upi: RBI’s proposal to link credit cards to UPI could benefit fintech platforms, say brokerages

by James · October 3, 2022

RBI’s proposal to link credit cards with UPI will greatly benefit fintech platforms like Paytm, brokerage firms Citi and Goldman Sachs said on Monday.

Analysts at both brokerages shared that the move would be important for Paytm and other fintech firms, which will be able to monetize Unified Payments Interface (UPI) payments and generate higher revenues.

On 8 June 2022, the RBI proposed linking RuPay credit cards to UPI, saying that it has become the “most inclusive mode of payment” in the country and that the move is aimed at deepening the scope of UPI.

In a June 10, 2022 note, Goldman Sachs suggested that the central bank’s move will “positively impact” fintech platforms such as Paytm and potentially increase credit card penetration in the country.

“In our view, this could potentially increase credit card penetration and expand the scope of digital payments in India, positively impacting both card companies (like SBI Cards) and fintech platforms (like Paytm),” ANI reported citing the Goldman Sachs report.

The brokerage said Paytm’s payments vertical will particularly benefit from RBI’s proposal due to higher adoption of credit cards that carry merchant discount rate (MDR) through UPI. “We expect a positive impact on Paytm’s payments segment. Increased use of credit cards will potentially result in higher MDR revenues,” the brokerage added.

Another top brokerage, Citi, also said that the shift from debit/bank account to credit cards could improve monetization of UPI payments, which will be a positive development for Paytm and other fintech platforms.

The brokerage said that it appears that all the latest guidelines related to digital payments are either beneficial for Paytm or will not have any impact on the company’s operations. Several global brokerages remain bullish on Paytm’s stock, citing the company’s rapid revenue growth, accelerated loss reduction and strong improvement in coverage ratio.

Global brokerage Goldman Sachs had pointed out that digital lending guidelines are unlikely to affect Paytm’s business, rather it will help make the stock attractive. The RBI issued digital lending guidelines in August to ensure orderly growth of credit delivery through digital lending, while mitigating regulatory concerns and protecting customers.

In a note dated August 10, 2022, Goldman Sachs said the move would be beneficial to Paytm as the financial services offered by the company are already in line with the central bank’s guidelines.

“We view Paytm’s financial services business practices to be in line with the key points as per the final guidelines issued by the RBI (Reserve Bank of India) on digital lending,” Goldman Sachs said in its note. It added that the RBI’s move “should result in limited to no impact on Paytm’s business/revenue model and should help remove one of the key overhangs on the stock”.

The brokerage also highlighted that recent RBI announcements related to digital lending guidelines, UPI through credit cards and Payments Vision 2025 “are largely ‘neutral/positive'” for Paytm.

(With input from agencies)