Credit Card Companies Facing Challenges Amidst Global Competition

In the midst of increasing competition globally from alternative financial products like BNPL, lending apps, and credit on POS, credit card companies are at risk of cannibalization, potentially eroding 15% of their incremental profits by 2025, warns McKinsey.

Experts emphasize the urgent need for innovation and partnerships to survive in this changing landscape. The recent announcement by the Reserve Bank of India, raising the risk weight of unsecured loans and credit cards, adds pressure on issuers to reconsider the perks they offer.

The credit card market is particularly challenged by Millennial and Gen Z consumers, who prefer debit cards for digital payments. However, the rise of credit on UPI could be a disruptor unless non-RuPay cards are linked to UPI to mitigate spend leakage.

OneCard suggests that credit cards and other lending products will coexist, with issuers innovating and forming partnerships to expand into new markets. While some BNPL players are facing losses and closures, credit card players see a potential normalization of the credit cycle despite a recent surge in delinquencies.

Anurag Sinha, Co-Founder of OneCard, notes that the RBI may not force card players to reduce MDR. Still, the increasing adoption of RuPay Credit Cards could lead to a long-term reduction in blended MDR for issuers.

As the industry navigates these challenges, the merchant discount rate (MDR), a fee charged to businesses for processing card transactions, plays a crucial role in shaping the financial landscape for credit card companies.