UPI is the trojan horse taking small banks into HDFC, Axis's credit-card empire

Snigdha Sharma (0:00)

I have something to ask of you before we start. You know, there is a word for the particular kind of autumn season that we experience in India. It's called Sharath. And Tagore came back to it again and again in his work. And it has very little to do with the Hollywood-inspired image that we have of red leaves and yellow leaves and pumpkin spice latte.

Sharath is the season that comes after the rain. The sky suddenly looks bigger, the colors look brighter. If you pass by any river bank, you will see white cash flowers blooming, glistening in the sunlight. There is this refreshing feeling that the world has been washed clean. And that is the feeling that we're chasing. For the first time, my colleague and The Ken CEO Rohin, who writes our wonderful Sunday newsletter, First Principles, and I from Daybreak, are making an autumn-inspired playlist built by you.

So, tell us, what does autumn feel like where you are? What's the little thing that tells you that it has arrived? And what is the one song that sounds like autumn to you?

Tell us why that song matters to you as well. We might read your answer on Daybreak, or even feature it on First Principles. It won't take more than three minutes, I promise. The link is in the show notes. I can't wait to hear from you. And now, on to today's episode.

Rahel Philipose (1:27)

India's big banks have a long-standing grudge. It's against the three main fintechs Paytm, Google Pay and PhonePay for gatekeeping over 80% of the country's UPI payments. But here's the irony. Four of those same banks also control 80% of India's credit card market. HDFC, SBI, ICICI and Axis take roughly three quarters of every rupee spent on a card in the country, leaving everyone else to fight over what remains. And for a small finance bank, let's just say taking on credit cards was always a bit of a reach. Then in 2023, the NPCI or National Payments Corporation of India, the governing body that runs UPI, also made credit a part of its network and called it Credit Line on UPI or CLOU.

At its launch, people called it a revolutionary product. It was even expected to cross a trillion dollars in transaction value by 2030

You see, the idea was simple and yet radical. CLOU is the infrastructure that allows banks to extend you a line of credit through any UPI app. You spend it through UPI just like money from your savings account. Scan a QR code, tap, pay and done. It's also interest-free like a credit card. And it works at every merchant in the country that takes UPI. Yes, even your local tea shop. You can put a 15 rupee cup of chai on credit. So it basically makes credit stop feeling like credit. Because it fades into the same everyday payments. Obviously, that gives banks the reach of UPI without having to inherit its zero revenue problem. But despite that ease, for two years, CLOU barely saw anyone even use it. That has changed over the last couple of months. The real proof of concept came in late June this year, when Suryodaya Small Finance Bank released a white paper. It was the first real proof that CLOU works. Through its partnership with Paytm, Suryodaya had sanctioned more than 360 crore rupees in CLOU credit to over 500,000 customers in just 8 months, compounding at 63% every month. And that's more than a third of what the entire country did on CLOU, the last time NBCI publicly reported the figure in August 2024 Close to half of those users already own a credit card. So, CLOU is actually drawing in customers from the HDFCs and ICICIs. Which means, a credit line on UPI may just be the leverage small banks needed to take on the giants. Because the big banks can't easily recreate the same tactic.

Welcome to Daybreak, a business podcast from The Ken. I'm your host Rachel Varghese, and every day of the week, my co-host, Nigdha Sharma and I will bring you one news story that is worth understanding and worth your time. Today is Friday, the 25th of September.

Surya Day is not alone. In mid-August, Yes Bank announced a CLOU tie-up with Kiwi, another FinTech app. That was just a week after Pine Labs launched its own CLOU with JNK Bank and set in its Q1 earning And we have. a lot of earnings call this year that it was betting on the same product. Even Navi, which is now India's fourth largest UPI app, is betting on it too. Navi CEO, Rajiv Naresh, said in an interview last November that the growth of CLOU was a key priority for them. The RBI also joined this narrative in late June this year with a fresh circular about CLOU and its offerings.