What Are NBFC Credit Cards & How Do they Differ from EMI Cards?

According to recent data published by RBI, only 6.70 crore credit cards have been issued in India, compared to 93.40 crore debit cards. With more than 55 crore Indians already being rated by credit information companies, such a low number of credit cardholders seems astonishing. To tap into this huge potential market, NBFCs are looking forward to offering credit cards with enhanced flexibility and an easier documentation process. 

But would it be possible in the imminent future? If yes, how will they differ from EMI cards? Let’s find out! 

What Are NBFC Credit Cards?

Non-Banking Financial Companies or NBFCs can currently issue credit cards; however, this needs to be co-branded with banks that they have tie-ups with. However, according to the new system that is under discussion with RBI, NBFCs in India might be allowed to issue credit cards on a standalone basis. 

At present, only two public sector NBFCs can issue credit cards – State Bank of India Cards and Bank of Baroda Cards. However, both are subsidiaries of major public banks. According to the Master Direction released by RBI on April 21, 2022, regarding credit card and debit cards, NBFCs registered with RBI will require prior approval from the Central Bank to issue credit cards. 

Another point mentioned in the Master Direction is that all such NBFCs will require a certificate of registration and they should have a minimum net owned fund of ₹100 crore. In case of co-branded credit cards with banks, the co-branding partner will only be involved in marketing and distribution and will not get access to information related to transactions. 

Advantages of NBFC Credit Cards

Here are some of the advantages of using NBFC credit cards:

• With RBI allowing NBFCs to issue credit cards, there are high chances of financial inclusion in India. This means that more people might be willing to get a credit card which currently has a low penetration rate of merely 3 to 4%.
• According to a joint report by Mastercard and NITI Aayog, NBFCs account for 20-30% of total credit financing offered in India. Giving NBFCs the right to issue standalone credit cards will be like giving them what they truly deserve.
• Allowing NBFCs to issue credit cards will benefit customers who live in areas that do not have proper banking facilities. As NBFCs will not have to co-brand with any bank, they will be able to provide low-interest financing to people as well.

Disadvantages of NBFC Credit Cards

Now let us check out some of the disadvantages of NBFC credit cards:

• As NBFC credit cards have still not yet been introduced in India, there is some form of uncertainty associated with these cards. Customers do not have any idea regarding the performance of such cards yet.
• Though RBI will most likely set stringent conditions before permitting NBFCs to issue credit cards in terms of liquidity measures, minimum net worth and adequate cybersecurity, further clarity is required by the regulator.

What Are EMI Cards?

EMI or Equated Monthly Instalment card is an easy-to-use financing option. This type of card makes it simple to access finances for online purchases conveniently. The financial stress that you usually need to endure in relation to interest rate, down payment, foreclosure fees etc., gets considerably minimised with these cards. 

With this type of card, you can purchase products by using a pre-approved interest-free loan and repay the amount by paying EMIs. The loan will get approved with just a single-step verification and requires basic documentation. There is, however, a joining fee applicable and a penalty in case you pay the EMIs late. Other than these there are no additional charges applicable.

How Does an EMI Card Work? 

If you use an EMI card, you need to repay the cost of the purchased product in instalments without having to pay any interest for it. Therefore, there are no additional costs involved. The eligibility criteria for such cards are not as stringent as well. 

EMI cards are much easier to apply for in comparison to credit cards that require multiple documents like salary payslips, bank statements as well as credit history.

Advantages of EMI Cards

Mentioned below are some of the advantages of using EMI cards:

• Using EMI cards for purchasing products might be more feasible for middle-class buyers rather than using a credit card. This is because you get a pre-approved loan amount on the card which you can repay by paying equated monthly instalments without having to pay any additional costs or foreclosure charges.
• With EMI cards you will be able to pay at online stores as well like Amazon, Flipkart etc. There are also multiple offline partner shops where you can purchase mobiles, laptops, furniture, etc., by using your EMI card. 
• Repayment tenure for loans that you opt for through this card is usually 3 to 24 months. Other than that, you require minimal documentation to apply for this card. When you purchase a big-ticket item, there is either no down payment associated or a low down payment which makes your purchase more affordable. 
• You can manage as well as view details of your card using online applications which can be accessed from anywhere at any time.
• Application process for this card is also completely online and you can activate the EMI card instantly by using a few simple steps.

Disadvantages of EMI Cards

Following are some of the disadvantages of EMI cards:

• There is a fixed pre-approved loan limit beyond which you will not be able to spend on this type of card.
• There is a penalty in case you delay repayment on time; therefore, you need to make sure to pay the EMIs on time. 

Final Word

Although standalone NBFC credit cards have not yet been introduced in the Indian market yet, they will be quite beneficial in terms of lower interest rates when compared to bank credit cards. EMI cards also are quite beneficial as you can purchase products without having to worry about the interest rate that you need to pay in case of normal credit cards. 

With large NBFCs like Reliance Capital, TATA Capital and Bajaj Finance becoming eligible to issue standalone credit cards, more people will be able to opt for credit cards who were reluctant to do so from any bank.

Frequently Asked Questions

Q1. What types of credit do the new-age fintech companies offer?

Ans. New age fintechs are offering credit in the form of Buy Now Pay Later (BNPL), prepaid cards, EMIs, etc. 

Q2. What are some of the NBFCs that might become eligible for issuing credit cards?

Ans. As per a report, around 15 large NBFCs are being regularly monitored by RBI, some of which are Bajaj Finance, Aditya Birla Capital, Tata Investment Corp, IDFC Ltd and Sundaram Finance. These NBFCs might be eligible to get the approval of RBI to issue credit cards.

Q3. What are the major changes in the current Master Direction?

Ans. In the new Master Direction issued by RBI, there is more clarity regarding NBFCs becoming credit-card issuers and terms like co-branded card, credit card and others have been defined better. Additionally, the role of a co-branding partner has been explained more clearly. 

4. What are the types of cards that NBFCs can issue?Ans. According to the Master Direction issued by RBI on April 21, 2022, only those NBFCs can issue credit cards that have the prior approval of RBI, have a minimum net worth of ₹100 crore and have a certificate of registration. Apart from this, they can issue co-branded cards in which they can become card issuers or co-branding entities.