Banks tap fintechs for credit card origination as NPAs rise, issuances stall

As credit card non-performing assets (NPAs) inch up and credit card issuances flatline, several private sector banks are turning to these players for digital-led acquisition while firmly retaining the issuer role.

Banks, including YES Bank, ICICI Bank, AU Small Finance Bank, Federal Bank and IndusInd Bank, have been outsourcing credit card origination to these startups, according to conversations with industry experts and fintech operators.

Co-branded credit cards run on networks such as RuPay over UPI, Visa and Mastercard. What sets them apart is the bank’s ability to target and acquire customers across specific industries and sectors—e-commerce, travel, hypermarkets and jewellery—by partnering with brands that already command loyal, high-frequency users.

Each brand will have its own loyalty and rewards programme, which will have its own co-brand identity. They are allowed to have exactly similar reward programmes and card features; it all depends on how the bank and brand market the cards to deal with customer retention. For example, in the market, both Flipkart and Amazon have their own co-branded cards, although Flipkart has this with Axis Bank and Amazon via ICICI Bank.

Fintech partners

Although banks have long pursued co-branded cards independently, startups like Hyperface and Falcon now take over origination and marketing distribution by pairing brands eager to enter lending through co-branded cards with banks seeking to expand their customer base in this segment.

Executives Mint spoke with explained that using their proprietary software stacks, they are able to reduce card launch timelines and let banks curate customer portfolios with precision. This allows banks to do what they do best—keep underwriting and collection.

Under the Reserve Bank of India’s Master Directions of 2022, the bank alone issues and underwrites co‑branded cards; the partner is confined to marketing and distribution. Card data must remain with the issuer, and any sharing with outsourced vendors is permitted only when essential and with explicit cardholder consent.

“Banks already pay a significant part of the rewards to the co-brand partners, but the interesting thing…is the ability to target and curate portfolios. For example, creating a co-branded credit card for self-employed entrepreneurs and building it in a much more deliberate manner,” said Ramanathan R.V., chief executive and co-founder of Hyperface.

Gugugram-based Falcon co-launches cards with Visa, Mastercard, and RuPay and runs them end to end, effectively acting as a single orchestration layer for banks and brands.

“We are very close partners with all three card networks, and we end up becoming matchmakers between banks and brands. We have basically agreements signed with all of the major co-brands in the country… depending on where the right fit is,” explained Falcon’s Priyanka Kanwar.

According to a September 2024 report by Redseer, co-branded credit cards are projected to grow at a 35-40% compound annual growth rate (CAGR) from FY24 to FY28, outpacing traditional cards, and could capture over 25% market share by FY28, up from 12-15% in FY24.

Although these projections are optimistic, founders in the segment argue they are achievable as banks seek faster launches, sharper targeting and better activation through brand partnerships.

Targeted acquisition

Industry experts Mint spoke with estimate that customer acquisition costs (CAC) for single-brand bank cards often range from ₹2,000 to ₹3,000 per card. Hyperface’s Ramanathan said platforms like his can lower upfront technology and distribution burden and bring down acquisition costs to below ₹1,000 per customer in some programmes, while noting that ongoing expenses are higher for co-brands.

“But the OPEX (operational expenses) cost increases remain higher for co-branded cards for banks since they pay a significant part of the rewards to the brand partners, as banks rely on rewards and loyalty points for customer retention,” added Ramanathan.

Despite higher ongoing costs, the economics makes sense for banks in today’s risk cycle. Non-performing assets in the credit card segment rose 28.42% year-on-year to ₹6,742 crore in the 12 months ended December 2024, up from ₹5,250 crore in December 2023, the highest absolute level on record for the market.

For context, gross NPAs were ₹2,404 crore in March 2020 and about ₹1,100 crore in December 2019, while write-offs crossed ₹5,000 crore during the 2008 financial crisis, which forced banks to slash card books and tighten underwriting.

Cost and risks

To solve this, Kanwar of Falcon said co-branded programmes with a fintech layer can target brands that have a strong loyal customer base, high wallet share, frequent in‑app engagement, and the capacity to invest in acquisition for at least the first three years before profitability.

“So typically, what we have seen is that the larger brands, whether it is in commerce, travel or airlines, that have a loyal customer base, who have wallet share and who have enough money to spend on customer acquisition, are some of the most favoured sectors for building co-brands currently,” added Kanwar.

Ramanathan of Hyperface added that commerce and retail co-brands built with large hypermarket chains and e-commerce platforms are “extremely scalable,” largely because they tap routine, high-frequency purchases and merchant margins that can fund richer customer rewards.

Falcon said it manages 1.5 crore credit card accounts and about 16,000 crore in transaction volumes, while Hyperface said it supports about 7 million credit cards across both single-brand and co-brand issuer portfolios.