The Indian banking industry is undergoing a dramatic digital makeover, marked by cutting-edge technologies and strategic collaborations. While the world of digital payments has been commanding attention, there’s a remarkable trend sweeping through India’s financial landscape: the surge in the issuance and usage of co-branded credit cards. What makes this trend particularly interesting is the involvement of major industry players like Airtel, Flipkart, and Samsung, who have collaborated with prominent financial institutions to introduce co-branded credit cards, revolutionizing the payment experience for their customers.
One of the latest examples of this trend is the recent launch of Swiggy’s credit card, a product of collaboration between the famed food delivery giant and HDFC Bank on the Mastercard network. Earlier in June, Kotak Mahindra Bank, in a trailblazing partnership with Myntra, unveiled a digital fashion and lifestyle co-branded credit card. The first-of-its-kind, co-branded credit card not only facilitates transactions but also opens the doors for customers to Myntra’s loyalty programme.
HDFC Bank, the undisputed leader in the Indian credit card market with a staggering 18.4 million active credit cards, will also reportedly announce a new co-branded partnership with Marriott Bonvoy, the loyalty programme of Hotel Marriott. Interestingly, it’s destined to be India’s first co-branded hotel credit card launch.
Adding to the intrigue, AU Small Finance Bank is also poised to revolutionize the co-branded credit cards space by exploring partnerships, possibly in the jewellery merchant sector.
All the above-mentioned intriguing developments in the Indian Credit card segment lead us to a very compelling question about the future of credit cards in India
The recent surge in major companies across various sectors in India, ranging from telecommunications and e-commerce to hospitality and aviation, partnering with banks to roll out co-branded credit cards for their customer base, raises a few compelling questions:
- What are the driving forces behind this sudden trend?
- How do these co-branded credit cards serve as powerful tools, benefiting both partners by not only attracting new customers but also maintaining the loyalty of their existing customers?
- How are these developments shaping the future of credit cards in India?
What Are Co-Branded Credit Cards?
In the past, credit cards offered generic points that customers could use on various online rewards platforms, often for items like electronics, apparel, and lifestyle products. However, these options were frequently criticized for being overpriced in terms of the points required for redemption.
Enter co-branded credit cards, issued in partnership between a credit card issuer (usually a bank or financial institution) or card network and a specific company (typically a retailer) or startup unicorn. These cards proudly display both the logo of the credit card issuer (e.g., Visa, Mastercard, American Express) and the branding of the partner entity.
The beauty of co-branded credit cards lies in the mutual benefits they bring to both the issuing bank and the partner company.
Banks gain entry into the partner company’s established customer base, resulting in increased card applications and usage. Additionally, collaborating with partners to offer distinctive rewards and cashback options attracts new customers to the bank’s offerings.
Furthermore, the frequent transactions by customers using these co-branded credit cards can result in higher average spending. This increased customer activity enhances loyalty, making customers more likely to explore additional banking services with the same institution.
On the other hand, partner companies benefit from co-branded credit cards by fostering customer loyalty. Cardholders are more likely to use the co-branded card for purchases related to the partner’s products or services, thanks to the associated rewards and benefits. This translates to increased customer spending and higher revenue for the partner company.
In summary, co-branded credit cards serve as a win-win proposition for customers, businesses and banks. Customers who have a strong affinity for a particular brand or frequently engage in online shopping on a specific platform (Flipkart, Myntra, etc.) find these cards appealing due to additional rewards and perks. However, consumers are advised to carefully review the terms and conditions of these cards, including any annual fees or interest rates, to ensure they align with their financial goals and needs.
Surge in Usage of Co-branded Credit Cards in India
India has long been known as a market dominated by debit cards. However, the landscape has witnessed a significant shift over the last decade, with the issuance and usage of credit cards taking centre stage. This shift is propelled by several factors, including the surge in online shopping and the introduction of various rewards, cashback offers, and other enticing services by financial institutions. As a result, credit cards are gaining popularity, particularly among the millennial demographic.
India is the world’s most populated country, with over 1.42 billion people. Approximately 6.2% of them are using credit cards. The total number of outstanding credit cards stands at a staggering 88.7 million (or precisely 88,682,356), as per the June 2023 data by RBI. This reflects a remarkable surge in credit card issuance, with a five-year compound annual growth rate (CAGR) of 17.63%, compared to the 39.4 million (or precisely 39,380,747) issued in June 2018.
HDFC Bank, State Bank of India, ICICI Bank and Axis Bank – dominate the credit card market in India, collectively commanding an impressive 71% market share as of June 2023. Together, they have issued an impressive total of over 63 million active credit cards (to be precise, 63,006,623), and more than 70 co-branded variants.
An astonishing 70% of India’s co-branded cards are powered by the Visa network. Mastercard follows at 14%, and the National Payments Corporation of India’s RuPay contributes 11%. These networks provide the backbone for seamless transactions, enabling cardholders to enjoy their rewards and benefits effortlessly.
Banks Leading the Charge
HDFC, the major player in India’s banking sector, has been actively expanding its portfolio of co-branded credit cards through collaborations with various partners. Some of these are the Shoppers Stop HDFC Bank Credit Card launched in March 2022, Tata Neu HDFC Bank Credit Card in August 2022, Flipkart Wholesale HDFC Bank Credit Card in March 2023 and Swiggy HDFC Bank Credit Card in July 2023.
According to Parag Rao, HDFC Bank’s Country Head for Consumer Finance, the partnership with Shoppers Stop is expected to attract around 10 lakh new cardholders within three years. HDFC Bank’s co-branding initiatives are rapidly gaining traction, currently accounting for 12% of its customer acquisition. This figure is projected to rise significantly, reaching 35% within the next three years, showcasing the bank’s commitment to expanding its co-branded offerings and reaching a broader customer base.
Axis Bank is another major player which has collaborated with e-commerce giants Flipkart, Samsung and Indian Oil.
The Flipkart Axis Bank Credit Card, introduced in July 2019, has proven to be a resounding success story. By the end of March 2023, this co-branded credit card has already garnered an impressive customer base of 3.5 million users. This success can be attributed to a strategic collaboration wherein Flipkart handles card distribution through their platform, while Axis Bank manages the underwriting and Know Your Customer (KYC) processes, subsequently granting approvals.
The Flipkart Axis Bank Credit Card offers a plethora of benefits, including accelerated cashback across diverse categories such as travel, shopping, entertainment, and lifestyle. Notably, users can enjoy 5% cashback on every Flipkart transaction, 4% cashback on transactions with Preferred Merchants, Airport lounge access, and many more.
The Samsung Axis Bank Credit Card, unveiled in September 2022, operates on the Visa network and comes in two distinct variants – Visa Signature and Visa Infinite.
Amitabh Chaudhry, the Managing Director and Chief Executive Officer of Axis Bank, expressed that this collaboration with Samsung India will help Axis Bank tap into Samsung’s expansive presence across India, extending well beyond the major metropolitan areas. This strategic move aims to bolster Axis Bank’s credit card penetration into tier 2 and 3 cities, capitalizing on the rising demand for financial services in these regions.
Another financial giant, ICICI Bank, has forged significant partnerships with key players such as Amazon, MakeMyTrip, and Emirates to offer co-branded credit cards to benefit customers. Among these, the Amazon ICICI Bank Credit Card, introduced in October 2018, stands out for its innovative approach.
Designed to incentivize customers for their Amazon shopping endeavours and drive the adoption of Amazon Prime, this credit card presents an appealing proposition. What sets it apart is its provision of a lifetime free membership, available exclusively through invitation and the Amazon website. According to ICICI Bank’s Annual Report, the bank issued over four million Amazon Pay credit cards until March 31, 2023.
These banks and partner companies have been investing in marketing and other promotional activities to create awareness about co-branded credit cards in India among customers.
The exact share of co-branded credit cards in the overall credit card market in India remains uncertain, albeit estimates varying from 7% to 30%. This number is expected to increase sharply in the next few years, considering the increasing number of collaborations between banks and various e-commerce and corporate entities across India.
Despite the considerable advantages and alluring perks offered, credit card penetration in India remains relatively low compared to the population’s size and economic potential. This indicates ample room for further expansion in the credit card market.
And, that is where Indian FinTech companies have sensed the opportunity!
Banks Co-branding With FinTechs for Credit Cards
Indian banks are increasingly collaborating with FinTech companies to issue credit cards, marking a notable trend in the financial industry. This development has seen the entry of various FinTechs, new-generation banks, and original equipment manufacturers (OEMs) into the credit card issuance space.
These innovative FinTech players are making significant inroads into the Indian credit card market, offering credit card services to both individual consumers and corporate clients. The Fintech Stack has played a key role in the success of new-age startups offering financial services or products on behalf of banks. This involves providing open APIs (Application Programming Interfaces) to FinTechs, enabling them to tap into the bank’s ecosystem and attract new credit card customers.
A recent example of this collaboration occurred on August 3, 2023, when IndusInd Bank joined forces with Tiger FinTech, a subsidiary of Bajaj Capital Group, to launch a co-branded credit card powered by Visa.
Although these partnerships promise exciting benefits to consumers, they also raise a crucial question:
- Could the surge in partnerships between financial institutions and fintech companies in India for co-branded credit cards be a strategic response to the looming threat posed by new-age payment banks like Paytm and Airtel Payments Bank?
Credit Cards Arena: A Battleground for the Future
Paytm, the digital payments behemoth, has already teamed up with HDFC and SBI for co-branded credit cards. But what if Paytm, armed with its technological prowess and other advantages, decides to launch its own credit cards? The move would disrupt the traditional banking sector!
As of June 2023, Paytm Payment Bank boasted a staggering 38 million (38,194,741, to be specific) outstanding debit cards. These cards facilitated a substantial volume of payment transactions, numbering 2.7 million (or precisely 2,656,039 transactions), with a total value of Rs 8 billion (or exactly Rs 8,003,902 thousand). These transactions span various modes, including payments at point-of-sale (POS), online (e-commerce), and cash withdrawals at ATMs.
Although Paytm’s own credit cards aren’t in the picture just yet, they could be on the horizon. The remarkable performance of its debit card segment hints at the possibility of future expansion into the credit card market, provided the norms are further relaxed.
The momentum is not limited to Paytm alone. Airtel Payments Bank, with 5.42 million (5,419,872 precisely) outstanding debit cards, has also made strides in the debit card payment sector. In June 2023, Indians carried out a remarkable 254,936 transactions worth Rs 393.8 million (or Rs 393,819 thousand) using Airtel’s debit cards.
These payment banks are the emerging disruptors that could challenge the status quo of traditional banks. This potential disruption stems from several key factors that these digital-first entities bring to the table.
First and foremost, both Paytm and Airtel have already established substantial customer bases through their existing digital financial services. Paytm, in particular, has become a household name with millions of users who rely on its platform for digital payments, mobile recharges, and various financial transactions. Airtel, with its widespread presence as India’s second-largest telecom operator, has also ventured into digital banking services. These ever-expanding customer bases provide these payment banks with a significant advantage over traditional banks when it comes to launching their own credit cards in the near future.
Furthermore, Paytm and Airtel are known for their technological innovation and agility. They have the capabilities to leverage advanced data analytics and artificial intelligence-driven insights to tailor credit card offerings to the specific needs and preferences of individual customers. This level of personalization can be a compelling selling point for customers who seek more than traditional one-size-fits-all credit cards.
One of the critical advantages these digital banks possess is customer convenience. They offer a wide array of services beyond banking, including online shopping, bill payments, and entertainment. By seamlessly integrating credit card functionality into their existing apps and ecosystems, they can create a one-stop shop for their customers’ financial needs. This integration enhances convenience, making it easier for customers to manage their finances.
To compete effectively with traditional banks, Paytm and Airtel could offer highly attractive rewards and cashback incentives. They can customize these rewards to align with their existing services.
Additionally, Paytm and Airtel can leverage their lower operating costs compared to traditional banks with physical branches. This cost advantage enables them to offer credit cards with lower fees and interest rates, making their offerings more appealing to cost-conscious consumers.
However, launching their own credit cards will not be just a walk in the park for payment banks like Paytm and Airtel. Unlike the seasoned giants of the banking world, such as HDFC and SBI, which have decades of experience under their belt, these payment banks are relatively newcomers. Entering the fiercely competitive credit card market demands more than just innovative ideas; it necessitates substantial financial muscle to make a significant impact from the get-go.
Credit cards operate on a unique “Buy Now, Pay Later, a.k.a. BNPL” premise where users make purchases and then settle the bill at a later date. To issue credit cards and sustain the associated transactions, payment banks like Paytm and Airtel must have substantial funds in their accounts. In this scenario, considering the apprehension among people to have their money parked with a company other than traditional banks, these payment banks would need to turn to external sources of capital, primarily investors, at least during the initial years of their credit card venture. This reliance on external investments is a common strategy among startups, enabling them to secure the essential funding required for operating activities like marketing, technology development, and customer acquisition.
However, it’s worth noting that many startups are grappling with losses and encountering difficulties in raising funds from investors and venture capitalists. Therefore, it remains uncertain how Paytm, Airtel, or any other new fintech entrant will navigate this terrain to successfully launch their own credit cards at least in the next three to five years.
In a nutshell
Co-branded credit cards have proven to be an efficient and cost-effective customer acquisition strategy for traditional banks. These cards are often designed with particular market players or niches in mind, allowing banks to precisely target their desired audience. Established and reputable brands instil trust in their consumers. When such brands collaborate on credit cards, it enhances the perception of trustworthiness and reliability associated with those cards.
As the credit card revolution in India continues to gain momentum, we can anticipate a growing array of co-branded credit cards, each offering its distinct rewards and benefits. Whether you’re a frequent online shopper, a food delivery aficionado, or a tech enthusiast, there’s likely a co-branded credit card already designed just for you. It’s just a matter of time before a bank offers you a co-branded credit card that must be loaded with eye-popping perks and benefits to make you fall for it.
So, if you’re part of this evolving financial landscape, we’d love to hear from you. Do you own any co-branded credit cards, and if so, which banks and brands are they associated with? Feel free to share your experiences in the comments section below!
