Turmoil Strikes Scapia Customers As Federal Bank Slashes Credit Limits Of Cobranded Credit Cards

Travel-focussed fintech startup Scapia found itself in the middle of a controversy after several of its customers took to social media platforms to complain about the sudden cutback in the credit limits of their cobranded credit cards, effective January 10, 2024. These cards were issued to Scapia’s customers in partnership with Federal Bank.

Following the impact on their travel spending, several irked customers took to X (formerly Twitter) and various online fintech forums to lash out, calling the decision completely unethical. 

The customers claimed that the significant cuts in their credit limits left the credit cards useless.

Queries sent to Scapia on the matter didn’t elicit any response till the time of publishing this story. However, a spokesperson for Federal Bank attributed the move to the bank’s credit card usage guidelines.

“… Our credit limits for all products, including credit cards, are determined by various factors. As part of our periodic review, we have revised limits for some customers as per the bank’s credit card usage guidelines. The bank notified these customers whose limit was revised through email and SMS as per our regular practice. These revisions are not permanent and will continue to happen dynamically, reflecting both the increases and decreases as per standard industry practices. We remain dedicated to working closely with our co-brand partners and bringing the best experience to our customers,” the spokesperson said in a statement to Inc42.

Meanwhile, sources told Inc42 that Scapia received a directive from Federal Bank to lower the credit card limit or even disable the cards of some users who have not been transacting actively. 

“There is a possibility that the decision was taken against those customers whose credit scores have not been on par with the norms of credit card issuance by CIBIL,” the sources told Inc42.

Launched in June 2022, Scapia provides a lifetime, zero forex markup cobranded credit card in partnership with the Federal Bank. The card offers features such as unlimited domestic airport lounge access and rewards on every transaction. 

Within five months of taking its cobranded credit card live, the travel fintech startup lapped up over $32 Mn in funding in two back-to-back rounds, with the last one being in November 2023. 

Founded by Anil Goteti, former senior VP at Flipkart, the startup is backed by the likes of Elevation Capital, Matrix Partners, and Binny Bansal-led Three State Ventures. 

To be sure, credit card markup fees for foreign currency transactions typically range between 2% and 3% of the transaction value. Scapia not only waived these transaction charges on its credit cards but also offered attractive rewards, which made its credit card a hit among young international travellers.

Scapia’s rivals include OneCard, which also issues a cobranded credit card in partnership with Federal Bank but charges 1% markup fees on international transactions. Several other fintech firms like Jupiter, Niyo and Fi also offer cobranded credit/debit cards in partnership with banks and are offering zero forex markup fees. However, it is unclear whether a similar directive was issued to these players or not. 

No Intimation, Say Customers

Inc42 spoke with multiple users of Scapia’s cobranded credit cards, who said that the startup has also stopped issuing credit cards to some of the new users.

“Even for the existing customers, there wasn’t a single in-app notification or advance intimation about this decision. Imagine someone who is already travelling and is dependent on this credit card. What will that person do in a foreign country? This is an irresponsible move,” a Scapia credit card user said.

“As soon as the company was incorporated, it started issuing credit cards with a fairly high limit than the industry standards to attract customers. And now suddenly it has pushed away the users by not issuing the cards and reducing the credit limit drastically. We urge the RBI to look into these practices,” said a customer who had obtained the cobranded credit card for health-related international travel.

Notably, the RBI cracked down on the cobranded credit card industry by first asking Non-Banking Finance Companies (NBFCs) to stop loading credit on cobranded cards in June 2022 to check the rapid growth in the PPI credit. In November last year, the central bank also increased the risk weightage for unsecured consumer loans to check the unbridled growth in unsecured consumer lending.

Last year, the decision of SBM Bank India to suspend the cobranded corporate cards issued by it due to issues with re-KYC created a huge problem for many businesses that were dependent on the cards for their payments. While the issue was later resolved, it highlighted the impact which such decisions can have not only on the issuing fintechs (Enkash, Razorpay, Happay, Kodo, Karbon, Open, and Velocity, among others) but also on businesses that use the cards for making routine payments.

The latest fiasco at Scapia is only expected to add to the Indian fintech ecosystem’s ongoing problems with randomly extending credit lines, which even the apex bank does not seem to be too keen on promoting.