Bajaj Finance has strategically decided to exit the co-branded credit card space, ending its eight-year partnership with RBL Bank and DBS Bank India. This move follows a directive from the Reserve Bank of India (RBI) that limited the role of co-brand partners like Bajaj Finance to merely sourcing credit card customers and offering them access to products or services. However, co-brand partners were no longer allowed to handle the collection of dues, an area where Bajaj Finance had built substantial expertise over the years.
Impact on RBL Bank and DBS Bank India
As of October 2024, RBL Bank had 5.17 million outstanding credit cards, with 3.4 million issued in collaboration with Bajaj Finance. The partnership between RBL Bank and Bajaj Finance began in 2016 and was extended for another five years in 2021. Similarly, DBS Bank India, which launched its co-branded credit card with Bajaj Finance in June 2022, had a credit card base of approximately 500,000, most of which were co-branded.
The RBI’s new regulations, implemented in April 2022, restricted the role of co-brand partners to only sourcing customers and providing access to services but no longer allowed them to handle collection activities. As a result, Bajaj Finance has reassessed its strategy and decided to exit the co-branded card business, which has been a critical part of its growth in recent years.
Bajaj Finance’s Expertise in Collections
Bajaj Finance had a unique edge in the credit card business because of its robust collection infrastructure, which spans 4,200 locations across India. However, with the regulatory changes, Bajaj Finance found that continuing the partnership under the new framework—where it could no longer handle collections—was no longer viable. The company’s exit marks a shift in its focus towards other areas where it can leverage its strengths without being restricted by the RBI’s directive.
Despite this, Bajaj Finance will continue to benefit from its relationship with the credit card customers it has sourced. It will earn fees from card spending and annual fees, even though the collection process and the handling of dues will now be managed solely by the banks.
RBL Bank’s Shift in Strategy
RBL Bank has been reducing its reliance on Bajaj Finance for co-branded credit card acquisitions. As of Q2FY25, the bank reported that the percentage of credit card acquisitions through Bajaj Finance had decreased from 60-70% to 36%. The bank has been working to diversify its customer acquisition channels, moving towards organic growth. RBL Bank’s focus has shifted towards retaining and servicing its existing customers rather than aggressively scaling up card acquisitions.
This shift in strategy came after the bank experienced higher slippages in its credit card segment following the change in the collection process. In the July-September quarter, RBL Bank’s net profit declined by 24%, primarily due to provisions related to the elevated stress in its credit card and microfinance portfolios.
Jaideep Iyer, Head of Strategy at RBL Bank, stated that as the bank’s credit card base grew, the need for a large-scale co-branded partnership with Bajaj Finance diminished. The bank has reduced its monthly card acquisition pace from 200,000-250,000 cards to about 100,000. With a base of over 5 million cards, RBL Bank feels that it no longer needs to rely as heavily on its co-branding partnerships.
Financial Implications for Bajaj Finance and Banks
While Bajaj Finance has ended its partnerships with RBL Bank and DBS Bank, it will continue to generate revenue from the customers it helped acquire. Bajaj Finance will earn fees based on the spending behavior of these cardholders and the annual fees that customers pay for their credit cards. Even though Bajaj Finance has exited the credit card partnership business, its involvement in the credit card segment is still ongoing. The company still stands to benefit from its sizable customer base, especially from the co-branded cards it helped launch.
Conclusion
The decision by Bajaj Finance to exit the co-branded credit card market signals a strategic pivot in response to the RBI’s regulatory changes. While the termination of its partnerships with RBL Bank and DBS Bank will immediately affect the co-branded card business, Bajaj Finance will continue to earn revenue from its existing customers. Meanwhile, RBL Bank and DBS Bank will focus on strengthening their in-house operations and diversifying their customer acquisition strategies. This shift underscores the evolving dynamics of the credit card industry in India and highlights the need for banks and financial institutions to adapt to changing regulatory environments.
