Banks are increasingly turning to fintech startups for credit card origination. This shift comes as non-performing assets rise and issuances stall. Private sector banks are outsourcing to digital platforms. They aim to streamline acquisition while keeping the issuer role. Fintechs like Hyperface, Card91, Falcon, and VegaPay are leading this change. These partnerships help banks target specific customer segments more effectively.
Co-branded credit cards are gaining traction. They operate on networks such as RuPay, Visa, and Mastercard. Banks collaborate with consumer brands to reach loyal users. This strategy enhances customer acquisition across various industries. Sectors like e-commerce, travel, and retail benefit significantly. Each brand maintains its unique rewards program. This differentiation helps in marketing and retention efforts.
For example, Flipkart and Amazon have their own co-branded cards. Flipkart partners with Axis Bank, while Amazon works with ICICI Bank. These collaborations allow banks to leverage brand loyalty. Fintechs facilitate the entire process. They handle origination and marketing distribution. This enables faster launches and precise portfolio curation. Banks focus on their core strengths like underwriting and collections.
Regulations play a key role here. The Reserve Bank of India’s 2022 Master Directions specify that banks must issue and underwrite co-branded cards. Partners are limited to marketing and distribution. Card data must remain with the issuer. Sharing with vendors is allowed only when essential and with consent. This ensures security and compliance in all operations.
Ramanathan R.V., CEO of Hyperface, highlights the benefits. He notes the ability to target and curate portfolios specifically. Creating cards for self-employed entrepreneurs is one example. This deliberate approach enhances effectiveness. Fintech platforms reduce the technology and distribution burden. They help lower customer acquisition costs significantly. In some programs, costs drop below ₹1,000 per customer.
However, operational expenses remain higher for co-branded cards. Banks pay a significant part of rewards to brand partners. Rewards and loyalty points are crucial for retention. Despite higher OPEX, the economics make sense. In today’s risk cycle, banks need efficient solutions. Non-performing assets have risen sharply. They reached ₹6,742 crore in December 2024, up from ₹5,250 crore a year earlier.
This is the highest absolute level on record. For context, NPAs were much lower in previous years. They stood at ₹2,404 crore in March 2020. During the 2008 crisis, write-offs crossed ₹5,000 crore. Banks had to slash card books and tighten underwriting. Current challenges require innovative approaches. Co-branding with fintech support offers a viable path.
Priyanka Kanwar of Falcon explains their role. They act as matchmakers between banks and brands. Falcon partners with all major card networks. They have agreements with key co-brands in the country. This ensures the right fit for each partnership. Targeting brands with loyal customers is essential. High wallet share and frequent engagement are critical factors.
Brands must also invest in acquisition for at least three years. This commitment is necessary before achieving profitability. Larger brands in commerce, travel, and airlines are favored. They have the resources and customer base needed. This makes them ideal partners for co-branded programs. The focus is on scalability and long-term success.
According to a Redseer report, co-branded cards are projected to grow at 35-40% CAGR from FY24 to FY28. They could capture over 25% market share by FY28. This is up from 12-15% in FY24. Founders believe these targets are achievable. Banks seek faster launches and sharper targeting. Brand partnerships enable better activation and efficiency.
Hyperface’s Ramanathan points to commerce and retail co-brands. They are extremely scalable due to high-frequency purchases. Merchant margins can fund richer customer rewards. This creates a win-win situation for all parties. Banks expand their reach without heavy upfront costs. Fintechs provide the necessary technology and expertise.
Falcon currently manages 1.5 crore credit card accounts. Their transaction volumes are about 16,000 crore. Hyperface supports 7 million cards across various portfolios. These numbers demonstrate the scale of operations. The collaboration between banks and fintechs is reshaping the credit card landscape. It offers a promising solution to current challenges.
The trend is set to continue as NPAs remain a concern. Banks will keep exploring partnerships with fintechs. This approach helps mitigate risks while driving growth. The future of credit card issuance looks increasingly digital and collaborative.