On June 8, the RBI also announced an increase in the UPI system by increasing the repo rate by 50 basis points in the bi-monthly monetary policy. RBI decided to allow Credit Card for transaction.
in present, is i Facilitates transactions by linking savings/current accounts through debit cards of users. The interoperability of PPIs has facilitated the access of PPIs to the UPI payment system for carrying out transactions.
Earlier this week, RBI said, “To further deepen access and usage, it is proposed to allow linking of credit cards with UPI. To begin with, RuPay credit cards will be enabled with this facility.” This arrangement is expected to provide more opportunities and convenience to customers to make payments through the UPI platform.”
The facility will be available after completion of necessary system development, RBI had notified, “necessary instructions will be issued to NPCI separately.”
There are more than 26 crore unique users and 50 million merchants on the UPI platform. Last month alone, 594.63 crore transactions amounted to 10.40 lakh crore processed through UPI.
Talking about linking of credit cards with UPI, Anshuman Deb and Ravin Kurva Research Analysts at ICICI Securities said in their research note, “The regulator (RBI) has decided to allow credit card (CC) linking with UPI.” has been offered. This facility will only be operational.” With RuPay CC limiting its scope so far. However, this is a landmark achievement, as it could open up a much larger payment universe.”
Data provided by ICICI Securities showed that the monthly payment of UPI was 9.6 lakh crore and 9.8 lakh crore in March and April this year. This is compared to credit card payments 1 lakh crore in March/April 2022.
“The potential monetization opportunity will depend on the fine print of the execution. There is also the question of a potentially different target universe for UPI and CC payments. Additionally, with one of the key new age CC players within the CC universe being There are changes to reduce installment payment facilities,” the duo said.
Elaborating on the linking of RuPay cards with UPI, analysts said that initially RuPay credit cards will be enabled with this facility. This arrangement is expected to provide more opportunities and convenience for customers to make payments through the UPI platform. This facility will be available after the completion of required system development.
Notably, RBI has also increased the limits applicable on e-mandates on cards for recurring payments 15,000 per transaction. From 5,000 per transaction.
Analysts at ICICI Securities pointed out that the nature of CC and UPI payments are fundamentally different. CC’s average monthly ticket size was in the range 4,000-4,800 while UPI payments were in the range 700-900 for P2M (Person to Merchant).
The stockbroker’s data further revealed that industry credit card receipts grew 4% month-on-month 1.54 lakh crore, resulting in a 2% growth in terms of receivables per card to Rs 20,445 in April 2022 from Rs 20,060 in March this year.
In April 2022, SBI Cards spent a market share of 18.6% from 19.1% in March 2022, while the cards with applicable market share held steady at 18.6%. Overall, industry credit card spending ticket size dropped a modest 1% month-over-month 4,731 while SBI Card spend slipped 1.7% month-on-month 4,681. The overall industry spends 3.8% MoM per card in April 2022 while SBI Card has contracted 5.5% MoM.
According to analysts, the linking of credit cards to UPI is a historic development, but the direct financial impact will depend on the details. Key questions include (1) what charges will the CC cover for UPI, given that UPI currently has zero charges, (2) will it be gradually allowed for Visa/Mastercard as well, and ( 3) Upon successful optimization, is the entire Point of Sale (POS) infrastructure at risk.
Which stock is a hot pick for investors among UPI linked credit cards?
SBI Card looks lucrative amid the growth.
SBI Card has a buy rating on Analyst with target price of 1,060 (unchanged) based on 40x FY24E (earnings FY23/24) earnings.
Analysts said, “SBI Cards reported positive surprises in Q4FY22 driven by lower credit cost. However, there has also been a marginal increase in the receivables mix. As a business combination, a lower revolver with lower credit cost is good but is less than optimal.. Thus, improvement in the loan book and revolver mix will be the next earnings post normalization of credit cost (8.4% in FY22).”
SBI Card shares closed on BSE Slight decline at 769.60 each. At closing price, the market capitalization of SBI Card is 72,592.02 each.
Considering the Friday closing price of SBI Card and buy target of ICICI Securities, the shares are likely to move higher by around 38%.