Paytm, SBI Cards Seen To Benefit As UPI-Linked RuPay Credit Cards Gain Traction

Paytm and SBI Cards and Payments Services Ltd. are set to benefit from the rising use of RuPay credit cards linked to the UPI platform, according to multinational equity research and brokerage firm Bernstein.

RuPay credit cards were allowed to join the UPI network in late 2022, both developed by the National Payments Corporation of India. As per Bernstein estimates, RuPay credit cards on UPI now account for around 40% of transaction volumes and nearly 8% of value.

UPI-focused players such as Paytm stand to benefit as credit transactions increasingly migrate to UPI rails. This shift could enhance take-rates in their core payments businesses, given that credit-linked UPI transactions typically carry higher monetisation potential than debit-linked ones, Berstein said in a note.

"Issuers such as SBI Cards are witnessing a rapid increase in UPI-linked credit card transactions, mirroring the pattern seen during the early days of UPI's disruption of debit cards," the note said.

Analysts said RuPay credit card transactions on UPI attract merchant discount rates only for large merchants and for transactions above Rs 2,000 at small merchants. This enables broader acceptance among smaller merchants.

As a result, RuPay’s credit card market share has jumped to nearly 16%, from just 3% two years ago.

The linkage with UPI has enabled RuPay to gain credit card market share aggressively in the last two years.

To be sure, the Bernstein report highlights that the average transaction size for UPI-linked credit card spends is below Rs 1,000 currently.

Besides, a transition from card-based acceptance to QR-based mode, especially among small merchants, can pose a challenge to POS terminal providers like IPO-bound Pine Labs Ltd.

The risk is amplified by the already large merchant bases of players such as Paytm and PhonePe, Bernstein said.