Consumerism floats on credit cards

Banks and credit card companies say that payment business in India is now an extremely active and growing space.

“Due to the larger global economy impact,there was a phase where issuers were exercising more caution on expansion plans but this has changed in the recent times. In the last 18 months,consumerism is back and there has been an increase in spends across some of key categories such as EMI transactions,utility payments,mobile bill payments,apparel and travel segments,” said Parag Rao,Business Head,Card Payment Products & Merchant Acquiring Services,HDFC Bank.

The big driver of booming credit card business is the zero-interest EMI option. This segment took off recently with a host of mobile phone makers launching smartphones with tenures ranging from three to 12 months. Customers found this attractive as they normally pay up over 36-40 per cent interest on credit card outstanding after the initial interest-free period of 20-55 days of purchase.

“There are some key factors influencing the increase of average transaction value of the customers and these are mainly customer behaviour and lifestyle oriented. In the apparel space,we see more customers engaging on branded retail fashion and spending is clearly increasing in this segment. Customers are also increasingly investing more on changing mobiles and electronics and we see a good growth in such high value purchases,” Rao said.

The customer interest is not restricted to smartphones and tablets. White goods companies and their dealers have started attracting customers to refrigerators,airconditioners,LED television sets and even passenger cars.

“I would attribute this trend largely to the growing Indian middles-class and consumerism. In my opinion,payment innovations such as EMI at POS (point-of-sale,or merchants) are facilitating favourable spend behaviour by offering flexible payment options,” said Pallav Mohapatra,CEO,SBI Card.

Tata Motors now offers its small car Nano through credit cards. Customers can buy Nano by swiping their credit card and the entire amount can be repaid in monthly installments at zero per cent interest,over a period of 12 months,at an EMI of Rs 8,333 per lakh. This offer will enable customers to own a car in the fastest and hassle-free manner,according to Ranjit Yadav,president,Passenger Vehicles Business Unit,Tata Motors.

Even if the customer doesn’t opt for EMI at the POS,customers are later offered the option to convert the loans into EMIs. Not many of them take up this offer as there’s a service fee and they have to pay interest on the outstandings.

Card companies and banks are now witnessing a good growth. The average spend per card for Citibank rose from Rs 7,311 to Rs 9,409 and Stanchart from Rs 5,275 to Rs 6,107 in the last two years. “We have 30-33 per cent market share on spends and our portfolio has witnessed a 40 per cent growth in spends year-on-year. The bank has also gives and option of reversing the fees upon customer reaching desired spend threshold levels. HDFC Bank offers credit cards from executive to premium ranges and fees vary accordingly,” Rao of HDFC Bank said.

Even as credit card spend increased,bankers say interest rates on card outstandings have not come down and rates remain where they were last year. “New and attractive schemes and the zero per cent interest EMI option have changed the dynamics of the credit card market. We don’t expect any rise in defaults. Industry-wide NPAs are well under control,” said an official of a bank.

This confidence stems from the fact that once-bitten-twice-shy card companies and banks are now adopting stricter due diligence while offering new cards. Several card issuers had burnt their fingers five years ago as card customers defaulted on repayments. Now the scenario has changed with the entry of credit information bureaus. Most banks now sell the cards to their account holders as they already know their customers,especially their creditworthiness and savings habits.

“Besides,we get credit information from credit information bureaus. If a defaulter comes to me for a new credit card,I will reject his application as we can find out his credit score through bodies like Cibil. The card customer base is now fairly healthy,” he said.

With mobile banking slowly taking off,credit card companies could be the biggest gainers in the near future. For example,MasterCard recently launched mobile wallet,a pre-paid card that will allow over consumers to transact at physical merchants,online and access ATMs.