Paytm To Disrupt Credit Cards, SBI Cards At Receiving End: Bernstein

One 97 Communications Ltd.'s Paytm will likely dominate the digital payments platform and disrupt the credit card industry soon, according to Alliance Bernstein LP.

In a report released on India payments on Wednesday, the asset management firm said the combination of the Unified Payments Interface and the digital lending products would be a superior proposition to credit cards and will impact the latter's growth.

In such a scenario, companies like SBI Cards and Payment Services Ltd. are likely to be at the receiving end of the disruption due to their "monoline" credit-card model. It also faces increasing margin pressure along with a limited room for diversification, according to Bernstein.

The analysts said the credit cards' share of cashless spends was expected to decline to 18% by financial year 2030 from the current 25%. Even the growth of the revenue pool is expected to go down and be at a compound annual growth rate of -8% in 2023–30.

Due to the rise of alternative digital credit offerings, SBI Cards is expected to be gravely impacted and the earnings growth will likely decline sharply to -15% in the next five years from the -30% in the last decade, Bernstein said.

However, with Paytm leading the show, analysts expect its loan disbursal volumes to grow sharply and the business to break even by fiscal 2025.

With the rise in digital lending, come regulatory risks as it is still an evolving space. Bernstein said adverse regulatory changes could be a key downside risk for Paytm. And this might be an upper hand for SBI Cards as it would limit the growth of alternative consumer credit options.

Regardless of the expected disruption in credit cards, for banks and other lenders, these financial instruments will be a key engagement and acquisition tool even if less profitable. However, there is still scope for banks to deal with lower profitability, if they capture the digital credit space, Bernstein said.