Credit Card Wars

CONFIDENT. Aggressive. Gutsy. That's how credit card industry observers describe the move. The competition, of course, is crying foul. Some call it desperation. Others say it's a short-cut to instant gains. Standard Chartered's latest attack on card majors American Express and Citibank has definitely brought the credit card war out into the open.

Since last fortnight, Standard Chartered has launched a media blitzkrieg through the country's major dailies, exhorting all Citibank, Diner's and American Express cardholders to try the StanChart card for free. All card holders need to do is call up the bank, show their last three card statements and have the approved StanChart photocard delivered to their doorstep. Incidentally, the card comes with a Parker pen worth Rs 450. No annual fees or entry fees had to be paid. Try out the card for three months, says the offer, and only if you are satisfied pay the fees. Or return the card. For the Gold card, applicants need not even pay any entrance fee if the bank takes more than 14 days to respond. Why is StanChart cannibalising so blatantly? Farhad Irani, head of StanChart's card division, claims that the move is a counter-offensive in a battle which Citibank started by sending its sales force to pick up StanChart card accounts in Chennai and Bangalore. "Instead of countering them in the field, we have brought the fight into the open. It's a challenge to the market leader," he says.

Citbank, however, is quick to deny any covert activity. "Why cannibalise when there is a huge market out there waiting to be tapped?" asks Citibank spokesperson Anita Gupta. "We are into market development with 72 to 80 per cent of our cardholders being new users. We are investing huge sums and manpower in credit checks. StanChart is obviously trying to save on manpower, time and costs put into credit checks."

Charges are flying thick and swift. Says Sanjay Rishi, business unit head, American Express: "Private consumption expenditure in India is in excess of $190 billion, out of which less than 0.5 per cent is on cards. I find it curious that somebody should deploy a tactic of targeting other card holders when there is such a tremendous opportunity. To me, its a short-term approach to go after the low-hanging fruit in order to achieve short-term targets.

"But Irani defends his strategy: "We are introducing competitiveness. We are not asking people to cut up Citibank or American Express cards. We are simply telling them that here is world-class service, an ISO certified photocard that gives you good value. Try us out. If you don't like us, go back to your original card. The ad campaign is not directed againt Citibank or American Express. It is directed towards the customer. "CountersRishi: "Competitiveness is good for the market but it depends on where you channelise your aggression: against each other or in providing value to customer. Success in this business is not measured in terms of how many card holders you have. Industry must focus on that. The Stanchart campaign is obviously designed to increase the number of cards in the consumer's wallet and not widen the card base. " 

As the debate rages, the StanChart offensive highlights some important challenges facing the industry. While there is a vast untapped market in India, the high-spend profitable segment continues to be a small one. Credit card companies have so far been playing the number game and happily claiming robust growth rates on that basis. The number of card holders has increased but no commensurate increase in revenues has taken place. Delinquency rates for even the top players like Citibank and Stanchart continue to be in the region of 10 to 15 per cent, according to industry sources. Given this scenario, card companies are tripping over each other in offering promotional schemes to get customers to shift from cash to card and then to make them use their cards more often.

StanChart's free trial offer should be seen in this context. "Revenues from these applications will accrue only in March. Right now we are incurring the costs for the card as well as the Parker pen. So there is no question of looking for gains," says Irani. "The message to the market is that the challenger is ready. To the customers we are saying we are the best. We are appealing to the rational mind of the customer by providing him a free convenience and not stoking his status need as competition has been doing so far." 

Any takers for the message? In the first week, StanChart received about 2,000 applications. "Indian customers are not known to have strong brand loyalities. If they perceive value in a product, they will switch. The important thing is that there is a hungry shark in the market. That's healthy for the market and the customers," says an industry watcher.

StanChart has fired the first salvo. Whether it wins or not is another matter. After all, giving a free card is easy, getting people to use it is another matter. Much also depends on what counter-offensives are launched. After all, the battle has only just begun.