With the Indian outbound tourism industry recording a sharp recovery post-Covid, banks and fintech startups are looking to add a niche yet growing segment of young international travellers into their fold by making overseas expenditure significantly cheaper.
Fintech startup Fi, for instance, reduced the foreign currency transaction fee for its Amplifi credit card from 1 per cent to 0 per cent in December, matching the zero forex markup feature already available on its debit card. Like Fi, fintech startups Jupiter and Scapia also offer credit and debit cards charging zero forex markup, all in collaboration with Kochi-based Federal Bank. Others like Equitas Small Finance Bank, SBM Bank, and DCB Bank also provide such co-branded cards, each in partnership with another fintech startup, Niyo Global.
“When it comes to international travel, people want some amount of certainty in their minds regarding their net expenditure. Uncertainty can be a huge problem as it can make discretionary spending particularly difficult,” Shalini Warrier, executive director at Federal Bank, told The Indian Express. “Everybody worries when they hear in the market 3 per cent or 5 per cent forex markup. Thus, offering zero forex markup is a way to give people the confidence that we’re taking away that burden from them,” she added.
Certain zero forex markup credit cards also require a linked fixed deposit (FD) on which the cardholder earns interest. For instance, Niyo Global’s zero forex markup credit card offered in collaboration with SBM Bank needs to be linked to an FD amount of at least Rs 5,000, on which an annual interest rate of upto 7.25 per cent is applicable. The underlying FD for such cards determines the credit limit and mitigates potential risks for the bank by ensuring that the credit line is secured. For customers, such cards become an attractive proposition as they can earn interest on the FD and avail of the zero forex markup feature to make international travel cheaper.
According to Warrier, a combination of factors including the coronavirus lockdown, rising disposable incomes, increasing affordability of international destinations, and a travel-loving younger generation make the customer value proposition of zero forex markup cards especially strong. “It has been said that there’s revenge tourism coming in now as the pandemic had impacted our ability to travel. Today, there is a growing awareness of the travel market and of the ability to travel and see places,” Warrier said.
As per a McKinsey report published in November, outbound tourism in India has recorded much quicker recovery than most Asian countries, touching 61 per cent of the pre-pandemic market. With countries such as Thailand, Malaysia, and Sri Lanka removing visa requirement for Indian tourists, coupled with affordable stay options in and flights to countries in Southeast Asia, Central Asia, and the Middle East, more and more Indians are looking outwards for their next vacation. For such travellers, avoiding a forex markup fee of 3 to 5 per cent, which is typically charged by cards on all foreign expenditure, increases the likelihood of staying within budget and can potentially also encourage greater discretionary spending.
Warrier explained that the zero forex markup feature is specifically targeted towards the salaried millennial between the age group of 27 to 36 years old, typically working a software or consultancy job. “The tech-savvy salaried millennials probably enjoy one international trip per year. For that profile of customers, zero forex markup cards are quite attractive,” she added. Anil Goteti, founder and CEO at Scapia, said that Scapia’s products, which include a co-branded credit card issued in partnership with Federal Bank and an in-app travel booking platform, are also aimed at young Indian travellers. The Scapia-Federal Bank credit card has zero joining and annual fees in addition to zero forex markup fees. “On the international front, Scapia’s user community has used the app and card to travel across 50 countries in 5 continents,” Goteti told The Indian Express.
Given the target segment of zero forex markup cards, Warrier explained why collaboration with fintechs is key.
“For Federal Bank, partnering with fintechs is a means to expand distribution. While we have branches, you can never reach the nook and corner of the country like a digital can,” she said. Moreover, the profile of customers that fintechs attract differ vastly from what Federal Bank’s branches have been able to attract. “Our branches are very well known to be neighbourhood banks, approachable to small and medium enterprise owners who live and work around the branches. But our branches were not attracting the salaried millennials. Through our relationship with fintechs, we were able to approach them,” Warrier added.
While fintechs offer better outreach by providing personalised and innovative products through accessible digital platforms, banks provide them with the necessary capital and regulatory backing to carry out operations. “Only banks can issue credit cards and rightfully so. Scapia as a fintech company stands out owing to the level of personalisation and innovation that the product offers. We think about the end-to-end customer experience from onboarding to travel redemptions. We are currently working on a new feature with the bank where customers can swipe and pay instead of having to use OTPs. There are many more such features we are planning to launch in the coming weeks and months,” Goteti said.
“When we start discussing with any fintech partner, it’s not just the business person who goes and talks to the fintech partner. The compliance person is there and so is the risk person. We are very clear that they have to understand operational risk, credit risk, and cybersecurity compliance risk. We literally sit them down and go through all the norms,” Warrier said. She also added that the market is large enough for multiple fintech partners to co-exist with Federal Bank, as is the case currently. Federal Bank offers zero forex markup co-branded cards with Scapia, Fi, and Jupiter. It also has a credit card with OneCard which offers 1 per cent forex markup among other features. OneCard also offers 1 per cent forex markup on co-branded cards with five other banks, including SBM Bank, Indian Bank, and CSB Bank.
While Scapia’s and Fi’s co-branded credit cards with Federal Bank carry no conditions on the applicability of zero forex markup, some debit cards offered by Fi and Jupiter do come with certain conditions. For instance, forex fees are waived off for PRO account holders up to transactions worth Rs 25,000 per month and for salary account holders up to Rs 1 lakh per month, beyond which a 3.5 per cent rate will be applicable. Similarly, for Fi’s debit card linked to the Plus account, forex fees are waived off only on transactions up to Rs 50,000 per month. Fi’s debit cards linked to Salary and Infinite accounts do not carry any conditions. Fi and Jupiter did not respond to queries sent over email.
A brand under Amica Financial Technologies Limited, Jupiter earned Rs 7 crore in FY23, a considerable jump from Rs 42 lakh in the previous financial year. At the same time, its losses increased by 109 per cent to Rs 327 crore. Fi, under Epifi Technologies Private Limited, saw its losses shoot to Rs 302 crore, a 20 per cent jump from the previous year, while its revenue from operations more than doubled to Rs 38 crore in FY23. Scapia’s finances are not publicly available. In November last year, it raised $23 million in its Series-A funding round led by Elevation Capital and Flipkart co-founder Binny Bansal’s 3STATE Ventures.