Credit card companies back in play
By Ankit Sharma
Feb 25, 2010
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With the tide of recession coming down, credit card issuers are back to business again. They are again all set to attract customers with their wide range of services. With the Supreme Court refusing to remove the stay order on penalizing banks for charging higher interest rates, these credit card issuers are all ready with fresh ideas.

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 Spice Jet 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-these are some of the various lucrative offers by these companies to woo customers.

However, they are also pulling back the inactive cards and reducing card limits for customers. As per RBI data, nearly 7.5 million cards were removed from circulation in the last 15 months.

A new flavor has been added to this business in the form of cash back offers wherein a percentage of the amount spent is deducted from the customer's bill. Reward system is gone and the new mood of cash back offer is in play. 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.

Leading the gang of credit card issuers is HDFC Bank which issues about 1,00,000 cards per month.

Many bankers, however, do not see this trend to be bullish in nature as the card issuers seem to be flooding offers to only those customers who have a proven track record.

"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," a senior executive at a medium-sized private sector bank said.

Another striking feature of the new set of cards being issued is that most of these cards are made free for life. Some banks have argued on this scheme saying that it is not a viable one. SBI has even decided to stop issuing any card of this kind.

On the contrary, banks like HDFC have waived even the minimum use requirement for these cards. Standard Chartered Bank has issued 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.

Although the experiences in the business have not been sweet for recent entrants like Barclays and Axis Bank, but still new players continue to get attracted. IndusInd Bank plans to enter into this business in the next fiscal.

"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.


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