In the digital era, technology disruption has become the order of the day. Although newer technologies keep overturning existing models in various business segments every day, the financial services sector is surely the most impacted one. This time it is the turn of plastic credit cards carried by the holder in their pockets or wallets. The time has come for these 2inch-by-3inch cards to migrate from wallets to mobile phones.
You read it right. The trend has already hit markets in the West, and is expected to catch up in the domestic market over the next couple of years.
In the West, these are being called Digital Cards by the service providers. Apple credit card — the pioneer in creating the Mobile First credit card — has Goldman Sachs as their bank and MasterCard as the fund transfer gateway. Several smaller players — including neo-banks like Revolut — have also started building a mobile credit card, which is linked to a Master/Visa network.
In India, vCard, a Hyderabad-based company, is the first, and thus far only Mobile First credit card solution provider. This company offers digital (mobile) credit card that comes with a Unified Payment Interface (UPI) affiliation, instead of a regular Master/Visa tie-up. The unique feature of its UPI affiliation is that it offers a 30-day interest-free credit line. This feature can be of immense importance in current times, when the entire world is going through a health crisis.
“A digital credit card with UPI payment works exactly like a Google Pay/PhonePe app, except that the latter work like a debit card where the money is deducted from the users’ bank account immediately, while we offer a repayment window of up to 30 days,” says Vishal Ranjan, Founder and CEO of vCard.
vCard has a tie up with RBL Bank and UPI as the fund transfer route. With such an open payment network, digital credit cards can serve as a true personal finance instrument — working as a 30-day credit line for the entire monthly budget, reducing the dependence on emergency personal loans in the event of salary delays or financial emergencies, says Ranjan.
Keeping a financial lifeline for all types of monthly spend, thus getting a 30-day repayment window, is the single most important benefit of a digital credit card with UPI. Further, this digital credit card comes with a trove of continuous innovations, which cannot be matched by plastic credit cards.
Over the past 70 years, plastic credit cards have largely remained unchanged. Of late, the ecosystem, comprising RBI, banks, NBFCs, NPCI and fintech innovators, have come together to build the Goldilocks conditions, reinventing the plastic credit card for its digital form.
The mobile phone replaces plastic, while tokenisation, UPI and wallet transactions allow fund transfers across the merchant ecosystem through online/NFC/QR/mobile number-based acceptance network.
With the widest possible UPI network, digital credit cards like vCard allow payments to both merchants as well as for personal transactions; from corner shop grocery/plumber, to friends and family.
Benefits of Mobile Credit Cards
Ease of Set-up: Traditional credit card application forms going into few pages have changed to 30 seconds application and approval. Digital KYC through Aadhaar obviates the need for complex address proofs, salary proof, telephonic and physical verification. Where plastic credit card application takes 15-30 days for approval, a digital credit card can be set up in a single sitting.
Ease of Usage: While plastic cards can be used at around 15 lakh merchant outlets in the country, digital credit cards with UPI payments can be used for payment to over 15 crore individual and merchant bank accounts. A UPI-based digital credit card can be used for Rs 20 grocery in the morning, Rs 200 fuel refill in the afternoon, Rs 2,000 e-commerce purchase in the evening and Rs 20,000 house rent payment — all with over 30 days of interest-free repayment.
Unlike a regular plastic credit card, which is used only for select merchant transactions, a UPI-based digital credit card can be used for the entire monthly budget, and thus, getting one single bill at the end of the month. Since the UPI-based digital credit card has zero linkage to the savings account, there is no need to manage funds for big or small payments.
Meaningful Rewards: Across the world, plastic credit cards have aligned to esoteric construct of reward points to gratify the customers — often requiring Rs 1 lakh spend to get 1,000 reward points which in turn would convert to Rs 200 benefits under complex terms and conditions. Such rewards are an anachronism in the present environment of instant gratification. Often, the offers given on the plastic cards are bulk offers with multiple limitations and conditions on their actual usage.
Digital credit cards can offer relevant vouchers, cashbacks and spend waivers instantly rather than accumulating reward points. Further, digital credit cards can personalise rewards and benefits, depending upon the customer spending behaviour and preferences.
vCard, the technology platform’s goal, is to create a disruptive customer experience via meaningful engagement and AI-based personalised gratification — independent of Master-Visa networks — for the 30-crore strong underpenetrated market in India and affiliated international markets, explained Ranjan.
Contextual Customer Support/Reminders
Traditional credit cards familiarised the customers with painful customer support with 30 minutes jingles and complicated IVR-based menus. Often, the urgent support needed for a declined transaction or a delayed payment can entail frustrating waiting time. A digital credit card can be reached out through instant contextual chat support which can be used to resolve 90 per cent of support requests. Further, a digital credit card can be set up for relevant reminders for repayments, to minimise delays. Additionally, it can set up reminders for utility bills, quarterly/annual payments like for insurance premiums; or one-off payment reminders to a friend.
Ranjan says the AI-driven credit solution reduces associated origination, service, and collection costs. vCard creates alternative UPI-based business models instead of MDR based, 60% revolving interest revenues. vCard is building innovative disruptions in risk models, technology, collections and go-to-markets for the credit card business.
Higher Security
While digital credit cards meaningfully enhance the customer experience, its backend offers better security with each transaction. Specifically, the plastic cards are notorious for being phished/cloned/misplaced — a digital credit card resides in the mobile phone and is never handed over to the merchant. The card implements multi-factor authentication on the mobile — where even if the mobile phone is lost, an MPIN precludes the card app to be accessed by unauthorised users.
Similarly, high-value transactions can be authenticated instantly through a secret question or a video verification. Digital credits cards — especially with UPI payments — are bound to meaningfully change customer experience with continuous innovations over the next few years. With wider payment options, better rewards and higher security, it is just a matter of when and not whether customers shall switch to digital credit cards.
yagnesh@outlookindia.com