Why RBI is wary of co-branded credit cards

livemint.com:

Mint explains the regulator’s concerns around such cards. These are hybrid credit cards issued by a bank through a tie-up with a brand. There are of two types: one is issued in partnership with retail merchants and the other is issued in partnership with fintech companies.

These cards offer customers benefits in the form of rewards or loyalty points. Travel, fuel and e-commerce are the three major sectors under which co-branded credit cards are issued—for instance, ICICI Bank-Amazon Pay card or HDFC Bank-Swiggy card. Typically, co-branded cards have the logos of the partners.

However, the co-branded partners must abide by RBI regulations. Banks can tap the co-branding partners’ customer-base to issue cards and acquire new customers. The co-branding partner can support the bank with marketing initiatives like loyalty, rewards and branding.

These partners will oversee the marketing and distribution of these cards, while the banks will undertake the credit risk and underwriting for the customers. Banks can also partner with fintech firms, under which fintechs take care of credit card issuance and operations. As per RBI rules, the co-branding partner cannot have access to information relating to transactions undertaken through these cards.

As of January 2024, the number of credit cards in circulation was 99 million, up from 97.9 million in December 2023. According to industry estimates, co-branded credit cards constitute 10-15% of all cards. Four large banks make up around 60% of the market share.