Banks Step Up Credit Card Play Ahead Of Festive Season
Lenders want to step-up credit card play as the festive season approaches. They are coming up with innovative products, forming co-branded partnerships, and attracting customers with fat cashbacks. This trend is likely to continue due to an insufficiently penetrated credit card market in India. Banks and other lenders want to capitalize the demand from customers during this time. Parag Rao, Group Head – Payments, Consumer Finance, Digital Banking and Information Technology at HDFC Bank said that rising incomes, increase in wealth, and an upwardly mobile population have led to a considerable increase in spends across all categories. He said that this has given banks an added advantage in acquiring more customers and increasing their credit card spends. He added that the process is of course challenging, but banks are now looking beyond traditional methods to step up their customer base by onboarding them from partnership firms.
In June itself, the total number of credit cards rose more than 25% every year. Total credit card spends have stayed beyond the Rs 1 Lakh crore mark for four consecutive months through June, according to the data. The major festive season in India begins during October and November when users start making big-ticket purchases like textiles, smartphones, electronics, decorative items, and catering for gatherings. Ambuj Chandna, President of Consumer Assets at Kotak Mahindra Bank said that the credit card spends always peak during the festive season and they hope to see the same this year as well.
This increase will be an upward trend as long as partnerships stay conducive and scale up and banks are able to offer superior, modern, and digital customer experience and innovative and appropriate financial products.
In What Ways Do Banks Bring In Customers?
Conventionally, banks have always brought in credit card customers or any lending product customers from proprietary marketing, cross-selling, and savings accounts. Bank’s partnerships with Fintechs are one way of acquiring new credit card customers. Banks derive quite a lot of advantages by partnering with companies that have a strong base in the credit card segment. These partnerships drive customer engagement as they put forward benefits such as credit periods and rewards from banks. The partner benefits from the loyalty of customers. Shailendra Singh, managing director of Bank of Baroda Financial Services, said that in the future, a multi-party model of issuer, merchant, and fintechs may emerge, to get the best of all three for the customer. As he said this, he was referring to the emergence of CCAAS, or Credit Card As A Service, start-ups, that bring value to customer lifecycle management with or without being a party to the understanding between the issuer and the co-brand partner.
What Is The Benefit Of Co-branded Partnerships?
In India, banks have established partnerships with various brands to increase credit card utility. These co-branded credit cards offer cashback, exclusive discounts, and reward points for brand purchases. HDFC Bank, IndusInd Bank, Axis Bank, and Kotak Mahindra Bank have also ventured into multiple co-branded partnerships over the recent few months.
For instance, HDFC Bank, in August partnered with Tata Neu to launch a co branded credit card which will be available in two variants – Tata Neu Plus HDFC Bank Credit and Tata Neu Infinity HDFC Bank Credit Card. This card allowed customers to earn rewards on all spends, thus boosting credit card spends. These cards were designed to make the experience of shopping very rewarding for customers. Customers would now have a wide range of categories to choose from including travel, electronics, grocery, fashion, health, and wellness.
Sanjeev Moghe, President and Head – Cards and Payments, Axis Bank said that co-branded credit cards benefitted all the people involved – merchant partners could derive higher engagement from customers, banks could tap additional customer base, and customers got more benefits from co-branded credit cards.
Many banks have joined the co-branded space. Kotak Mahindra Bank partnered with Indian Oil in March. Before that, the bank had announced similar partnerships with IndiGo and PVR.
Unsecured Loans versus Co-branded Credit Cards
Private banks give out unsecured loans like credit cards to increase their profit margins. Several private banks like Axis Bank, Kotak Mahindra Bank, and ICICI Bank have shown a rise in the disbursement of unsecured loans last quarter. For instance, Kotak Mahindra Bank registered an 81 percent year-on-year rise in unsecured loans in the April-June quarter. Credit card lending increased by 17.4% quarterly for IndusInd Bank. This trend was highly prevalent in the early 2000s, but the push for unsecured loans ended up being a failure due to the rise in loan defaults. But, now that banks have tightened their underwriting practices, this may not happen again.
However, with respect to credit cards, issuing banks can underwrite their customers with ease. Sanjeev Moghe of Axis Bank said that customers applying for co-branded credit cards are known to the merchant. Kotak Mahindra Bank’s Chandna agreed that co-branded credit cards thus involve a lower risk of default as compared to completely open market customers. The default risk involved in the credit card portfolio usually stays within the range assessed by the bank.
Conclusion
With the improvement in consumer sentiments, and mobility across various categories of purchases both for essential and optional products, a September analysis by Axis My India revealed that 48 percent of consumers tend to purchase higher during the festive season as compared to the rest of the year. It also stated that 20 percent of the consumers plan to shop more this festive season compared to last year while 32 percent plan to purchase the same as the previous year. Pradeep Gupta, Chairman & MD, Axis My India said that after the lull in shopping during the past two festive seasons due to the pandemic and its restrictions, this year, consumers are expected to shop more. Thus, banks are trying to capitalize on this trend, which continues to gain momentum, by increasing their lines of credit for the festive season. Credit cards are an important segment of credit and boosted spends across this portfolio will be a great advantage to banks.