– By Sandeep Ghule
The Indian credit card market has seen a paradigm shift over the years, with fintech firms leading the way in driving digitization, innovation, and democratizing access to financial services. Capitalizing on the emergence of new age technologies, the rapidly growing fintech firms are transforming traditional banking by catering to a heterogeneous population and addressing their most prominent concerns.
India’s credit card market is experiencing unparalleled growth, approaching the milestone of 100 million cards issued. Fintech startups are playing a pivotal role towards this growth and reshaping lending by providing tailored credit card services to cater to diverse consumer needs.
Amidst unprecedented growth, RBI has stepped up its oversight of the fintech sector to ensure sustainable expansion. One recent RBI directive prohibited card networks from issuing commercial credit cards to fintech firms, citing a potential lapse in risk management, which could lead to issues like money laundering and round-tripping of funds. Another regulation also instructed credit card issuers to offer freedom of card network choice to the customers, which allows the end users to pick the features that fit their needs.Top of Form
Overall, the apex bank’s primary reasons for implementing these regulations are to safeguard consumer interests while charting a feasible growth trajectory for the fintech credit card industry. On first instance this might look worrisome for fintech players; however, it also provides opportunity for innovation and growth, which can help these new-age startups gain an edge over traditional institutions.
One strategy for fintech firms to adapt to this change is to focus on niche segments, by catering to SMEs and MSMEs, gig workers, and specific consumer groups who actively need credit services and are usually underserved. Leveraging the power of technology merged with accurate data analysis to offer personalized credit cards to these consumers, fintechs can penetrate the market effectively, rewarding them with higher brand loyalty and greater margins.
Established players in the fintech sector are already leveraging technology and data to simplify the process for underserved consumers in selecting suitable credit cards. They prioritize providing customers with secure and convenient transactions, integrating digital technologies like UPI for credit card transactions. Moreover, through innovative technology and advanced analytics, these firms offer personalized credit limits. Furthermore, they actively promote financial literacy via their abundant resources to foster a more inclusive financial environment.
While there might be some tussle between traditional banks and fintech aggregators considering they are practically competitors, there is still room for positive collaboration that will be mutually beneficial. Fintech firms can leverage their tech expertise and agility to support banks in their credit card offerings, while the banks can provide fintechs with a larger customer base, advise them on compliance matters, and help them scale.
Several new fintech firms are also revolutionizing credit card offerings like by facilitating Buy now play later (BNPL) and EMI transactions, along with other services. Consider a purchase such as buying a TV worth Rs. 1,00,000, which requires potentially utilizing a big chunk of one’s savings or income at once. By offering great EMI or BNPL services with lower or no interest options via credit cards, it becomes easier for customers to make big-ticket purchases without feeling the immediate burden of the expense.
In addition to this, fintech firms are also delving into newer credit risk models to reduce reliance on traditional credit scores by harnessing the power of technology. These contemporary models use AI and other tools to their advantage, allowing firms to update their models in real-time based on the dynamic market conditions and consumer behaviour. This not only enables fintech firms to serve a broader customer base more rapidly, but also ensures thorough risk assessment.
In essence, RBI’s reshaping of the credit card market might look like a challenge at first, but it is a great opportunity to spur innovation and growth for fintech firms. Focusing on filling white spaces in the niche credit segments, using AI to their advantage, and partnering with traditional institutions will help fintech firms navigate this dynamic environment. With a dedication to meeting diverse customer needs, fintech companies can spearhead India towards a more innovative financial landscape.
(Sandeep Ghule is the co-founder & CPO at Credilio.)
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