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Pradeep Thevar, an arts graduate from Madurai, runs a handmade jewellery business. The solopreneur relies on UPI for collecting payments from customers as well as purchasing raw material. In the festive season, Pradeep struggles with cash flow as demand surges and raw material prices increase, impacting his delivery timelines. During such occasions, Pradeep needs access to a short-term credit line. However, being a small business owner without deep credit history, he is not the target customer for most credit card issuers today.
About 2,400 kilometres away, Nikita Bansal, a new graduate, joined her first job in Hajipur earlier this year and plans to upgrade her smartphone. She does not have adequate savings to buy the device and needs a flexible credit line that she can repay, once her salary is credited at month end.
Paying through credit cards could be a matter of routine for the top 5% upper middle income, urban Indians. But for people like Pradeep and Nikita, a convenient payment instrument like a credit card with multiple repayment options is still an aspiration.
By allowing credit on UPI through Rupay credit cards, the RBI aims to expand the accessibility and usability of credit cards in India. Given UPI’s growing popularity among customers and widespread acceptance among small merchants, credit on UPI offers an unprecedented opportunity to democratise access to short term, low ticket transactional credit for millions of underserved customers including the NHB over time.
What ails the credit system?
The Jan Dhan, Aadhaar, and Mobile (JAM) trinity has enabled rapid advancement in financial inclusion in India over the past decade. Today, nearly every household in India has a bank account, and there are ~300M unique UPI users including over 75M NHB customers as per ONI estimates. Transaction volumes on UPI exceeded $190B in September 2023, growing 42% year on year. Despite such drastic improvement in bank account penetration and growing adoption of digital payments, formal credit penetration in India remains low. It is estimated that about 50% of India’s adult population is credit unserved (invisible on the credit file) and 20% is underserved (have ever held only one type of credit product). Credit cards, which serve as a tool for building credit history for new to credit segments in most developed markets, are an aspirational product in India with access limited to ~40M million unique customers. Short-term transactional credit with flexible repayment options like a credit card is inaccessible for ~95% of Indian customers today. This is attributed to several factors:
1. Credit card issuance is primarily based on credit bureau scores; Most New to Credit Card (‘NTCC’) customers do not meet the bureau scores thresholds for credit cards due to their age profile (new to the workforce), work profile (small business owners, employees of SMEs) or location (Tier 2 and beyond, where the top credit card issuers have limited presence).
2. Credit card market is dominated by 5 banks (HDFC, ICICI, Axis, SBI Cards and RBL) who captured 79.4% of credit card spends in Sep 2023. The primary focus of these banks is to offer credit cards to their own customers. Their operations and cost structures are largely set up for average credit limits of > INR 75K, not suited for the NTCC segment.
Therefore, while the number of credit cards in India has been increased from 60.4M in 2020 to 93M in September 2023, the number of unique credit card holders has not increased commensurately.
The Kiwi Promise
Kiwi, India’s pioneering standalone credit on UPI platform aims to address both these gaps in the credit card market by:
1) Reimagining the credit card product and customer journey
Kiwi offers virtual RuPay credit cards to eligible customers (issued by its partner Banks) and supports UPI payments on the Kiwi app (as a third-party app licenced by NPCI). Kiwi combines the convenience of UPI with the rewards and flexibility of credit card, offering a compelling proposition to UPI users to consolidate their spends on Kiwi. The entire customer lifecycle including acquisition, spends, rewards, bill payments and dispute resolution is managed end to end on the Kiwi app.
2) Partnering with a fresh set of challenger banks
Kiwi is building critical market infrastructure to enable large public sector banks and mid-sized private banks to plug their technology and capability gaps which have hindered them from offering credit cards to their customers. This is crucial to expanding the penetration of credit cards in India beyond the top 40M customers, given the dominance of the Top 5 issuers in the credit card market today.
The Dream Team
Kiwi’s founders, Anup Agrawal, Mohit Bedi and Siddharth Mehta have deep insight and experience in payments and credit cards, having held leadership roles at organisations such as Axis Bank, Standard Chartered Bank, Citibank, LazyPay and Freecharge. This team brings together the best of both worlds - the scale and compliance knowledge of Banks as well as the experience of delivering superior customer experience with a focus on low ticket credit and NTCC segments served by fintechs. They have complementary skills, having worked across both merchant acquisition and issuance sides of the credit card business and managed end to end customer life cycle for large credit card portfolios at leading Banks.
Our thesis
Increasing access to affordable and convenient financial products beyond digital payments and ensuring deeper and more consistent usage of formal credit is the critical next step in advancing the financial inclusion journey of the NHB. Usage of a transactional credit product like a credit card helps customers build deeper credit history and unlock access to affordable credit for education, housing, mobility and other needs as they progress in their lives. It will also help reduce their dependence on informal credit which often comes at usurious interest rates and term loans (such as microfinance, gold loans, unsecured personal loans) for short term liquidity management which often leads to overleveraging.
As India’s pioneering standalone credit on UPI platform, we believe that Kiwi has the potential to catalyse mass market adoption of transactional credit, leveraging UPI’s ubiquitous rails to serve millions of underserved customers, including the NHB over time. Kiwi has thrown open the gates to accessible and affordable transactional credit for the next 100M UPI users in India. Its convenience, ease of use, and flexibility will financially empower every individual to fulfil their aspirations. And that is the rationale behind our investment.
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