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The great Indian fintech show: Bank vs fintech credit cards

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When was the last time you got a credit card sales call from your bank?

Or were approached by a salesperson at a Metro Station or an airport?

Or you might have noticed the return of credit card advertisements in your call logs, social media, e-mails, SMS Box, or even WhatsApp. Surely you haven’t missed the credit card pitches during the recently concluded IPL and other events now? If your answer is yes, then welcome to the brave new world of fintech credit cards.

Despite all the hype by banks and credit card issuers, Indians have not really embraced credit cards. According to RBI data, almost 62 million credit cards were in use in India in the financial year 2021, corresponding to less than 6% of our total population.

Many have argued that the lower card penetration rate is yet one more marker of the true ‘consuming’ class in India, estimated variously at between 120 million to 300 million worthwhile users, depending on product/service category.

Difficulty in getting one has played a role, but users in India may now apply, be approved, and get a credit card ready to use in less than 5 minutes. Thanks to the recent revolutions in data analytics and tremendous development in the Indian Fintech Ecosystem.

What does this ecosystem look like?

Fintech is one of the hottest sectors in India and abroad, and has attracted record amounts of money, burning heavily on aggressive social media advertising, performance marketing, paying influencers to promote their product, and engaging a celebrity or cricketers for brand endorsement.

According to Invest India report, there were 6,636 fintech startups in India as of 2021 and the country’s fintech industry market size was $31 billion in the year and is estimated at ~$ 150 billion by 2025.

Fintechs may now access and verify applicants’ data with the use of Aadhaar e-KYC using OTP or Offline XML consent, and APIs are available for several validations such as PAN verification, Credit Bureau Check, and so on. That has knocked out a significant part of the cost of verifying potential card users and their creditworthiness.

Not only that but there are a few B2B SaaS enterprises, such as Zeta and M2P Fintech, that help fintech companies build products, allowing them to underwrite loans and credit cards more quickly.

How to sign up for a credit card via a bank versus a fintech

SBI Card is a publicly-traded credit card company that, together with HDFC Bank, ICICI Bank, Axis Bank, and others, dominates the Indian credit card market.

Under two conditions, someone can obtain a credit card from a traditional bank.

➤ If you already have an existing banking, salary account or loan relationship with them and the basis of your financial activities. Banks roll out pre-approved offers from time to time

➤ In case you don’t have a pre-approved offer, you need to apply for a fresh application with a list of documents online or offline.

In the second case, fintech companies have a competitive edge since they are overhauling the entire application process and making it faster to onboard. 

One can download their app, enter their details and OTP, and if approved, start using the credit card in minutes without submitting any physical documentation.

How are fintechs competing successfully?

This is where things get interesting; Fintech credit card companies assign a credit limit with the help of their lending partner (which can be a bank or an NBFC) and offer you a prepaid card backed by that credit limit.

So, technically, you are getting a prepaid card backed by a loan account created in your name by the fintech companies

With the new RBI circular, even NBFCs may be able to issue a credit card soon, but currently, if you use fintech credit cards such as Slice, Uni, LazyPay, PostPe, and others, there is a high probability that you have a loan account running on your name because they are not full-fledged credit cards.

How do fintech credit cards differentiate?

Because fintech firms want to serve the (younger) customer first, the entire focus seems to be on product experience, design, marketing, and making card usage more exciting.

Fintech credit card companies are known for their attractive discounts, referrals, and cashback on day-to-day services we use such as food ordering, recharge, bill payments, groceries, travel, or even your favourite D2C brands. Yes, if this reminds you of the good old days in e-commerce and payments firms, then yes, VC funding is the common factor here too.  

They are investing heavily in marketing and partnerships with the goal of acquiring more and more users, and consider the expense as CAC (Cost for Acquiring Customers in Startup abbreviation).

Prospects have to resist multiple offers, stylish packaging, and the risk of being left out to say no.

While banks too run similar deals, they are generally more seasonal but may not have as aggressive offerings as fintech companies. Or the willingness to lose money on what are ‘mature’ businesses for them now. Remember, SBI cards IPO’ed in 2020, when a lot of the present fintechs were barely around. 

Is there any catch?

Credit cards are a type of soft loan that must be handled responsibly; without financial discipline, one can fall into debt and eventually damage their credit score. A low credit score can haunt you for a long time as lenders reject you or charge you higher rates on larger loans when you need them.

In general, there are a few things to keep in mind while applying for fintech credit cards.

➤ Who exactly is lending to you? In the case of banks, there is often just one entity that issues credit cards, whereas a fintech will issue a loan rather than a credit card account in the name of their borrowing partner. Read the MITC (Most Important Terms and Conditions), as well as any agreements between you, the card issuer, the lending bank/NBFC, and fintech. You need to pay extra attention while signing up as it’s a matter of just an OTP.

➤ Billing Cycle: A regular credit card generally has a credit free period of up to 45 days, but a fintech credit card has a credit period of 30-40 days, where the due is supposed to be paid under 7 days of bill generation.

➤ The 1/3rd Bill Payment & No-cost EMI: You may see fintech credit card companies giving the option to pay your bills in three easy no-cost installments; while this may sound like a more appealing choice than conventional credit cards, it might lead you to a debt trap. Pay special attention to no-cost EMI offerings and GST components.

➤ Customer Support: To gain a better idea, review the quality of customer support and the escalation matrix. You can also refer to social media sites such as Twitter and LinkedIn, as well as the Play Store ratings and online complaints. This will help you if there are any complications because there will be financial transactions involved.

➤ Interest Rates: credit cards are an expensive affair that comes with hefty interest rates that can go up to 48 per cent per year. Read the terms and conditions thoroughly.

➤ Fees & Charges: There might be many charges such as joining or annual fee, card replacement fee, account closing fee or even over limit or forex transaction charges when you use your card outside India. 

➤ Credit Report and Bureau Update: Always check your credit reports periodically to detect and report anomalies.

Who can help in case of major escalations?

Remember that one late payment can result in a significant drop in your credit score, which can dramatically lower your creditworthiness in the eyes of financial institutions. For a period up to 5 years at times.

Even if you have made on-time payments, if you discover any difference in your credit reports, such as a late payment, default, erroneous loan or credit card limit, raise it straight away with your credit card or fintech firm, as well as credit bureaus, and if they do not address it, you have the choice of lodging a complaint with the CMS Desk of the regulator RBI or the Consumer Forum.

Safe Practices

➤ As per the RBI guidelines, all three leading Credit Bureaus such as TransUnion CIBIL, Experian, and CRIF have to provide credit reports to the consumer on request without any additional cost.  Use the facility.

➤ To prevent scam calls, avoid accessing your credit reports on any promotional website or app.

➤ Never disclose your personal and financial information over an unauthorised communication channel such as WhatsApp or Telegram; instead, always verify the requester’s identity and submit the documents via an official e-mail or website.

➤ Always cross-sign documents and use a masked Aadhaar Card, you can also lock/unlock your Aadhar Card, and check your authentication history from the official UIDAI website

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