UPI's Credit Card Expansion To Benefit Payments, Card Businesses, Says Jefferies
While payment platforms may benefit the most, card issuers could also capture a share of UPI spends, the brokerage said.
The Unified Payments Interface's move into credit cards with digitised RuPay cards will benefit both the card industry and the payment platforms, Jefferies said in a report.
While payment platforms like Paytm may benefit the most, this is also an opportunity for card issuers to capture a share of UPI spends, that doubled to a daily average of Rs 100 crore in October 2023, making up approximately 2% of credit card online spends, the brokerage said.
Card Industry Benefits
Jefferies sees an addition of 35 million new RuPay cards on UPI platforms over the next 12-18 months, with approximate payment volumes of $60 billion.
Currently the UPI merchants' payments run rate is 2.6 times that of credit card spends and 70% of that comes from large ticket transactions. If the card issuers successfully capture 10% "this could lead to annualised $60 billion in incremental MDR (merchant discount rate) accretive spends for the card industry".
Card players will gain from wider acceptance network and capture share of UPI spends.
Merchant resistance is a key risk to mass scale adoption of credit cards on UPI, Jefferies said. This is because large, organised merchants like food and beverage chains, travel and logistics, which make up 15-20% of spends are, refusing the method of payment acceptance due to MDR.
While SBI Cards and Payment Services Ltd. will be able to increase its base in UPI, it could lose out on MDR on small-ticket spends, as there is no charge on spends below Rs 2,000. Jefferies has maintained a 'buy' on SBI Cards, with a price target of Rs 1,020 apiece.
Payment Platforms
"According to NPCI's circular, in addition to RuPay intercharge, the merchant acquirer shall also reimburse 8 bps to the payment app," the report said. This will enable payment platforms to monetise the transaction on both merchant end with 15-20 basis points and consumers with 8 bps.
Platforms like Paytm may see improved monetisation of payments business. Jefferies estimates a 5% GMV shift credit card on UPI to lead 10% gain on Paytm's FY26 profit before tax.
It maintains a 'buy' rating with a price target of Rs 1,050 per share for Paytm.
Card Companies To Gain Share In UPI Spends
Card players should gain from wider acceptance network and by capturing share of UPI P2M spends, Jefferies noted.
"Given that UPI linkages only work on RuPay network, issuance of RuPay cards to existing and new credit card customers is a prerequisite for meaningful jump in spends. RuPay card mix in incremental cards is already at 25-30%, and digital card issuance is helping reduce timelines for activation."
SBI Cards is the only listed credit card player, and for them RuPay cards constitute 12% of the 18 million base.
