Daybreak - Small banks found a trojan horse into the credit-card market. It's called UPI

Episode Date: September 24, 2026

After two years of slow adoption, Credit-Line-on-UPI is finally taking off, but not with the big banks. Small banks and fintechs are leading the charge, while the big incumbents that dominate credit cards hold back. For HDFC and Axis, it's a really difficult choice. Should they compete on CLOU and risk cannibalising their own cards, or scale it through the very fintechs they're trying to outmatch? Meanwhile, a matured tech stack has turned CLOU into a full-strength card equivalent, complete with real-time underwriting. And while CLOU had promised inclusion for those who can't normally access credit, the promised inclusion has actually been flipped.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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 a 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 colors 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're chasing. For the first time, my colleague and the Ken's CEO, Rohan, 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. India's big banks have a long-standing grudge.

It's against the three main fintechs. Petym, Google Pay and Phone Pay 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, SBI, ICICI and Axis take roughly three quarters of every rupees 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-rupy 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 Suuio's small finance bank, released a white paper. It was the first real proof that CLOU works. Through its partnership with

Paytm, Suyodair had sanctioned more than 360 crore rupees in CLOU credit to over 500,000 customers in just eight months compounding at 63% every month. And that's more than a third of what the entire country did on CLOU the last time NBCI publicly reported the figure in August 24. Close to half of those users already own a credit card. So, CLOU is actually joining in customers from the HDFCs and ICICIs, which means a credit line on UPI may just be the leveraged small banks needed to take on the giants because the big banks can't easily recreate the same tactic. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rachel Ruggies, and every day of the week, my co-host, Nikashirma and I will bring you one new

story that is worth understanding and worth your time. Today is Friday the 25th of September. Surydei is not alone. In mid-August, Yes Bank announced a CLOU tie-up with Kiwi, another fintech app. That was just a week after Pine Labs launched its own CLOU with JNK Bank and said in its Q1 earnings call this year that it was betting on the same product. Even Navi, which is now India's fourth largest UPI app, is betting on it too. Navi CEO, Rajiv Nareh, said in an interview last November

that the growth of CLOU was a key priority for them. The RBI also joined this narrative in late June this year with a fresh circular about CLOU and its offerings. A senior executive from Suja Dha told my colleague Mudasem Khan that big banks worry that CLOU will cannibalize their credit card business. He used to run credit cards at Standard Chartered and now he's building the product that is literally designed to replace them. He explained that India has about 45 million credit card users and 450 million UPI users.

In that gap of about 400 million people, sit many who the executive claims would love a credit card and even more so if people could save on the time and effort of getting one. Which is exactly what CLOU makes easier. When Kee launched its CLOU with Yes Bank, it reported that 95% of eligible applicants were approved within two of two hours and nearly half had never had a card. At Suja there, 97% of its customers were new to the bank, while 43% already had a card from some other bank. So, CLOU is already attracting not just new to credit customers,

but also existing credit card holders who so far were gate kept by the top four banks. Obviously, that isn't exactly good news for the big banks. Their own apps handle only about 2% of UPI volume. Phone pay has 46%, Google Pay 36% and PPM 7%. To compete at scale, an HDFC would have to sell its credit line through phone pay or Google pay. That would mean, in one FinTech executive's words, giving up much of the direct customer relationship. And that's not very easy because that relationship is what makes credit cards profitable in the first place.

Issuing a credit card is expensive. It costs about $4,000 just to issue and it takes about 18 to 36 months to break even. The fintech executive also explained that the economics work because one card can unlock years of downstream cross-selling of top-ups, personal loans, home loans and more. But if the customer is rooted through, say, a phone pay, then while the bank still lends the money and carries the risk, the interface on which the next many years of that relationship would have sold now belongs to a fintech. So, the big banks are basically stuck.

CLO can poach both their existing and new customers. And yet, competing at scale would mean handing the customer to a fintech, which banks are actively trying to avoid through their own in-house apps. For smaller banks, though, the same situation is a win-win. They have no card franchise to defend and they have limited branch networks. They also have a modest customer base, which means they're hunting for new users. So for them, a fintech partner is more an opportunity than a threat. Suryadai is the obvious example.

It gets pre-qualified customers from Ptm's huge user base at a fraction of the time and money it would have caused to reach the same users on its own. Plus, Suryadai also gets richer data from Ptm on the transatlantic. transaction behaviours of these users, which helps it fund better loans. Now, HDFC and Axis both offer CLOU. But through their own apps, which sit near the bottom of the UPI leader board. Meanwhile, Sujoudai is on Paytm, Karnataka Bank is on Navi, and Yes Bank is on both Bharat Pay and Kiwi.

So, the imbalance between the big banks and the smaller ones is quite clear, even though this wasn't how it always used to be. More on this in the next segment. The first bank to try CLOU was actually ICICI. It launched a credit line on UPI in September 20203, and that was with phone pay as its distribution partner. But ICICI ended up shutting the product down in just a year, and the only reason it gave was internal policy.

Gaurav Mital, the founder of Veka Pay, a banking technology service provider, told Muddassim that the failure left a bad impression on the rest of the market. Part of the problem was technology. NPCI's network only roots the payment. The interest, the underwriting, the reward points, all of that needs a separate tech layer.

And back then, that layer was not so easy to execute. But now that tech stack has matured and is no longer a bottleneck. In recent months, Mithel said that it has even catalyzed CLOU deployment across banks and fintechs. Vega pay is absolutely. actually the first in India to build this stack and take it live at a bank. It now powers CLOU for Yes Bank and Suryodai, among others, with more than a million customers on its network.

And while there is a lot of interest from banks across the spectrum, big banks have historically been late to reach these product categories that emerge from new age fintech tools. CLOU is likely to follow the same trend. Right now, the tech is enabling banks like Suryodai to run. CLOU in a way that matches credit card functionality. And it is also running as a full strength digital equivalent of a credit card and not just a small ticket low limit version that the product was first thought it would turn out to be. In fact, customers who started on a 65,000

limit have already upgraded to 2 lakh rupees. The bank expects to eventually take that number to 10 like rupees, which is the same league as premium credit cards. And the thing is, CLOU is not just a credit card that has been reproduced digitally. Every CLOU transaction passes through the bank in real time before it clears. The bank can track who's being paid, what kind of merchant they're paying, how much, where, on which device, everything. Sumit Basrani, the chief business officer at Kiwi, told us what it looks like on the bank side. If a customer with a specific credit limit, suddenly tries to make an unusually large payment, then the bank can factor in that information before approving.

All this happens in a fraction of a second, without the customer ever even knowing. That is obviously very different from how a bank funds a personal loan. Bustrani pointed out that once, say, a loan of 50,000 rupees is given out, the bank has no way of knowing where it will be spent and how. But on CLOU, the bank can monitor and underwrite the customer, continuously and at a transaction level, not just at the time of issuing the credit. It actually allows banks to create custom products based on use cases.

Gastrani said that they can issue 10-day industry periods or even 15 days, and that's not very easily done with a card. The constant monitoring also helps bank feel less conservative, so they tend to lend to people with lower scores. A credit card typically needs a Sible score of 750. On CLOU, banks are fine with 700 and sometimes even lower. But there's some more nuance over there. In practice, RBI's new to credit demographic is split in two.

One is a prime customer. They are the people who could have always had a credit card, but never got around to it for whatever reason. The other is what the Surya their executive calls credit card minus one. The borrowers who do not have the credit score or the income profile to buy existing credit card products. When the central bank started CLOU in September 2023, it was the second group that was assumed to be the one that this benefited.

But it turns out, because CLOU is constrained by certain risks and unit economics, it's the first group that is using a service mall and which banks are targeting. Suyadha's own white paper said that 90% of its CLOU customers have civil scores of 725 or higher. Kiwi has also reported the same. Bastrani said that these companies are not going after subprime customers and are instead going for the prime and superprime customers. So the real change is for the lenders and not the borrowers. Smaller banks now have access to a market they never had access to before.

And across Mutasem's conversations with banks, fintechs and infrastructure providers, one thing was consistent. The players building CLOU believe deeply in the product and its power to disrupt the way credit is handed out today. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of a subscriber-only offerings and a full subscription unlocks daily, long-form feature stories,

newsletters and podcasts. Head to the Ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted and produced by me, Rachel Verkis, and edited by Arna Prakash.