The corporate card business model is characterised by:
Lower loans-to-spend ratio as it is unlikely that corporates would incur 20-40% interest costs on term / revolver loans on cards. The entire loan book would largely comprise only transactor loans, which earn no yields. As the yield on transactor loans is 0% and would have to be funded at the cost of funds, i.e. card issuers do not earn interest from corporate cards.
Revenues driven largely by fee income, within which spend-based MDR would be a large component. Since the spend per card on corporate cards would be significantly higher, the lack of interest income is made up for by fees.
Theoretically, corporate cards are a high RoE business, given large operating leverage and lower capital consumption (lower loans).
However, there are a lot of operational challenges that act as bottlenecks. Low bargaining power against corporate clients also means a meaningful part of the MDR must be passed back to the corporate clients as kickbacks or rewards or interest-free credit periods. Profitability depends on ability to underwrite credit limits and select the right kind of corporate customers.
For SBI Cards, corporate cards account for ~29% of spend, though they account for <1% of cards in- use.
