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

Daybreak

The episode explores the disruptive emergence of Credit Line on UPI (CLOU) in India's banking sector. While large incumbents like HDFC and A

Key takeaways

• Suryoday Small Finance Bank sanctioned over Rs 360 crore in CLOU credit through Paytm in just eight months.
• Big banks like HDFC, ICICI, and Axis control roughly 75% of India's credit card market but struggle with UPI distribution.

Main topics

• Credit Line on UPI (CLOU) mechanics
• Fintech vs. Traditional Bank competition

Notable quotes

It basically makes credit stop feeling like credit because it fades into the same everyday payments.

Conclusion

CLOU is fundamentally rebalancing the power dynamics in Indian lending

Transcript preview

Speaker 2 (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 colours 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 are chasing. For the first time, My colleague and the Kent 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. Speaker 1 (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, SPI, 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 Surya Dai Small Finance Bank