RBI move to link credit cards to UPI will benefit fintech like Paytm: Brokerage firms

New Delhi: Top brokerage firms Citi and Goldman Sachs said the RBI`s proposal to link credit cards to UPI will be largely beneficial for fintech platforms like Paytm.Analysts at both brokerages shared that the move would be significant for Paytm and other fintech firms, which will be able to monetise unified payments interface (UPI) payments and generate higher revenue. 

On June 8, 2022, the RBI proposed linking RuPay credit cards to the UPI, saying it has become the "most inclusive mode of payment" in the country and that its move is aimed at deepening the scope of UPI.

In a note from June 10, 2022, Goldman Sachs suggested that the central bank`s move will "positively impact" fintech platforms such as Paytm and potentially increase credit card penetration in the country.

"In our view, this could potentially increase credit card penetration and expand the scope of digital payments in India, positively impacting both card companies (such as SBI Cards) and fintech platforms (such as Paytm)," Goldman Sachs added.

The brokerage said Paytm`s payments vertical will particularly benefit from RBI`s proposal due to higher usage of merchant discount rate (MDR)-bearing credit cards through UPI. "We expect a positive impact on Paytm`s payments segment. Increased usage of credit cards would potentially result in higher MDR revenues," the brokerage added.

Another top brokerage firm, Citi, also said that the shift from debit/bank account to credit cards may improve the monetisation of UPI payments, which will be a positive development for Paytm and other fintech platforms.

The brokerage firm said it seems that all the recent guidelines related to digital payments are either beneficial for Paytm or will have no impact on the company`s operations. Several global brokerages remain bullish about Paytm`s stock, citing the company`s rapid revenue growth, accelerated loss reduction and strong improvement in contribution margin.

Global brokerage firm Goldman Sachs had pointed out that guidelines on digital lending are unlikely to impact Paytm`s operations, rather it will help in making the stock attractive. The RBI released guidelines on digital lending in August to ensure orderly growth of credit delivery through digital lending, while mitigating regulatory concerns and protecting customers.

In an August 10, 2022, note, Goldman Sachs said the move would be beneficial for Paytm as the financial services offered by the company are already in line with the central bank`s guidelines."We view Paytm`s financial services business practices to be in line with the key points as per the final guidelines issued by the RBI (Reserve Bank of India) on digital lending," said Goldman Sachs in its note. It added that the RBI`s move "should result in limited-to-no impact on Paytm`s business/monetisation model, and should help remove one of the key overhangs on the stock". 

The brokerage also highlighted that recent RBI announcements related to digital lending guidelines, UPI through credit card and the Payments Vision 2025 "are largely "neutral/positive" for Paytm.