UPI's Foray into Credit Cards: Impact on Payment and Card Industry

A recent report predicts that the integration of the Unified Payments Interface (UPI) into credit cards via digitized RuPay cards will significantly benefit both the payment platforms and the card industry.

Broad Implications for Payment Platforms

The report emphasizes that the move could offer substantial advantages, particularly for payment platforms like Paytm. The forecasted doubling of UPI spends to a daily average of Rs 100 crore in October 2023 could yield immense opportunities for these platforms.

Potential Gains for Card Issuers

Report suggests that this integration could also present a unique chance for card issuers to tap into the burgeoning UPI spends, which currently represent about 2% of credit card online spends. They project an addition of 35 million RuPay cards onto UPI platforms within the next 12-18 months, with an estimated payment volume of $60 billion.

Market Expansion and Incremental Revenue

The report highlights the potential for the card industry to gain from a widened acceptance network and a share of UPI spends. Successful capture of even 10% of these spends could result in a substantial annualized increase of $60 billion in Merchant Discount Rate (MDR) accretive spends for card issuers.

Merchant Resistance as a Hurdle

However, Report identifies a key obstacle in merchant resistance, particularly among large, organized merchants such as food chains and travel services, which constitute a significant portion of spends. This resistance is primarily due to MDR-related concerns.

Impact on SBI Cards and Payment Services

For SBI Cards, while the integration into UPI could foster growth, there might be potential drawbacks concerning MDR on small-ticket spends below Rs 2,000, where charges are absent. Jefferies maintains a 'buy' recommendation for SBI Cards with a target price of Rs 1,020 apiece.

Lucrative Opportunities for Payment Platforms

The report underscores the profit potential for payment platforms like Paytm, which could benefit from increased monetization opportunities in their payments business. Jefferies estimates a significant profit boost for Paytm's FY26 with a 10% gain due to a 5% Gross Merchandise Volume (GMV) shift from credit card to UPI.

UPI Integration: A Path for Card Players

Report further suggests that card players stand to benefit by expanding their acceptance network and capturing a portion of UPI Person to Merchant (P2M) spends.

Key Takeaways:

• UPI's integration with credit cards, through digitized RuPay cards, is expected to benefit both the payments industry and card companies.

• Report predicts an addition of 35 million RuPay cards and approximately $60 billion in payment volumes on UPI platforms within the next 12-18 months.

• Card issuers have the potential to capture a share of UPI's daily average spends, currently at Rs 100 crore, which could lead to significant increases in MDR (merchant discount rate) revenue.

• Payment platforms like Paytm are expected to benefit from the ability to monetize transactions on both the merchant and consumer ends.

• Wider acceptance network and increased share of UPI spends are key benefits for card companies.

• Merchant resistance remains a key risk, with large merchants possibly refusing to accept credit cards on UPI due to MDR concerns.

• SBI Cards is expected to gain a larger base in UPI, but may lose out on MDR for small-ticket transactions.

Conclusion:

Jefferies' analysis indicates a promising outlook for both payment platforms and card issuers with the integration of UPI into credit cards. While hurdles exist, this development opens doors for increased revenue streams and market expansion in the evolving landscape of digital payments.