Credit card issuers back in business

Credit card issuers are no longer in the midst of a recession and are wooing new customers with eye-popping offers: Save up to 25 per cent on room tariffs at 71 hotel chains across the country with a Citi card; enjoy a 15 per cent discount on SpiceJet online bookings with an HDFC Bank credit card; get a 10 per cent cash-back on your food and entertainment bills anywhere in the country with a Kotak Mahindra Bank card.

However, they are also culling inactive cards and reducing limits for spenders. As a result, nearly 7.5 million cards, or a quarter of the country’s peak credit card base, were removed from circulation in the last 15 months, according to the Reserve Bank of India (RBI( data.

Cash-back offers, where a percentage of the amount spent is deducted from the customer’s credit card bill, seem to be the flavour of the season. Most basic and medium-level credit cards today come with such offers. Late entrants, including Kotak Mahindra Bank, have made it a policy to offer cash-backs instead of reward points.

“Cash-back offers are popular with medium segment card customers, since the users can clearly see the benefits the cards offer. In reward points, a lot of customers keep accumulating them without putting them to use,” said a senior executive at Kotak Mahindra Bank.

At the head of the pack is private sector lender HDFC Bank, which is issuing about 100,000 cards a month, and claims that it accounts for 60 per cent of the new cards issued.

Some bankers feel the recent barrage of offers is because issuers are targeting the same pool of customers with a proven track record of good behaviour. “I wouldn’t say the industry has become bullish yet on new acquisitions. Most of these offers are targeted at keeping existing customers happy in the face of increased competition,” said a senior executive at a medium-sized private sector bank.

One surprising feature of the recent ramp-up in issuances is that a large number of new cards are free for life. Bankers have complained that cards without annual fees are not viable, and some such as SBI Cards have made it a policy not to issue such cards. However, this has not reduced the issuance of free cards. In fact, some banks such as HDFC Bank have gone in the opposite direction and waived the minimum use requirement on free-for-life cards. Others such as Standard Chartered Bank are offering free-for-life Platinum credit cards.

“Once customers become used to a free-for-life credit card, it is not easy to bring back fees. Fees only work for high-end cards, which come with a host of value-added services, but these cards are a very small percentage of the total base and account for an even smaller percentage of revenues,” said Pralay Mondal, country head, retail assets & credit cards, HDFC Bank.

The credit card market continues to attract new players, although the experience of some recent entrants such as Barclays and Axis Bank has been far from positive. Private sector lender IndusInd Bank is contemplating an entry into the credit card business in the next financial year.

“A lot of mistakes were made in the past, but there will be a time when banks become bullish on this segment again. Banks have improved their customer screening processes, and with the advent of Credit Information Bureau (India), they now have more information on potential customers,” said SV Parthasarthy, head of consumer finance at IndusInd Bank.