On June 8, RBI while raising repo rate by 50 basis points in bimonthly monetary policy, also announced improvement of UPI system. RBI decided to allow credit for transactions.
Present, UPI facilitate transactions by linking Savings/Current Accounts through the user’s Debit Card. The interoperability of PPIs has also facilitated the access of PPIs to the UPI payment system to conduct transactions.
Earlier this week, RBI said, “to further increase the reach and usage, it is proposed to allow credit card association with UPI. To start with credit card Rupay will be activated with this facility. This agreement is expected to provide more avenues and convenience for customers to make payments through the UPI platform.”
The facility will be available once development of the requested system is complete, the RBI announced, adding, “the necessary instructions will be issued exclusively to NPCI.”
There are more than 26 unique users and 5 crore sellers referred on the UPI platform. Last month alone, 594.63 crore transactions amounted to 10.40 lakh crore was processed through UPI.
Talking about credit cards linking up with UPI, Ansuman Deb and Ravin Kurwa Research Analyst at ICICI Securities said in their research report, “the regulator (RBI) has proposed to allow credit card linking ( CC) with UPI The facility will only start with RuPay CC which is limited in scope for now.However, it is a landmark feat as it could open up a huge payment universe. .”
Data released by ICICI Securities shows that UPI has a monthly payment of 9.6 lakh crore and 9.8 lakh crore in March and April this year. This compares to paying with your credit card 1 lakh crore in March/April 2022.
“Possible earning opportunities will depend on the clear print of the execution. There is also the question of a different likely target universe for UPI and CC payments. Also, there are important changes in the CC universe with one of the key new age CC players shrinking the installment features,” the duo added.
Highlighting the RuPay card linked to UPI, the analysts said that first, the RuPay credit card will be activated with this utility. This agreement is expected to bring more avenues and convenience for customers to pay through the UPI platform. This facility will be available once development of the required system is complete.
Notably, the RBI also increased the limits applicable to electronic authorization on the card for recurring payments to 15,000 per transaction from 5,000 per transaction.
Analysts of ICICI Securities have pointed out that the nature of CC and UPI payments is fundamentally different. CC’s average monthly ticket size is around 4,000-4,800 while UPI payments are in the range of 700-900 for P2M (person to seller).
Stockbroker data further revealed that credit card receivables in the industry grew 4% month over month to 1.54 lakh crore resulted in a 2% increase in receivables per card to Rs 20,445 in April 2022 from Rs 20,060 in March this year.
In April 2022, the SBI spending card market share decreased to 18.6% from 19.1% in March 2022, while the card market share currently remained stable at 18.6%. Overall, the size of credit card spending in the industry decreased slightly by 1% monthly to 4,731 while spending on SBI Card fell by 1.7% month-on-month to 4,681. Total industry spending per card decreased by 3.8% month-on-month in April 2022 while SBI Card’s spending was 5.5% month-on-month.
Linking credit cards to UPI is a landmark development, according to analysts, but the direct financial impacts will depend on the details. The main questions are regarding (1) what will be the fees related to UPI in CC as UPI currently has no fees, (2) whether it will gradually be allowed for Visa/Mastercard. , and (3) on whether the regulation is successful or not, the entire point of sale infrastructure (PoS) opinion faces a threat.
What stock is an attractive option for investors in the UPI-linked credit card scene?
SBI tokens are considered attractive in the development landscape.
On the SBI token, analysts have given a buy rating with a target price of 1,060 (unchanged) based on earnings 40 times Fiscal Year 24E (previous 23/24 fiscal year).
SBI Cards reported a positive surprise in Q4FY22 due to lower credit costs, the analysts said. However, the accounts receivable ratio also grew lower. As a business complex. In business, a lower turnover with a lower cost of credit is good but less than optimal, so an improvement in loan book structure and turnover structure will be the next income lever after as credit costs normalize (8.4% in FY22).
On BSE, SBI Card stock closed at Slight discount of 769.60 per person. At closing price, the market capitalization of SBI Token was 72,592.02 per person.
Considering SBI Card’s Friday closing price and ICICI Securities’ buy target, the stock is likely to rally nearly 38% in the immediate term.
