Credit will play a key role in India’s journey towards financial inclusion and its ambition to become a $5-trillion economy. With the government and the Reserve Bank of India (RBI) actively advocating for technology-driven financial solutions, growth is inevitable. Efforts to cultivate a regulated financial ecosystem that offers convenient access to credit for all segments of society are underway.

To achieve this, two essential steps need to be taken. One: the expansion of the fintech industry including co-branded credit card industry. Two: initiatives aimed at ensuring the financial inclusion of individuals who remain unreachable or unable to utilise interest-free credit, despite being eligible for it.

Tremendous Room For Growth

The growth of credit per capita plays a pivotal role in driving GDP per capita. Let’s compare the India with the USA to understand this. In some quarters, concerns are being raised over the rapid expansion of unsecured lending. But it is essential to acknowledge the immense potential for growth in credit usage and economic prosperity. In India, the per capita credit card dues are at a mere $23 compared to the $3200 in the USA, alongside GDP per capita figures of $2600 and $83,000, respectively. Therefore, the scope for both credit expansion and economic advancement in India is tremendous. However, this growth must be managed prudently to avoid potential pitfalls. In this regard, the RBI has been playing a critical role in ensuring responsible growth, maintaining financial stability, and mitigating risks associated with rapid credit expansion.

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Expanding Scope For Co-Brand Credit Card Industry

The RBI’s March 7, 2024, amendment to the credit and debit card guidelines marks a significant expansion in the scope of co-brand partnerships. Clause 21(b) is of particular importance. For the first time ever, the RBI has allowed co-brand partners (CBPs) to draw encrypted transaction data directly from the issuing banks for display on the CBP app without storing or accessing it. This step improves customer convenience and demonstrates the regulator’s commitment to fostering innovation in the co-brand ecosystem.

Furthermore, the amendment now permits NBFCs to issue co-branded cards without seeking prior RBI approval. This is a major departure from the earlier arrangement where NBFCs needed the RBI’s approval for launching co-brands. This is only going to support the growth and development of co-brand partnerships, paving the way for innovative and customer-centric offerings in the market.

Compliance and Risk Management of Co-Brand Credit Cards Is Key

Amidst the excitement of growth opportunities, it’s paramount to ensure compliance and adherence to regulations. The RBI’s recent regulations aim to enhance customer safety, transparency, and choice within the credit card industry. The March 7 rules reiterate the requirement for no sharing of transaction data by the card issuer to CBPs. They also ensure that only the issuer will have access to the card processes and controls (such as setting spending limits of turning transactions on or off). The guideline also reiterates that the final customer underwriting decision rests with the issuer. The RBI’s prudent management of unsecured lending, as evidenced by the Gross NPA ratio for credit cards remaining at a manageable 2%, highlights the commitment to sustainable growth. By aligning with the RBI’s vision for prudent and sustainable expansion, the co-brand credit card industry, which is approximately one out of three new credit cards issued today, stands poised to contribute significantly to India’s economic goals for 2024-25.

CBPs, Fintech Playing An Important Role For Banking

The co-brand model, in particular, demonstrates the synergy between fintech firms and banks in addressing consumer needs. By leveraging technology and customer insights, co-branded credit cards offer a plethora of benefits across lifestyle, shopping, credit score improvement, travel, and premium experiences. This enhances customer satisfaction and promotes responsible spending habits. The co-branding model fosters collaboration between fintech firms and banks. This enables joint innovation to address the needs of credit seekers who are frequently underserved, therefore promoting financial inclusion.

Additionally, it is crucial to understand that banks benefit from the technological and marketing expertise to new customer bases that fintech industry contributes. This expertise enhances the banks’ capabilities in digitally serving customers across thousands of pin codes, many of which are underserved by physical bank branches.

The landscape for CBPs in India is vast. Apart from the financial entities such as banks, this landscape also has fintechs such as BankBazaar alongside India’s largest e-commerce brands, travel portals, food delivery services, movie ticketing platforms, and business conglomerates – all co-brand players fully compliant of the March 7 guidelines.

In conclusion, while India’s credit landscape presents huge opportunities for growth, responsible expansion guided by regulatory frameworks is paramount. The co-brand credit card industry can serve as a catalyst for financial inclusion and economic development, ensuring that the benefits of credit reach all segments of society.

(The author is CEO, Bankbazaar.com. Views are personal)