More credit for apps on the cards, the co-branded way

The food delivery platform is relying on flat discounts and special offers on its hyper local delivery services for users who use its co-branded card product. It could also offer additional discounts on Dineout, Swiggy’s restaurant bill payment service.

Mastercard is expected to be the network partner powering the co-branded card, one of the sources quoted above said.

Also read | The rise of Amazon-ICICI, Flipkart-Axis co-branded credit cards, and the bad news that comes along

Interestingly, its rival Zomato had launched a co-branded credit card with RBL Bank back in 2020, but discontinued the service in April this year.

Like other co-branded propositions, Swiggy will offer extra discounts to its card holders in the hope that it can keep them sticky on the app.

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Additionally, a co-branded card will be a revenue generator for the food delivery app. The company said it is profitable in its core food delivery business. Overall Swiggy is still burning around $20 million on its Instamart business, a recent Techcrunch report said.“While Swiggy has been working on its co-branded card partnership since early last year and has approached a number of banking and fintech partners for the strategy, it is now looking to cash out on Zomato pulling back from the co-branded credit card market and will launch the card in the next few weeks,” one of the persons quoted earlier told ET, requesting anonymity.

The other person quoted in the story said Swiggy had set up a sizeable tech team for the banking integrations. Their focus is on launching the product quickly.

A Swiggy spokesperson declined to comment on the matter. HDFC Bank and Mastercard did not respond to ET’s queries.

Ecommerce aspirations, stiff competition

Further, Swiggy’s plans to ramp up its credit play come at a time when it is strongly diversifying from its food tech business and quick-commerce aspirations into becoming a larger ecommerce platform.

The company is running pilots in Bengaluru for a service named Maxx which provides goods across home and kitchen appliances, utensils, electronics, baby care products as well as clothing. Through Minis, Swiggy has launched a D2C brands platform.

Now, as it redoubles focus on profitability and controls burn (through curtailing discounts) for its core restaurant delivery business, the platform has to ensure that it continues to grow its overall gross merchandise value (GMV) and does not cede to competition. Hence, a co-branded credit strategy comes in handy as the company looks to push up users’ wallet share.

“The cobrand strategy works for retention, where customer loyalty is increased towards the platform, and helps in pushing up sales. For banks, it gives access to a whole big volume of customers and especially with digital platforms to a younger generation of users,” said Sanjay Doshi, partner and head, financial services advisory, KPMG in India

In a report released on June 30, Motilal Oswal Financial Services estimated that Swiggy showed flat GMV growth in the second half of 2022 compared to the first half.

At $2.6 billion of GMV for calendar 2022, Swiggy saw a flat second half, with Zomato taking away market share. As per estimates in the report, Zomato held a 56% market share with a GMV of $1.6 billion in the second half of 2022, compared to $1.3 billion for Swiggy.

Fintech foray

For large consumer-facing applications, offering financial services on top of its core products is also a big advantage. It can help build a loyal customer base.

“Online merchants are chasing premium consumers who are credit-worthy and tech savvy, they can become the core user base of these services,” said Mihir Gandhi, partner for payment transformation at PwC.

With Swiggy offering Dineout, food delivery, groceries, hyper local deliveries and now ecommerce, it can provide a wide-ranging service for its customers where they can earn rewards on their spends.

“Co-brand is not a mass scale strategy that works for credit card companies. They have to be selective. Only upto 15% of customers tend to stick with these online channels and success depends on aspects such as exclusive programmes, volumes of card issuances and how much usage can be driven through these users. At the end it is the bank paying for these offers,” added Doshi.

India’s new-found love for credit

Credit cards are also an interesting means of foraying into financial services. First, these cards are becoming increasingly popular in India. ET wrote on June 13 how credit cards are not only going up in terms of issuance, but adoption too.

For banks, customer acquisition through the open market is a major cost item. But if they can work with large consumer-facing applications with a captive user base, their cost of acquisition goes down significantly.

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In the fourth quarter of FY23, SBI Card categorised Rs 1,380 crore as its other operating expenses, including marketing and promotions. Its overall operating expenses for the quarter stood at Rs 1,980 crore.

In its FY22 Annual Report, SBI Card mentioned how in the last financial year, the lender ‘significantly’ focussed on digital acquisition channels.

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“Unlike UPI payments, there is an interchange on credit card transactions. In a co-branded arrangement interchange, income is shared between banks and their partners,” said Gandhi. “Also, in the arrangements, typically the discounts are powered both by banks and the merchant.”

Overall, it becomes a winning proposition for both parties. Also, if the merchant here is very big, then banks are ready to foot a larger share of the discounts bill just to get that exclusive branding arrangement.

The bank hopes that eventually the customer will make that card his or her preferred tool for payments outside the co-branded merchant. It is here that the bank will make the most revenue.

However, around April 2022, the Reserve Bank of India constrained the role of co-branding partners to just being a sourcing channel for banks. It prohibited any extra data-sharing between the entities.

“The bank might undertake a data analysis of the spends on these cards and offer it as a tool to the merchants, so they can also understand where their consumers are spending the most and design offers accordingly,” said the executive quoted anonymously earlier in the story. “There should not be any data shared between the two entities though.”