Ahead of IPO, SBI Cards sees fintechs, UPI as formidable competition

SBI Cards and Payment Services has stated new-age fintech-led payments mode, including Unified Payments Interface (UPI), as formidable competitors, in a filing of prospectus for its upcoming initial public offering (IPO).

Before going for an IPO, it is mandatory for a company to list out its risk factors so that the public is able to make an informed decision. In its prospectus, SBI Cards said the primary competition for the company continued to be other credit card issuers, and debit card issuers to a certain extent.

However, new players with innovative products have emerged. The credit card company has competitions from businesses that operate their own mobile wallets or extend credit to their customers and other fintech service providers.

“Mobile, e-wallet, and tokenisation platforms, including the increasingly prevalent UPI, may present formidable competition as they are able to attract large payment volumes at low or no payment processing fees to merchants,” SBI Cards said in its prospectus.

SBI Cards expects competition to intensify in future. For example, many credit card issuers have instituted rewards programmes that could be on a par or better in the eyes of the customers.

“As competitive pressures intensify, we may be required to expend additional resources to offer a more attractive value proposition to our cardholders, which could negatively impact our profit margins. In addition, although we continue to benefit from relatively high interest rates on our general purpose credit card portfolio, increasing competition may exert downward pressures on the interest rates we are able to charge our customers, which would ultimately erode our margins,” the company said.

SBI Cards’ asset quality remained largely healthy. As of December 31, the gross non-performing assets (NPAs) as percentage of gross advances was 2.47 per cent, and net NPA as percentage of net advances was 0.83 per cent.

This is a slight deterioration from the March 31, 2019, level when the gross NPA ratio was 2.44 per cent and net NPA ratio was at 0.83 per cent. In March 2018, the gross and net NPa ratios were at 2.83 per cent and 0.94 per cent respectively.

Among other things, the level of the NPAs for a card company is affected by “the general level of economic growth in India, the amount of non-performing loans written-off and our credit approval and monitoring policies.”

Other factors include a rise in unemployment, prolonged recessionary conditions, decline in household savings and income levels, a sharp and sustained rise in interest rates, etc, it said.

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