RBI restriction unlikely to dent card companies profits
The RBI placed restrictions stating various violations, such as payments being made to entities not registered as merchants on card networks.
According to banks, the value of transactions in these cards is high, but since they do not attract the same level of fees (merchant discount rate) as retail sales, their card earnings will not be significantly hit.
«Banks and credit card companies do not disclose their volume of corporate spend. However, we believe corporate card products were just issued to drive volumes and never contributed much to profitability as margins were very low,» said the Macquarie report. «Hence, in the near term, while overall spends will come down for all players, the profitability impact will be low,» it added.
The report said that banks may be issuing these cards to the corporates and also could have ensured 'on-us' transactions so that they could have retained the float within their own ecosystems and would have passed on some benefits to intermediaries. 'On us' transactions refers to transactions where the banks network is used by customers.
Macquarie further said that the corporate, in turn, would get a credit period and, as a quid pro quo, could have given some other business/flow to the bank to make the commercial cards business more profitable.
ET had reported on February 14 that fintech startups like EnKash, Paymate and others have been instructed by card network Visa to stop offering business payment services through their commercial cards.
Explaining the rationale behind the
