Bank credit cards vs fintech
When was the last time you received a credit card sales call from your bank?
Or have you been approached by a salesman at a subway station or an airport?
Or you may have noticed the return of credit card ads in your call logs, social media, email, SMS Box or even WhatsApp. Surely you haven’t missed the credit card presentations at the recently concluded IPL and other events now? If your answer is yes, then welcome to the new world of fintech credit cards.
Despite all the hype from banks and credit card issuers, Indians haven’t really embraced credit cards. According to RBI Datanearly 62 million credit cards were in use in India in FY 2021, which is less than 6% of our total population.
Many have argued that the lower card penetration rate is yet another marker of the true “consumer” class in India, estimated at between 120 and 300 million valid users, depending on the product/service category.
Difficulty in getting one played a role, but users in India can now apply, get approved, and get a ready-to-use credit card in less than 5 minutes. Thanks to the recent revolutions in data analytics and the tremendous development of the Indian fintech ecosystem.
What does this ecosystem look like?
Fintech is one of the hottest sectors in India and abroad, and has attracted record amounts of money, burning heavily on aggressive social media advertising, performance marketing, paying influencers to promote their product and engaging celebrity or cricketers for brand endorsement.
According to Invest India reportthere were 6,636 fintech startups in India in 2021 and the market size of the country’s fintech industry was $31 billion during the year and is estimated to grow to around $150 billion by 2025.
Fintechs can now access and verify candidate data with the use of Aadhaar e-KYC using offline OTP or XML consent, and APIs are available for multiple validations such as PAN verification, office verification credit, etc This eliminated a significant portion of the cost of verifying potential card users and their creditworthiness.
Not only that, but there are a few B2B SaaS companies, such as Zeta and M2P Fintech, that help fintech companies build products, allowing them to take out loans and credit cards faster.
How to subscribe to a credit card through a bank versus a fintech
SBI Card is a publicly traded credit card company which along with HDFC Bank, ICICI Bank, Axis Bank and others dominate the Indian credit card market.
Under two conditions, someone can obtain a credit card from a traditional bank.
➤ If you already have a banking, payroll or loan relationship with them and the basis of your financial activities. Banks offer pre-approved offers from time to time
➤ If you do not have a pre-approved offer, you must apply for a new application with a list of documents online or offline.
In the second case, fintech companies have a competitive advantage since they revise the entire application process and speed up its integration.
One can download their application, enter their details and OTP, and if approved, start using the credit card within minutes without submitting any physical documentation.
How do fintechs compete successfully?
This is where things get interesting; Fintech credit card companies assign a credit limit with the help of their lending partner (which can be a bank or an NBFC) and offer you a prepaid card backed by that credit limit.
So technically you get a prepaid card backed by a loan account created in your name by fintech companies
With the new RBI circular, even NBFCs will soon be able to issue a credit card, but currently, if you use fintech credit cards such as Slice, Uni, LazyPay, PostPe and others, there is a high probability that you will have a loan account operating in your name because they are not full-fledged credit cards.
How do fintech credit cards differ?
Because fintech companies want to serve the (youngest) customer first, the focus seems to be on product experience, design, marketing, and making using the card more exciting.
Fintech credit card companies are known for great discounts, referrals and cash back on everyday services we use such as ordering food, recharging, paying bills, groceries, travel or even your favorite D2C brands. Yes, if this reminds you of the good old days of e-commerce and payment businesses, then yes, venture capital funding is the common factor here too.
They invest heavily in marketing and partnerships with the aim of acquiring more and more users, and consider the expense as CAC (Cost for Acquiring Customers in abbreviation Startup).
Prospects need to resist multiple offers, fancy wrappers, and the risk of being left out to say no.
Although banks also handle similar transactions, they are generally more seasonal but may not offer as aggressive offers as fintech companies. Or the willingness to lose money on “mature” businesses for them now. Remember, SBI cards went public in 2020, when a lot of current fintechs were barely around.
Is there a catch?
Credit cards are a type of subsidized loan that should be managed responsibly; without financial discipline, one can go into debt and possibly damage one’s credit rating. A low credit score can haunt you for a long time as lenders reject you or charge you higher rates on larger loans when you need them.
In general, there are a few things to keep in mind when applying for fintech credit cards.
➤ Who is lending you exactly? In the case of banks, there is often only one entity that issues credit cards, whereas a fintech will issue a loan rather than a credit card account in the name of its borrowing partner. Read the MITC (Most Important Terms and Conditions), as well as any agreements between you, the card issuer, the lending bank/NBFC and the fintech. You need to be very careful while signing up, as this is only an OTP.
➤ Billing cycle: A regular credit card usually has a credit-free period of up to 45 days, but a fintech credit card has a credit period of 30-40 days, where the due is supposed to be paid within 7 days of the generation of the invoice.
➤ 1/3 bill payment and EMI free of charge: You may see fintech credit card companies offering the option to pay your bills in three easy, no-fee installments; although it may seem like a more attractive choice than conventional credit cards, it could land you in a debt trap. Pay special attention to EMI offers and free GST components.
➤ Customer Support: To get a better idea, review the quality of customer support and the escalation matrix. You can also check social media sites such as Twitter and LinkedIn, as well as Play Store ratings and online complaints. This will help you in case of any complications as there will be financial transactions involved.
➤ Interest rate: Credit cards are an expensive affair that comes with high interest rates of up to 48% per year. Read the terms and conditions carefully.
➤ Fees and charges: There can be many fees such as membership or annual fees, card replacement fees, account closure fees or even over limit or forex transaction fees when you use your card outside of India.
➤ Credit report and office update: Always periodically check your credit reports to detect and report discrepancies.
Who can help with major escalations?
Remember that a late payment can lead to a significant drop in your credit score, which can significantly reduce your creditworthiness in the eyes of financial institutions. For a period of up to 5 years sometimes.
Even if you made payments on time, if you discover a discrepancy in your credit reports, such as a late payment, default, wrong loan, or credit card limit, raise it immediately with your credit card or your fintech company, as well as credit bureaus, and if they don’t take care of it, you have the choice of complaining to the CMS Office of the RBI Regulator or Consumer Forum.
➤ In accordance with RBI Guidelines, the three major credit bureaus such as TransUnion CIBIL, Experian and CRIF must provide consumer credit reports upon request at no additional cost. Use the facility.
➤ To avoid fraudulent calls, avoid accessing your credit reports on any promotional website or application.
➤ Never disclose your personal and financial information on an unauthorized communication channel such as WhatsApp or Telegram; instead, always verify the identity of the applicant and submit the documents through an official email or website.
➤ Always countersign documents and use a masked Aadhaar card, you can also lock/unlock your Aadhar card and check your authentication history from the UIDA official website