finance, Tata Capital, and Reliance Capital – had approached the RBI, citing its circular of June 7, 2004, for approval to foray into the credit card business.

The central bank’s circular of July 7, 2004, had said, “Any company, including a non-deposit taking company, intending to engage in this activity (credit cards) requires a Certificate of Registration, apart from specific permission to enter into this business, the pre-requisite for which is a minimum net-owned fund of Rs 100 crore; and subject to such terms and conditions as the Bank (RBI) may specify in this behalf from time to time.”