Linking credit cards to UPI (Unified Payments Interface) platforms is a landmark feat considering it can open up a big payment universe, a domestic brokerage ICICI Securities said in its report. The RBI in its June monetary policy meeting announced to link credit cards to UPI, starting with Rupay cards.
UPI had a monthly payment of Rs 9.6/9.8 trillion in March/April 2022 compared to around Rs 1 trillion of credit cards during the same period.
The possible monetisation opportunity will depend on the fine print of the execution and there is also the question of potentially different target universe for UPI and credit card payments, ICICI Securities further said in its report.
It said the key questions involve: what will be the charges involved for UPI in CC considering UPI has zero charge currently? Whether it will also be gradually allowed for Visa/Mastercard and on successful adaptation, can the entire point of sale (PoS) infrastructure face a threat?
Among credit card firms and entities, ICICI Securities maintained a Buy stance on SBI Cards shares with a target price of Rs 1,060 per share (38% upside) based on 40x FY24E (FY23/24 earlier) earnings.
“SBI Cards reported a positive surprise in Q4FY22 driven by lower credit costs. However, there has also been lower growth in the receivables mix. As a business combination, lower revolver with lower credit cost is good but less than optimal,” the brokerage said.
As such, improvement in loan book and revolver mix will be the next earnings levers post the normalisation of credit cost at 8.4% in FY22, it added.
“It is proposed to allow linking of credit cards to UPI,” RBI Governor Shaktikanta Das said on June 8, 2022, while announcing the regulatory moves, along with the bi-monthly policy review.
He said that to start with Rupay credit cards issued by the RBI-promoted National Payments Corporation of India (NPCI) will be enabled with this facility, and the facility will be made available after system developments.
Das said the new arrangement is expected to provide more avenues and convenience to the customers in making payments through the UPI platform.