Indian Retail Credit Card Ecosystem
Indian Credit Card industry has accelerated immensely over the past five years with Credit card penetration increasing by 150%, the launch of card business by newer banks, Regulatory changes enabling NBFCs to launch their cards, the launch of Credit Card As A Service Platforms etc. We clearly see customers moving away from Personal Loans to Credit Line Products or a Short Term Credit.
The introduction of Buy Now Pay Later, which proved that access to unsecured credit can be democratised, and the subsequent regulatory curbs on Credit on Prepaid Card, all in the span of 2 years will further accelerate the growth of credit cards.
After the pandemic necessitated digital payments, financial literacy has increased and the customer is more willing to trust cashless transactions. The potential for this product is immense, with respect to both growth and innovation.
Keeping these changes in mind, we at The Digital Fifth have released the first edition of the Indian Retail Credit Card Ecosystem, which includes new players and segments that have grown and flourished. Please Note: The ecosystem captured is non-exhaustive and is focused on Retail Credit Cards.
A few of the criteria that have helped us choose the players are:
- Size, Market share, and popularity of the company
- Size of the segment
- Uniqueness of the business model
- Digital savviness of the company
Issuers & Acquirers
Public Sector Banks, Private Banks, Small Finance Banks, Payment Banks as well as Foreign Banks can avail a credit card license if they possess a net worth upward of Rs. 100 crore. Now, NBFCs can do so too if they fulfill the same requirement and have prior approval from the regulator. These entities issue credit cards in association with Networks. When a cardholder swipes their credit card, the Issuer must approve and subsequently pass the amount to the Merchant’s bank account. HDFC Bank, State Bank of India, ICICI Bank and Axis Bank are the leaders in this segment.
An Acquirer is an institution that accepts debit and credit card transactions for merchants through POS and Payment Gateway. Essentially, any bank can offer these services to merchants.
Payment Switches enable integrations of the bank’s core credit platforms with Networks and thus facilitate communication with ATM, POS, Payment Gateways. It works to route and authenticate transactions between the different participants, i.e. the Acquirer, Network, Issuer, Payment Gateway and POS.
KYC / AML / Risk Management
These companies provide solutions to businesses that enable them to perform KYC and AML checks on their customers. They also offer digital Onboarding Services for customers and vendors. These tools also use AI/ML algorithms to track the anomaly or change in the data pattern and issue a warning to the businesses about the potential risk. This is pertinent to the Credit Card industry due to the unsecured nature of the credit extended.
Credit Bureaus are entities that assess the creditworthiness of individuals and businesses. They collect various data points from lending institutions such as payment history, outstanding debt, credit utilization ratio, number of loans and credit cards, etc to calculate the credit score. Lenders and Issuers use these scores to accept or reject loan applications. Transunion Cibil, Equifax, Experian and Crif High Mark are the leading bureaus.
Account Aggregators enable the secure sharing of banking and asset data of the customers through encryption, and gives consumers control over the data that is shared with unified consent management. This initiative will enable seamless and strong credit underwriting, which will accelerate the Credit Card Business.
UPI or Unified Payment Interface is a Payment system Developed by the NPCI. It connects multiple bank accounts into a single mobile application (of any participating bank/Fintech), merging several banking features, seamless fund routing & merchant payments into one hood.
UPI is the most used payment method, and dwarfs the transaction volume of every other payment system in comparison. The RBI has recently announced to make Rupay credit cards UPI enabled, which will make it more accessible for customers, thus driving up credit card spends.
Point of Sale (POS)
POS companies provide solutions like POS Terminals, mPOS, and SoftPOS. A POS system is designed to help retail stores sell seamlessly, with built-in tools for advanced inventory management and sales management, sales reporting and analytics insights for business. They collaborate with Acquirers to facilitate credit card transactions.
Payment Gateway (PG)
Payment Gateway is a software application used to authenticate payments on a merchant’s website, primarily for Card-not-Present (CNP) transactions. It plays an important role in the online transaction process and authorises transactions between merchants and customers by working with acquirers. Payment Gateways are for both B2B and B2C, and play a critical role in creating seamless experiences for customer journeys.
An ATM (Automated Teller Machine) is a banking outlet that allows customers to open or withdraw or deposit cash, balance enquiry and PIN change. ATM manufacturers work with banks to offer services through which the latter earn interchange revenue. Credit cards offer cash withdrawals through ATMs as well.
Networks are entities which provide the railroads for payments and enable cross-border transactions. They support innovation in the Cards segment, and have implemented Tap to Pay Cards and Tokenization process. Their next focus is on IoT and blockchain-enabled payment solutions. Visa, Mastercard, Rupay, American Express and Diners Club are some of the prominent players here.
Credit Card Management System (CCMS)
A CCMS helps financial institutions roll out credit card programs for their customers. These entities provide end-to-end card lifecycle management, such as customer approval, card issuing & logistics, customer specific targeting, engagement, transactions, collections, and more. New players are coming up in this segment which offer plug & play solutions and enable new entrants in this space to launch within months.
Rewards are an integral part of the credit card business model. Companies in this space help create a deep rules-based engagement layer which is tailored to each customer. They collaborate with issuers and Rewards Delivery Vendors to offer cash back, rewards etc.
Rewards Delivery Vendors
These entities create create solutions for issuers, such as loyalty program development, loyalty software implementation and rewards management. They help manage engagement with customers, thus increasing loyalty and the average card spends.
Issuers partner with large merchants, travel service providers and other banks to offer a co-branded credit card. Customers can then earn rewards which they can use on their choice of vendor. Co-branded credit cards are mutually beneficial and help increase customer loyalty and growth. Co-branded credit cards now account for a significant portion of the cards issued.