Smaller PSBs may partner larger peers to expand their credit card business

Public-sector banks (PSBs) are exploring partnerships to issue co-branded credit cards, as smaller state-owned lenders seek to tap the scale, technology and distribution networks of peers with an established presence in the fast-growing business.

Under the proposed strategy, smaller PSBs could partner with larger state-owned banks that already have credit-card capabilities, enabling them to access established customer networks and distribution channels without having to build the entire infrastructure themselves.

The proposal is aimed at helping lenders with limited credit-card operations scale up in a segment dominated by a handful of larger banks.

Bankers discussed the proposal with Finance Minister Nirmala Sitharaman and other finance ministry officials last week during the two-day PSB Confluence organised by the Department of Financial Services (DFS) in New Delhi, a government official said.

‘Reimagining Credit Card Business’ was one of the seven themes of deliberation at the summit. Discussions under the theme explored strategies around digital onboarding, greater cross-selling to the existing customer base and leveraging new opportunities.

Private banks in India outpace PSBs by a wide margin in the credit-card business, with a total card base of 86.91 million, compared with 29.40 million for PSBs, according to the latest data available with the Reserve Bank of India (RBI). Of the 12 PSBs in the country, four have negligible operations in the credit-card segment, RBI data shows.

To strengthen their presence in the credit-card business, PSBs have proposed using Unified Payments Interface (UPI) and goods and services tax (GST) transaction data to identify and acquire digitally active new-to-credit (NTC) and new-to-bank (NTB) customers. Under the proposal, they plan to offer pre-qualified, differentiated card propositions to potential customers based on their transaction behaviour.

According to the state-owned banks, corporate customers, high-net-worth individuals (HNIs), micro, small and medium enterprises (MSMEs), and new-to-bank customers are segments that remain relatively untapped.

For MSMEs and self-employed customers, PSBs plan to offer dedicated business credit cards and systematically cross-sell them to their existing customer base. They plan to offer a business credit card as a standard add-on when opening, sanctioning or renewing current accounts, cash-credit facilities or overdraft facilities for MSME and self-employed customers.

For young customers, banks have proposed a ‘campus-to-career credit passport’, under which cards could be offered on campuses and linked to education loans. The lenders have also proposed linking card limits and banking facilities to income growth and repayment behaviour to build longer-term banking relationships with students. This strategy could also help lenders deepen their engagement with Gen Z, a task recently assigned to them by the finance minister.

To reduce uncertainty for prospective customers, PSBs have proposed a pre-application eligibility checker that would allow applicants to assess their chances of approval for a specific card and their indicative credit limit without submitting a formal application. While private banks and other credit aggregators already offer such features, PSBs have yet to introduce them.

As state-owned banks plan to expand their credit-card business, they also recognise the need to address the limited understanding of credit-card terms and conditions among first-time users and reduce the risk of unintended financial stress. For this, they have proposed making financial literacy a mandatory step before the activation of a first credit card. The proposal envisages a 5-10-minute gamified financial literacy video in regional languages as a mandatory requirement before first-card activation.