🔓 Unlocking India’s Credit Future: Secured Credit Cards & Credit-on-UPI
Why this might be the most exciting financial inclusion play of the decade
🌅 A Big Shift is Underway in Indian Fintech
India's financial services landscape is at an inflection point. While the country's digital payment revolution through UPI has been well-documented, a parallel evolution is happening in credit access—one that could be equally transformative for India's 1.4 billion citizens.
The digital payment story in India has been nothing short of legendary (UPI now handles 14 billion+ transactions a month!). But here’s what’s next: credit access through UPI and secured cards. 📲💰
🔍 Think: credit cards, but smarter, safer, and tailor-made for India’s next billion.
For the past 18 months, I've been building a strong conviction around the secured credit card opportunity in India, particularly as a mechanism to responsibly bring new-to-credit (NTC) users into the formal financial ecosystem. This thesis isn't just theoretical—it's rooted in structural market shifts, regulatory tailwinds, and consumer behavior patterns that create perfect conditions for category-creating companies.
🧱 What’s Changing — and Why It Matters
Let’s unpack what’s driving this opportunity:
1️⃣ Credit on UPI = Game Changer
Imagine getting credit right inside your favorite UPI app. No new habits. No learning curve. Just... seamless. ✨
2️⃣ RBI Cracks Down on Unsecured Lending
Regulators are sounding alarms on risky lending models. 📉
The Reserve Bank of India has expressed growing discomfort with unsecured lending models, particularly as NPAs (non-performing assets) have increased in traditional credit card portfolios. This has created a challenging environment for traditional unsecured lending but opened doors for secured alternatives.
3️⃣ Banks Want Scalable Credit Solutions
Banks need to grow, but without risky bets or physical branches. Secured credit gives them:
✅ Low risk weight and minimal cost of capital
✅ Digital scalability: expand without geographic constraints
✅ Regulatory comfort
4️⃣ The Tech is Finally Here
Instant lien marking (on assets like FDs), digital KYC, and 1-click issuance make secured credit not just possible — but easy to scale. ⚙️
📊 Market Opportunity: We’re Just Getting Started
🧮 Here's what the numbers say about the credit card market in general:
💳 Credit cards are becoming popular: 108M credit cards in use (as of Dec 2024); 100% growth in 5 years; net adds in 2024 totaled ~10M
🔻Low penetration of credit cards: only 8% of India’s population has a credit card
🔮 High growth projected: 190M cards by 2027
What's particularly interesting is the secured card segment:
🔐 Secured cards are just 5% of new cards today... but could hit 25% soon!
📈 Potential of secured cards: From 100-150K to 1M+ secured cards issued per month in the next 5 years
🧑💻 Meet the User: The “Rising Striver” 🔥
Say hello to India’s most ambitious cohort. The product in question is targeting what I like to call the "Rising Striver" — young individuals, between 20-35 years of age. Most of them live in Tier 2 and Tier 3 cities, where aspirations are high but access to resources can be limited. Their income is between INR 2-10 lakh per year (can be more in case of business owners). They’re digitally savvy — they use smartphones comfortably, rely heavily on UPI for transactions, but haven’t had much experience with formal credit yet.
This is not a cohort being "acquired away" from existing credit users—this is a cohort being brought into the formal financial system for the first time. What's particularly exciting is that these users are entering the financial ecosystem through digital channels rather than traditional branch-based banking. This creates an opportunity to shape financial behaviors from first principles rather than having to overcome legacy patterns.
🏦 Why Banks Need Fintechs (And Vice Versa)
💡 Banks want in, but here’s the challenge:
Operational and distribution constraints:
Limited resources for compliance-heavy operations
Difficulty scaling new products without burdening existing systems
Traditional bank distribution models are high-cost and low-reach
Limited digital-first capabilities and user experience design
Inability to efficiently acquire customers in smaller cities and towns
Engagement challenges:
Banks struggle to create sticky, engaging digital experiences
Limited ability to drive regular usage and spending
Lack of expertise in loyalty mechanics and behavioral incentives
That’s where fintechs shine ✨ — they bring distribution, product design, and user engagement to the table.
💡 Why Secured Credit = A Payments Business (in Disguise)
One way to understand the secured card opportunity is to view it less like a lending business and more like a modern payments platform.
Why?
Unlike traditional unsecured credit—where interest income dominates—secured cards earn revenue primarily from transaction-based sources: MDR splits, interchange fees, and reward-led merchant partnerships. That’s very similar to how UPI apps and wallets operate. The upside comes from daily transaction volume, not loan yields.
From an investor perspective, this makes the business more operationally scalable but also more dependent on large user bases and frequent engagement.
📊 In my view, this is a scale game. To build a revenue pool that moves the needle, you're likely looking at 5 million+ active users. That’s the inflection point where payments-like monetization mechanics start to compound meaningfully.
And like any payments business, the key to hitting that scale lies in:
🧾 Daily use cases: Integration into UPI flows, bill payments, subscriptions, etc.
🛒 Merchant network strength: Offers, rewards, and embedded credit at the point of purchase
🔁 Habit loops: Loyalty, cashback, and repeat engagement mechanics
Secured credit, in this light, is not just a wedge into formal finance—it’s an infrastructure layer for transaction-first financial services. That’s what makes it both exciting and incredibly hard to pull off.
🧰 What Winning Players Need to Build
After speaking with numerous bank executives, fintech founders, and industry experts, I've developed a view on what successful players in this space need to build. Here’s your fintech builder’s toolkit 🔧 -
✅ 1. Regulatory Mojo
TPAP certified (to offer Credit-on-UPI and payments)
Deep integration with banks (ideally touching CBS)
Ability to partner with multiple banks to build redundancy
🚀 2. Distribution Engine
Low CAC via digital channels
Viral referral mechanics
Positioning for NTC users (i.e. what is more important - travel v/s payments v/s rewards v/s cashback etc.)
🔁 3. Engagement Flywheel
Rewards + loyalty 🎁
UPI-integrated payments
Extra services (bill payments, expense management, wealth products etc.)
🧗 4. The Credit Ladder
Clear pathway from secured to unsecured products for part of the user base (atleast 40-50%) 🪜
Data-driven risk assessment for tiered credit limits
Cross-sell complementary financial products: loans, insurance, investments
This combination creates powerful network effects: as users engage with payments and rewards, they generate data that improves credit offerings, which increases payment volume, creating a virtuous cycle.
💸 The Business Case: Yes, This Can Scale
The business model for secured credit platforms is multi-layered:
Revenue streams:
💰 MDR share from merchant transactions (typically 70-80 bps retained by fintech)
💼 Banking partner fees for customer acquisition
💳 Interchange revenue from card and UPI transactions
🛍️ Affiliate revenue
🚀 Upsell revenue from premium financial products
Key metrics to track:
💁🏽Customer Acquisition Cost (CAC) for secured products should ideally be less than INR 500 (compared to unsecured cards where unit economics can make sense even at INR 2000 CAC)
⚡ Activation Rates: Aim for 95% activation among users of secured products
💳 Average Monthly Spend: Target INR 5000+ on average. Difficult to breach INR 10,000 on secured cards.
🔁 LTV/CAC ratio: 3–5x
🏁 Who’s Racing to Win?
Banks are in — but vary in approach:
🏦 Big banks: HDFC, SBI, Axis → traditional focus, limited secured push. Low willingness to open core architecture to fintechs resulting in limited product innovation on secured cards and hence limited success.
🏦 Challenger banks: SBM, Federal, Yes → more aggressive on secured cards but lack quality unsecured cards.
While banks like HDFC have offered unsecured credit cards since the early 2000s, widespread distribution was never a priority. Credit cards were often treated as a cost center—a means to an end, with the eventual goal of upselling high-ticket products like home loans. But for a secured card user, who’s typically new-to-credit and not yet in the market for large loans, that journey was never realistic. As a result, secured cards didn’t align with the bank’s traditional sales incentives or long-term customer value model—and frontline reps had little reason to push them.
Fintechs: The window for category creation remains open, with no clear winner established in the secured card space, particularly for new-to-credit segments. While a few fintechs have attempted this opportunity, they haven’t sclaed yet because of the following reasons:
Using secured card as a user retention funnel for unsecured dropouts: Some players, like OneCard, use secured cards primarily as a conversion tool—offering them to users who drop off from their unsecured card funnel. These aren’t designed as secured-first products, and thus miss the opportunity to truly serve new-to-credit users from day one.
Low customer trust: Even in cases where customers have the ability to create large deposits, they do not do so via fintechs as India is a low trust soiety. One needs product innovation to enable tiering of customer’s investments via the FinTech platform.
High CAC and low spend: Small deposits result in smaller credit limits which in turn result in sub-optimal spends. At the same time, for most companies, CAC continues to be similar to that of an unsecured card in the early days. Hence, unit economics don’t make sense and companies have high burn.
Distribution-only plays: As a card program required multiple bank partnerships, most companies resort to being distribution first plays. This offers limited differentiation and long term capital flow.
👉 If you're interested in a deeper breakdown of players, partnerships, and competitive moves in this space, feel free to reach out at aarushi@beenext.com or sharmaarushi1299@gmail.com.
⏳ Why Now?
Everything’s lining up:
✅ Regulatory tailwinds
✅ Tech infrastructure ready
✅ Consumer demand rising
✅ Bank appetite growing
🧠 The winners won’t just issue cards. They’ll build behavior-shaping ecosystems — and that’s what drives long-term retention and monetization.
🏆 What Will Category Leaders Look Like?
They’ll combine:
Infra depth (TPAP + bank APIs)
Viral, low-CAC acquisition
Sticky UX + habit loops
Gradual upgrade paths
Strong unit economics
🎯 Final Thought: This Is a Long-Term Bet
Bringing millions of new users into India’s financial system is not a sprint. But for the ones who get it right — it's a chance to build the next generation of Indian fintech giants.
💬 This isn’t just about cards. It’s about building the rails for the financial future of India’s next billion.
Companies that can solve the distribution, engagement, and trust challenges around secured credit products have the potential to build category-defining financial services businesses. The winners will be those who take a long-term view, focusing first on product innovation and distribution, knowing that monetization will follow at scale.
👋 Thanks for reading!
If you found this useful, feel free to share it or reach out — especially if you're building or investing in this space.
p.s. Scroll for something extra on the card business 📊
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🎁 Bonus Section: How Card Companies Are Valued 💳
For those looking at this space from an investor lens, it helps to understand how card-based fintech businesses are benchmarked—because the market has well-defined heuristics.
💳 Valuations in card businesses are often discussed in terms of “value per active card.” Here's what that looks like across different stages:
🔹 1. Public Leaders Trade at $600–1,300 per Card
SBI Cards, India’s only listed pure-play card issuer, currently trades around $600/card, down from ~$1,000 at its market peak.
American Express, with its premium user base and global reach, commands a multiple closer to $1,300/card, thanks to higher ARPU and loyalty-driven retention.
🔹 2. Growth Investors Anchor Around $1,000 per Card
Global investors often underwrite high-quality unsecured card portfolios at $700–1,000 per active card.
These valuations assume strong spend behavior, robust retention, and a path to monetization beyond interchange.
🔹 3. Fintechs Can Raise at $900–1,500 per Card
Early-to-growth stage fintechs have secured late-stage rounds at $900–1,500/card, even with sub-100K user bases.
These higher multiples reflect confidence in unit economics, upside from cross-sell, and potential to lead a new category like Credit-on-UPI or secured cards.
Note: This investment thesis represents my personal views on the market opportunity, based on conversations with bank executives, fintech entrepreneurs, and industry experts. Individual company performance may vary, and specific investment decisions should incorporate additional company-level diligence.
Very insightful.
I had some questions after reading it:
1. You mentioned mutual fund or gold-backed secured credit cards, are there any existing banks or fintechs offering such products? Have you come across any secured credit cards backed other than fixed deposits in India or globally?
2. In the case of secured credit cards, would a fintech still be valued with the same ~$1000 multiple per active user? Considering the lower potential revenue per user in this segment, how does that impact overall unit economics or investor perception?