Indian credit card industry - On an upswing

A generic picture of a some credit cards and debit cards.

(1) Do you have a credit card? (2) How many credit cards do you have? Yes, the question has shifted from (1) to (2) in recent years as the credit card penetration is increasing at a good pace. Today, India has close to 50 million credit card users.

As per recent industry estimates there are about 20 million credit and debit card users in India. The number of credit and debit cards in active use in 2008 has been in the range of 25 and 40 million. And the number continues to multiply.

On Cards & Commencement

In 1951, the first bank credit card appeared in New York's Franklin National Bank for loan customers. The idea, though, had already been experimented with in various forms much before. In India, Andhra Bank was the first to introduce credit cards in 1981.

However, the idea of keeping multiple cards is a relatively new trend. For good or for bad, the trend is catching up and the Indian credit card industry is witnessing this shift from one to multiple.

On Cards & Changes

At the ‘mass’ level, the credit card as well as the loyalty card boom started early this decade. That’s the time when the telemarketers swamped just about everyone with offers for new credit cards. Hard to believe, today it is not tough to find a person with four credit cards and another 20 plastics, including club membership, airline and hotel membership and dining discount cards. Barely a decade ago, it was a common fear in India to lose money through misuse of credit card. There was also a mental block against owing money to someone. That psyche has definitely altered.

On Cards & Co-brands

If we talk of the categories, there are regular credit cards, co-branded credit cards and debit cards. Many of these cards land up for free without request. Then, there are the loyalty cards in different avatars at petrol pumps, airlines, hotels, restaurants, golf clubs, movieplexes and retail stores. And to add, even DVD rental shops offer special ATM cards.

If we point out an example, within two years of its launch in July 2006, Deutsche Bank has over 450,000 credit card users in India.

Loyalty cards have become an integral part of corporate strategies to ensure fidelity to the brand. For example, Air India has a frequent flyer base of nearly 5,50,000 members. Every member has been issued a frequent flyer card. Similarly, Indian Oil sells Rs 12,000 crore worth of oil every year through plastic cards. This includes 11 lakh co-branded cards with Citibank and another 12 lakh pre-loaded debit cards.

On Cards & Craze

If you dig deeper you will find that there’s a method behind the card madness. Actually having more credit cards increases the customer’s overall credit limit. Some people get a sense of security in carrying more than one card, just in case one of them doesn’t work.

The craze of cards originates from the rising requirements and comfort seeking attitude. Suppose a person owns five credit cards, there’s a clear division of labour between all of them.

Say- Standard Chartered card to shop, the ABN card to pay for petrol, the SBI card for balance transfer and the ICCI card for net shopping. And may be the Barclays card to pay the insurance EMI.

Co-branded cards have added to the complexity of the market. Such cards, where a bank ties up with another organization such as an airline, gives an opportunity to the customer to earn bonus points that may accrue some additional monetary benefit.

Bookstores offer discounts to loyalty cardholders. So do petrol pumps. Airlines compete with each other to attract the customers through frequent flyer cards; mileage points can be exchanged for free flights. Apart from this, in-flight privileges include increased check-in baggage allowance and priority for confirmation on waitlist.

On Cards & Criticalities

However, there’s also a flip side to the card rush as well. Multiple cards lead to some problems for customers like losing track of the different bills each month and hence falling behind on payments; sometimes the temptation of high credit limits entice customers to overspend.

With so many cards to juggle around, timely payment is a critical issue. Nearly 7-9 percent of the credit card industry turnover is changing to bad debt. Banks are indiscriminately issuing cards without looking into the affordability of the customer. They are also indiscriminately increasing the credit limit of customers. This adds to the criticality.

On Cards & Crime

Crime too has kept pace with the plastic rush. There has been an unprecedented rise in credit card frauds. Users are advised to protect their classified information while using the card at public places.

However at the end, it is all about being careful and wise.

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