Boom-Time Shuffle

FORGET the disgruntled customers and surveys that periodically lament the slow spread of the credit card business. Plastic money is alive and growing in India, thank you. For evidence, look at the rate of growth tracked by this Rs 1,600-crore business—25 to 30 per cent a year. Also look at the newest entrants—American Express and State Bank of India (SBI), in association with GE Capital.

The aggressive launch last month by American Express, the world's largest travel-related services company, has stirred the somnolent credit card business where Citibank has been quietly dominant. For one, Amex offers the lowest monthly rate of interest—1.99 per cent against Citibank's 2.95 per cent. For another, it offers a unique balance transfer system that allows the holder to transfer outstandings on all his cards to the one issued by Amex, thereby making a direct bid for its rivals' business. Besides, Amex cardholders will be using HDFC Bank's countrywide ATM facilities.

Says Sanjay Rishi, Amex country manager: "This is no easy game. We are talking big money and a market that is growing at 25-30 per cent every year. This is astounding growth, which has been possible only because of the consumers' interest in plastic money." Amex—which serves more than 42 million cardholders worldwide with annual billings of over $208 billion—has posted a growth of nearly 45 per cent a year in India. A rate that commands respect in the $2 billion Indian travel and entertainment business which is ranked by corporates as the second largest controllable expense, higher than that on advertising and information technology.

Crows Rishi: "It's not that we do not face complaints. But our growth is despite the fact that we are in the charge card market. It's primarily because we always consider Indian clients as global customers. As a result, banks like ours are integrating capabilities to respond efficiently and quickly to wide-ranging customer needs. Each mailer that goes out from this office is treated as a special communication effort. The need is to make the consumer comfortable and we know how to do it."

Compared to Amex, the long-awaited entry of public sector banking behemoth SBI into the business lacked charge. That's amazing, as there are several reasons why SBI's Visa card offer should get the biggest response. For instance, its tremendous reach and GE Capital's vast experience—the latter has processed over 650 million credit cards the world over. The joining fee is a low Rs 250 and the annual fee Rs 500, a total of Rs 750 against Amex's annual fee of Rs 995 (joining fee is waived for the moment). Interest charges, though higher than that of Amex, are competitive at 2.5 per cent. And cash can be withdrawn at any, yes, any SBI branch, even if the cardholder does not have an account there. Said SBI chairman M.S. Verma at the launch conference: "Credit cards will no longer be the preserve of the high net-worth clientele."

A month on, the marketing of the SBI card is still low-key. Explains Vishal Pandit, CEO, SBI Cards and Payments Services: "For long, Indian banks did not focus on the credit card market. But now the scenario has changed. Our idea to get into the credit card market was mainly because we felt that our 8,873-branch countrywide network could easily handle the pressures of running the cards business. And I have no hesitation in saying that the multinational banks have the edge not because they arrived earlier but because they understood the growth area much better than us. "

There are other reasons for the foreign banks' edge. In general, they offer far better service—both in plastic money as well as retail banking—while their Indian counterparts have not been able to capitalise on their nationwide networks. There are some slow and steady Indian players in plastic money but a few had to actually close shop due to huge overdues. "The fault lies within our system. Plastic money is not our focus area and hence, we do not pay too much attention to it. Some, of late, have started tying up with Visa and Mastercard and looking into this business afresh," remarks Abhijit Ghosh, public relations manager of Central Bank of India, which drew flak for its aborted credit card business. "Foreign banks are much more focused with a strong marketing strategy," he admits.

Ghosh is right. Look at Bank of America, the only bank in the country which operates on all 365 days up to 7 in the evening, runs a voice response unit which tells you your balance and also how much you can draw over the phone, has a unique cash delivery system (up to Rs 25,000) at home, and is planning to get into the credit card business. "Today, 80 of the top 100 corporate companies in India bank with us," says Anurup Singh, head of the bank's retail banking operations.

Or early entrant Citibank, the leader with a 54 per cent share of the credit cards market. "We have been in the business for more than two decades. We painstakingly developed this market, realising that the Indian consumer has tremendous spending capacity and used our retail banking and card services because of the huge brand value. We try to help the consumer in all possible ways. And if these are not considered benefits, then well, look at our growth—we're recording 15-20 per cent a year now, though lower than the 50 per cent of two years ago," says Kurt Schneiber, head of marketing operations, Citibank.

The writing on the wall: focused banks will maintain solid growth despite consumer awareness reports suggesting that over half of India's card users continue to remain unaware of the pros and cons of a credit card. Says Schneiber: "The boom here actually started in the mid-'80s and continues till date despite apprehensions about the prevailing slump in the market." He could be right. Researchers say that despite the slump in the economy and numerous focus studies indicating that the bulk of credit card owners remain dissatisfied with the issuer bank for a host of reasons, consumer spending has not reduced for an estimated 150 million middle class people for the last three years.

In fact, studies have shown that despite the steep fees, more than 78 per cent cardholders in India prefer premium cards. And the growth in the card business has come hand in hand with a plethora of services offered by various banks—interest-free periods have increased, cash withdrawal limits hiked, more 24-hour services offered, insurance packages now include even home cover and membership reward programmes can guarantee a cardholder the best of times.

 "Let's get one thing clear. Complaints mostly come from people who have defaulted on payments. And most banks handle it the way it does business elsewhere in the country. After all, there is a need for the bank to challenge the customer if he has got into a financial quagmire. At the same time, there is a need for banks to increase interactive communication with the consumer. If focus groups say 65 per cent of consumers are not aware of what comes along with the card, then they need to be updated on the same," says Amex's Rishi.

Foreign credit card issuers strongly feel that cases of the consumer being unaware of several clauses linked to the credit card were isolated ones. Says Schneiber: "Most Indian consumers don't bother to read all the clauses. As a result, when posed with queries regarding cards, most answers are in the negative. But we definitely do not take the consumer for a ride." He admits that Citibank and several others are taking the help of associate service providers in the business. "But we use these service providers not just to collect payments but also to enhance our business. And what do you do when people simply refuse to pay, citing a host of reasons ranging from unreceived bills to financial inability to improper service? You can simply call up one of our collection centres and they will send someone to collect your payment. There are countless spot boxes across the length and breadth of the country and we operate round the clock."

Sums up BankAm's Singh: "The consumer today is being really wooed by a host of banks—both in the plastic money category as well as in retail banking—and not many are complaining." Amex's aggressive campaigning may well have started a trend that could shake up the credit card business even in these gloomy, recessionary times.