Diners Club Card (1950), the first general-purpose charge card, created by Frank McNamara, allowed holders to make purchases at various establishments and pay the balance in full each month. This card laid the groundwork for the modern credit card system. The next pivotal moment came with the introduction of the BankAmericard (1958), which was the first revolving credit card that allowed users to carry a balance from month to month.

Innovation has been and continues to be a constant feature of the industry - magnetic stripes and electronic authorizations, curated reward programs, contactless payments, and so on. Each layer of innovation has played an outsized role in driving penetration to where we are currently - 7B+ credit cards globally. In India, we see this innovation continue even today, with new form factors such as credit lines and credit cards on UPI, which is expected to cause a further explosion in credit penetration in our country.

Credit cards and similar products such as Buy Now Pay Later (BNPL) have been crucial in driving household consumption in developed markets such as the US, by providing convenience in payments and extending credit to the users. An old Moody’s study even revealed that payment cards contributed to 3% of the growth in real GDP across 70 countries between 2015 and 2019!

While retail credit has experienced robust growth in India over the last decade, overall credit card penetration (93M+ cards today in India) remains remarkably low — 7.3% (# of cards / population) vs. 330% in the US (2022) and 57% in China (2022). However, despite low headline penetration numbers, recent growth has been impressive, with credit cards growing at an 18% CAGR over the last five years.

However, India being the land of dichotomies - only 30M households account for the majority of consumption. Truly realizing the next wave of growth in this market will be the result of a symbiotic relationship between creating access and enabling supply.

Creating access through product innovation

We expect that through innovation in form factors such as credit on UPI and innovation in customer value propositions through co-brand card partnerships, the market (#) will grow by 3-4X over the next 5 years. As a result, by 2028, we expect mid and small-size banks, who currently have issued ~22M cards, to have more credit cards issued than the total credit card market today!

Enabling supply

What is a bank’s recipe for launching & driving a credit card program? - A Strong Balance Sheet + Robust Tech Infrastructure.

“Core” to any credit card offering is a robust credit card management system (CCMS). A CCMS is a ledger to record transactions & calculate card balances, at minimum. A CCMS enables card issuance and transaction processing. Along with this, a bank will need a surround system of modules to enable settlement & reconciliation, customer engagement, rewards, analytics etc. Incumbent CCMS players typically don't provide this, requiring additional partnerships & integrations.

Two legacy global players have dominated the CCMS market in India, the pivotal tech infrastructure ingredient for all card programs - VisionPlus (by Fiserv; 70% market share) and TSYS Prime. Both players operate in a services model, requiring large upfront costs (typically multi-million $ outlays), system integrators to implement, and inflated ongoing tech development/services costs courtesy of their non-configurable architecture.

These platforms are truly legacy with the first version of VisionPlus being launched in 1991.

This duopoly has resulted in 2 things:

• Mid & small banks are unable to launch credit card programs due to inhibitory upfront costs and the long time to go-live (goes up to 12 months at times post commercials)
• Existing banks/issuers and co-brand partners are unable to compete in an increasingly dynamic and competitive market due to the onerous changes required to be done in their legacy tech infra to launch any innovative programmes.

Based on our chats with 10 banks and 2 system integrators, we feel that the above dynamics have led to a lot of frustration, and extremely poor (-ve) NPS for their legacy tech infra partners across current implementations.

Enter Vegapay - Vegapay facilitates new credit form factors, helps create innovative customer value propositions for issuers and co-brands, and increases the velocity of card programs by enabling new issuers.

Vegapay is building a cloud-native card management system that enables the issuance and management of multiple card form factors including credit, debit, prepaid and forex cards. Vegapay’s platform comprises the following key features -

• Modular architecture that provides client-side functionality & dashboards for easy changes & experimentation
• Plug & play architecture for third-party point solution integrations
• Easy integrations with co-brand partners

Nobody gets fired for choosing IBM. Incumbents have a clear advantage of trust and being tested at scale. However, we are still excited and we believe that because of the right mix of market tailwinds and platform delta, Vegapay is on the cusp of scaling this “insurmountable wall of trust”.

We see tremendous opportunity for Vegapay because of the following market tailwinds

• New issuers are looking for more agile tech infra partners that will allow them to out-innovate and compete
  
• Existing issuers are looking for new, nimble partners to power new form factors such as CC on UPI and credit line on UPI. Replacing incumbents for core credit card issuance may be tough with large issuers, but there is openness to try new players who can implement fast with low capex
• Ever evolving tech & regulatory ecosystem creates a strong reason for players to move or adopt a more agile and configurable platform to ensure compliance

Vegapay’s vision manifests itself into 2 core tenets, which ensure the platform is best placed to ride the above-mentioned tailwinds:

• Provide “power back to banks”, enabling them to provide a superlative customer experience
• Significantly reduce the time & cost required to launch credit card programs

Our conversations with the founders—Gaurav, Puneet, Himanshu, and Abhinav—revealed a team deeply obsessed with pushing the boundaries of what a CCMS should do. We’ve spent countless hours brainstorming with the founders, who brought to light gaps in the market and their vision. The team’s customer obsession also manifests itself in product choices that early clients are loving.

Further, we believe Gaurav is amongst the few B2B fintech experts in India best positioned to take on this challenge. Gaurav’s experience with Zeta, Matchmove and Mastercard, has entrenched him deeply in banking networks. Fellow peers claim how Gaurav was instrumental in building both the MatchMove and Zeta franchises in India. Gaurav’s superpower is his ability to convey his vision and create strong internal champions in enterprise customers.

Vegapay is currently working with four banks, including a leading public sector and private sector bank. This is only a glimpse into how large they can be in the future. We’re thrilled to partner with Vegapay as they embark on this journey of revolutionizing credit infra, starting with India, before moving on to the world.

As a fund, “Fintech Infra” has been a space of deep excitement for us, and our investment in Vegapay is a testament to this. BFSI spend on technology will only continue to grow as Indian BFSIs, who currently spend 3-5% of revenue in technology, catch up with global peers, who spend 8-10% of revenue in technology. We believe that fintech infra in India can grow to a $8-10B revenue opportunity by 2030 and we will be keen on partnering with multiple more companies in this space! If you’re a founder building in “Fintech Infra”, we would love to hear from you!