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Objectives of the Report Executive Summary Credit card Overview Characteristic of credit card Types of credit card Credit card history Development in the credit card industry

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Credit card looking for an Ace Indian scenario Customer Analysis Potential Strategy Harmonisation Competitors Analysis Competitive Landscape in India Recent events in the industry Advantages of credit card transaction The selection process-Credit card company Marketing of credit card Types of credit card usage Advertising and promotion Credit card fraud on rise in India Ways of reducing credit card abuse Smart cards-A window to future Action taken by credit card giants Quantitative market research Smart card in India Smart card application for prospective companies Summary of proposed future strategy

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1 Individual player positioned 2 EDC terminal cost

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Survey conducted by Business Today Reason for purchase of credit card Information source about credit card Customer segment Credit card Indices Competitors charges Market size of various players Card purchase process Designed Comparative survey of different cards technology Uses of smart card in today’s world Industry Update

To Study the Credit Card Industry in terms of its characteristics, factors affecting the market and trends visible in the market and future prospects

Portrayal Issuers

of an


view of the industry for Potential

Recommendations to enter the market

Strategies to enable a new entrant, to capitalize the opportunity prevailing in the market, establish itself and gain a market share

Banking has evolved a long way from the days of the medieval moneylenders counting coins on the bench to the present scenario, where it is hard to trace the trail of money from the beginning to the end. The trail starts right from

the small saver leaving a few rupees in his local bank to the billions of rupee loans raised by syndicate banks and financial institutions, capable of financing projects in any country in the world. Still, these banking majors are heavily dependent upon their retail home base of savers and borrowers and therefore, most of the bankers began focusing on this retail market segment as global competition intensified in late seventies and early eighties. This led to the evolution of plastic cards as an alternative to hire-purchase or loan on consumer goods Today, plastic cards come in more flavours than Baskin Robbins ice cream. Credit cards, charge cards, debit cards, co – branded cards, ATM cards, in – store cards are some types of plastic cards. Of all these types, credit cards have emerged as the best form of consumer lending with regard to growth rate and profitability. Credit cards today have become a way of life for most of us. It is no longer the privilege of the few. It has wide acceptance beyond the five star hotels and airline offices. Today, one can buy groceries or petrol or train tickets through credit cards. At times of medical emergencies, hospital bills can be paid out of credit cards. As a tool of convenience, cards are an essential part of our wallet. Credit cards are further categorised into various forms based on their features. No annual fee, low rates, with grace period, frequent flier miles, free air time for your cell phone, free fuel for your car and cash back are some of the features which help to isolate a particular type of credit card from its peers. In India, credit cards are offered by banks who are members of a payment system like Visa or MasterCard. Members issue their own cards and handle all accounts, processing and billing of cardholders themselves. They also have contracts with hotels, restaurants, and other merchants to accept these cards, irrespective of the card-issuing member. This ensures a wide acceptance of credit cards across the country, notwithstanding the bank that has issued your card. Accordingly, services offered by credit cards vary from one bank to another, catering to a variety income groups and consumer preferences. Most of the banks in India national or foreign; are franchises members of either of the two international card organization; Visa or MasterCard. Worldwide Visa has taken a leadership role in pioneering emerging payment card technology that supports debit cards and chip cards and its many applications including stored value cards. The Visa family is rapidly evolving into the ‘relationship’ card. The relationship card is an umbrella strategy for a number of card related services which eventually offer consumers access to funds through domestic and international credit and debit function payments. ATM access is a stored value

function for small cash transactions and secures access to electronic commerce on the information highway. Without the mention of Internet, an introduction to the credit card business cannot be complete. Credit cards are the imperative aspect of E–Commerce, as the banks are not yet geared to handle the transaction directly on a public network like the Internet. Every 2 seconds a new consumer enters the web market place... and while fortunes have been made in web access and web hosting, these industries have really just “laid the foundation" for the next major growth phase: the rise of E–Commerce. The report throws light on various aspects of the credit card industry. From the types of cards to the actual process involved in a credit card transaction, it traces the history of credit cards from the start to what it is today, who are the leaders and how they operate. From the global scenario we move closer home to what the Indian scenario is all about, the players today and the share of the market that they dictate today... The advantages that all the three parties involved, the issuer, the acquirer and the customer, enjoy has also been taken into consideration. The customer decision-making process has been mapped out in addition to the Issuers mode selection of the customer. The report also offers a marketing insight including the advertising and promotion strategies for the industry. The credit cards, however in India today, are not as popular as they were presumed to be given to their international counterparts. Hence, to do away with this problem, ways to reduce its abuse and fraud related incidents have also been mentioned. The next logical step in today's world of high technology in the credit card industry is Smart Cards. A very exhaustive description of its functionality and all other aspects related to it has been given


Everyday we hear environmentalists yelling at top of their lungs "Say No to Plastic". It certainly doesn't seem to affect one industry; the plastic card industry. An appetite for cards does exist as people are increasingly experiencing the cashfree culture. With the advent of the MNC’s and liberalization of economy, the urban consumer is flooded with variety of choices. The plastic card industry is no exception. The various types of plastic cards are:

Credit cards are plastic cards with scan-able magnetic strips issued by a bank or a business, which allow the cardholder to purchase goods or services on credit. Common credit cards include Visa, MasterCard, American Express, Discover, and Diner’s Club. They are the most versatile form of retail lending. Credit cards have now been loaded with a host of attractive benefits to promote the plastic card culture in India.

Charge cards are similar to credit cards, except that on the due date for payment, the entire outstanding amount has to be repaid. The amount cannot be settled in parts. Diner’s Club and American Express are significant examples of this type of card. These cards are for convenience and not for credit. Charge card was the first product to be offered by card companies across the world.

Debit cards give you the freedom to access your Savings or Current Account at merchant locations and ATMs. Whenever you make payments, the amount will be instantly debited to your bank account. All your purchases and cash withdrawals will be in the currency of the country you are in, while your account will be debited in rupees. So you needn't carry traveller's cheques or foreign exchange the next time you travel. Debit cards are basically plastic cheques. One can use them to buy things in the same way as a credit card but they work like a cheque. A record of what one has bought with his debit card appears on his normal bank statement each month. One may keep a copy

for his records to compare against the statement either by writing on the cheque stub or keeping the copy of the transaction slips on which he has signed.

Affinity cards are cards that have an emotional factor that attract and retain customers. These cards may or may not have special offer or package to differentiate the offer. Examples of this kind of a card would be freedom card issued during the 50th year of independence or a special world cup card. Affinity cards address the needs of a highly niche market place and can be fairly successful, if the target audience is well researched. MasterCard along with member banks are most aggressive in affinity cards and are presently putting together an affinity card for India. E. g. Shoppers Stop in India - First Citizens Club Card.

When two brand names jointly put together a value – based package for the customer it results in a co – branded card. In India, Citibank has approximately 40 co – branded cards including Times Card, Citibank Maruti Card and Army, Air Force and Navy Card. Citibank and Shoppers' Stop recently launched a co – branded credit card with MasterCard International.

ATM or Automated Teller Machine, also known as Any Time Money has been the significant factor for exponential growth of the debit card business. An issuer can own a network or can hire one depending on the networking capability of the issuer and the ability to invest in ATM technology. In India the number of ATMs has raised from 80 in 1994 to 1000 in 1998 to 5000 in 2002. This is set to touch a figure of 12000 by the year 2006. However these are still concentrated in the top 7 cities in India. ATM cards are used at ATMs to withdraw cash, make deposits, or transfer funds between accounts. To use an ATM card one has to insert the card into an ATM and enter a personal identification number, or PIN, for security. The system checks the person's account for adequate funds before permitting any transaction. The transaction fees may vary depending on which ATM one uses. Some institutions may give a limit of free electronic transactions and charge a per transaction fee above the limit.

These are very popular in the US where retail chains offer credit cards to shop in their stores across the

country. Some of the popular in store cards, which have also become a credit card, are Harrods card, Macy’s card, and Safeway and Wal-Mart card.

A credit card is referred to as 'plastic money'. Credit cards are plastic cards with scan-able magnetic strips issued by a bank or a business which allow the cardholder to purchase goods or services on credit. Carrying a lot of cash on you can be cumbersome, risky and sometimes, you run short of it, just when you most need it. A Credit card is the smart solution to these problems. It is a convenient and safe alternative for cash. Besides, it says things about you. Most people associate a credit card with a prestige, which it most certainly bestows on you, but more importantly, it says that you have taken the onus of being responsible - to be extended credit! So, when you get yourself a card, remember that, your bank does trust you. Credit card terms differ on annual fees, percentage rates, payback terms and creditworthiness restrictions. There are some cards that are impossible to receive without having excellent, established credit. There are others that are specifically marketed to those just establishing a credit history—and almost every scenario inbetween. It is important to know that applying for a credit card shows up on your credit report—thus, multiple applications can be detrimental to your credit rating. When choosing a credit card, it is important to know all the details of how your credit card will work. Important things to consider are whether or not there are annual fees you will be expected to pay, what the APR is – or annual percentage rate – which is the interest you will pay on any balance you accrue, and what your repayment options will be. Other considerations such as air miles or other perks should also be taken into consideration. Credit cards can be very convenient, but it is very easy to get into financial difficulty by misusing them. It is always important to know your limits when using credit cards and to carefully weigh all factors when choosing your cards.

Each credit card has the following characteristics:

All banks have different limits set for customers depending upon the type of card in their possession. Even within a particular type of card, limits may vary depending upon the credit worthiness of the individual. This depends on the gross income of the individual and the period for which he/she is using the card. However, some banks have cards which have no set credit limit. American Express, for e.g., has a charge card which has no upper limit and allows one to spend as much as one likes (provided the holder repays the amount at one go).

This is the biggest source of revenue for the issuing banks. The interest rates generally range from 1.99% – 3% per month. This is equivalent to around 24% – 35% per year. The interest charges are also applicable on accrued interest. Therefore, a customer can end paying up heavily for the credit taken.

This is a fixed amount, which has to be paid every year irrespective of the extent of usage. Over the past few years, with increase in competition a general decline in these charges can be observed

This is the extra period, which is offered to the consumer for repaying the credit. In the Indian scenario, the first warning is given at the end of three months, and a black mark is put against the customer in case of non-payment for more than seven months. Further grace period is decided on a case-to-case basis.

If one is travelling and has lost his/her credit card, then reporting the loss will not be much of a problem. HSBC, Citibank, Standard Chartered and American Express can be reached from any corner of the world for reporting the loss. However, except for American Express, all others will mail a replacement card to the holder’s mailing address. American Express will replace the card within 48 hours free of cost. Liability for a lost card is nil for Citibank, HSBC, American Express and Standard Chartered (photo card). However, the non-photo card from Standard Chartered carries a liability of Rs. 1,000.

These include airline ticket booking and insurance benefits on lost luggage and accidental deaths. HSBC, for e.g., offers discounts of 3.5% on domestic airfares and 6.5% on international ones if tickets are charged to their cards. The latest in line of value added features are the rewards programs. Here a cardholder

earns a certain number of points by spending a particular sum of money from their credit cards. Standard Chartered, for e.g., uses a conversion of Rs. 125 (spent in India) or Rs. 80 (spent abroad) for one point. HSBC, on the other hand, only allows points collected to be squared against a discount on the annual fees. A minimum of 350 points is needed to get a discount on the annual fee. Citibank awards one point on spending Rs. 100.

Credit cards were first issued by department stores and other retai1operators. They were essentially an extension of the revolving credit accounts provided to many customers. As the popularity of revolving credit grew, the amount of data entry increased and a solution was needed to reduce the time it took to record sales transactions and improve accuracy. A metal plate much like a dog tag was embossed with the name, address and account number of the customer. A company by the name ‘Addressograph’ provided these plates and ink roll equipped imprinters that would imprint the customer information on the "charge plate" to the sales documents. This solved the immediate problem of recording data. This took place in the nineteen fifties and early sixties. Later as the popularity of charging grew, a way to machine read this information from sales documents was needed. OCR technology was developed and the OCR 7B font was adopted for the account number. A standard form was designed to record the imprinted data in a consistent location. Machines that could rapidly scan the information on these forms were developed and the credit card was on its way. Plastic cards were later used and embossers that could personalize large numbers of cards were introduced. There were two sizes of cards and a variety of form configurations but they all worked basically the same way. The charges were posted directly to the cardholder's account at the store. Bills were sent out monthly. With the improvement of the automated processes and the acceptance of credit purchasing by consumers and retailers the credit card concept spread to the retai1 petroleum market and credit cards became a familiar and popular payment alternative to cash and cheque. The retailers were not only making large profits from increased sales that credit provided; they were earning significant revenue on the interest their credit counts generated. The credit card system was entering adulthood. The next big development was the entry of banks into the business. Banks began issuing cards and soon the banks formed associations to act as clearing houses for transactions and to promote their own card brands. BankAmerica, Bank Mark, Master Charge were a few of these. They are now consolidated into just two associations of card issuers Visa and MasterCard. The next step in the evolution of the credit card business was the addition of the magnetic stripe to cards and the expansion of the verification systems into

transaction Point of Sale data collection. Encoding the account number on the magnetic stripe allowed the merchants to rapidly and accurately enter the account number into the verification terminals. The next logical step was to enter the amount through a keypad and send the entire transaction electronically to the processor. This eliminated the cumbersome paper handling and rapidly improved the systems' ability to handle increased transactions and greatly reduce costs. This in turn helped even more to promote credit card acceptance by merchants and weed out inefficient processors. The next big development was the ATM machine. Systems were designed to provide automated teller services at remote locations. ATM machines were engineered and produced by Die Bold, NCR and several other large manufacturers. They quickly gained popularity and several regional networks of ATM transaction processors appeared. The next logical move was to allow merchants to accept these ATM cards for purchases. Secure PIN pads were developed to accept the cardholders' PIN numbers and the debit card business was underway. This was called on – 1ine debit. Soon off – line debit or cheque cards were brought to the market and became very popular with consumers. ATM system makers have grown and today ATMs are located everywhere there is a need for them. The credit card industry has now entered the phase of maturity and the industry has begun to consolidate. There are fewer but much bigger processors, issuers and merchant acquirers. The coming of age of Internet commerce has opened new opportunities for on – line merchants to accept credit cards and new challenges for banks and processors to provide secure and compliant transaction services. Transaction terminals have become more sophisticated with graphic displays, integrated thermal printers and increased processing power. New standards for transaction handling such as PS2000 and the Y2K problem have created new terminal requirements for many merchants using now obsolete, equipment. This and the popularity of card based loyalty and frequency programs present challenges and opportunities for transaction processing equipment and services.


• Headquarters: Purchase, New York • Business Locations: The US, Latin American countries, Canada, Europe, Japan, Korea, China, India, Taiwan & Australia • 95% of all their card payments is from 20 countries • They have 14 million establishments worldwide to their credit • Their Strategy is: Centralized Decision Making • Their staff is dedicated to serving big issuers globally • They have 18 member banks in India • They have a present card base of 1.7 million in India • Their Brand Recognition Increased with 'Priceless" Ad campaign • The general perception however is that MasterCard products are superior to Visa, though Visa is the leader • Their focus is to make payment business more successful for members and merchants & life simpler for customer • Their future plans include establishing 'Multose'-a debit, credit & store value card all in one

• Headquarters are in New York • Business Locations: Spread in 75 offices in 56 cities across 38 countries • Major operations: The US, China, Germany, India, Taiwan, Greece and the UK

• They dominate the Travel & Entertainment (T & E) Market • 70% of Fortune 500 companies are their corporate service clients • They also dominate 80% of Traveler's Cheques Market • Their present card base in India is 0.5 million • Their aim is the creation of a market in the so called 'me too' market • Pro consumer, not anti-competition strategy • Their strategy is that of Exc1usive Membership i.e. Credit Card for Elite • Their approval rate is 20%, which is considered to be very low. • Their market positioning is Premium • Their annual fee is 33% higher than that of the competitors. • Their target customers are financially prudent from upper and upper middle class strata of society • Charges exceptionally high rates from merchants • Payment lead time is very high by industry standards

• Headquarters: San Francisco • Business Locations: 200 countries • They have 16 million establishments worldwide

• They have already issued over 600 million cards. • 50% (volume) of all card charges are Affinity / Co – branded cards • Their promotions include Sweepstakes, Charitable Programmes & Event & Sports Marketing • They have 23 member banks in India • They have a present card base of 1.2 million in India • They have brand recognition for World's #1 payment system • Their focus is on Infrastructure Development. • They follow the strategy of Usage Activation & Branded Promotion

Credit cards in India made their debut in the year 1981 and have witnessed an unprecedented boom in recent years. The number of credit cards has been increasing steadily from 1.5 million credit cards in 1995 to 5 million credit cards in 1999 to 12 million credit cards in 2004 and is expected to reach 20 million in 2007. This would mean a compounded annual growth of around 25 – 30% in the number of credit cards. This would still be a low penetration considering that the number of plastic cards in India is expected to reach 100 million in 2007. But, this does not mean that the number of cardholders is expected to reach 100 million in 2007, because in urban India, particularly in major cities, multiple cards usage is a way of life. By a liberal estimate, the actual number of cardholders could be around 7 million in 2004. This is against the 50 million mobile telephone subscribers, 80 million cable connections and 300 million bank account holders. How does this compare with the Asia – Pacific market? The Visa and MasterCard data available for 2004 shows that Japan has 1.21 billion cards, followed by China (1.1 billion) and South Korea (72 million). However, these numbers are inclusive of credit and debit cards. In India, the comparable number in 2004 was 24 million. Also, the size of the credit card portfolio of the banking sector is around 15,000 crores which is a minuscule portion of the banking sector’s over Rs. 9.5 lakh crore outstanding loan book. This means that on an average, a credit card holder spends between Rs 1,500 and Rs 2,000 on a card in one month.

(Exhibit 1 – Individual Players Positioned) Individual Players Card Base Coverage Co – Branding (in millions) Citibank 2.40 30 cities 29 Affinity Cards 29

ICICI Standard Chartered SBI HSBC HDFC ABN – AMRO ANZ Grindlays Bank of Baroda Bank of India Others Total

2.40 1.70 1.60 0.90 0.50 0.40 0.30 0.25 0.20 1.35 12.00

67 cities 18 cities 40 cities 20 cities 25 cities 15 cities 21 cities 16 cities 24 cities ---

6 4 2 -2 -------

8 -----------

How are individual players positioned in the credit card space in India? Both Citibank and ICICI Bank claim to be number one with a card base of over 2 million. State Bank of India has a card base of around 1.6 million. Standard Chartered Bank may have a slight edge over SBI with a 1.7 million card base, while HSBC issued around 900,000 cards. These five collectively account for about 75 per cent of the market. Among the rest, HDFC Bank, the latest entrant, has acquired a card base of over 500,000 and ABN-Amro, around 400,000. The aggressive players are adopting a two-pronged approach: (i) increasing the customer base and (ii) treading new zones by expanding the coverage area beyond metros and big towns. ICICI Bank has taken its product to 67 cities, SBI Cards is present in over 40 cities and HDFC Bank plans to cover 25 cities soon. Among the foreign banks, Standard Chartered is present in 18 cities and Citibank, 30 cities. Another strategy is to launch more and more co-branded cards. For instance, ICICI Bank has six co-branded cards and eight affinity cards. HDFC Bank and SBI Cards have two co-branded cards each and Citibank has 29 co-branded and affinity cards. Public sector oil companies, mobile telephone players, retail chains and even airlines are joining hands with banks to float co-branded cards.

Overall, about 0.6 per cent of personal consumption expenditure in India is through credit cards. This means that for every Rs. 100 spent on consumption, only 60 paise is routed through credit cards. The comparable figure in the US is 16 per cent. The Asia-Pacific region also shows higher usage of credit cards in terms of personal consumption expenditure.

One way of increasing credit card usage could be by making all utility payments through cards. One can use credit cards for paying petrol bills, mobile phone bills, insurance premiums, airline and railway tickets, and besides other consumer goods. But there are many other payments that cannot be made through credit cards even now. For instance, school tuition fees, water tax and other municipal taxes, electricity bills and fees for doctors and clinics, although some hospitals have now started accepting cards. Two state governments in South India have initiated steps to make all utility payments through cards. Chandrababu Naidu had started a concept ‘E – seva’ in Andhra Pradesh, that ensures all utility bill payments at one point through cards. Kerala has launched a project called "Friends" that works on the same model. Incidentally, the southern states are far ahead of the rest of India in the use of credit cards. Bangalore, for instance, sees more credit card usage than Mumbai. The second way of increasing credit card usage could be by waiving the tax on credit cards. Currently, a 10 per cent service tax is imposed on credit card transactions. Some countries in Asia-Pacific actually offer tax incentives to encourage credit card use. This is to bring down cash transactions and bring in at least a part of the parallel economy into the mainstream economy. Once the volume of business transacted through credit cards grows and consumers start rolling over a higher percentage of credit instead of clearing the bill instantly, banks will be in a position to cut interest rates on credit cards, provided NPA levels are kept low. The third way could be increasing the distribution of Electronic Data Capture (EDC) terminals. Now, there are less than a lakh EDC terminals used by merchant establishments that accept credit cards. These terminals, which process credit and debit card payments, are put up by the card – issuing banks. HDFC Bank has set up about 27,000 EDC terminals, ICICI Bank about 25,000 and Citibank about 24,000. (Exhibit 2: No. of EDC Terminals)

40 35 30 in thousands 25 20 15 10 5 0
Citibank ICICI Standard Chartered SBI HSBC HDFC ABN – AMRO Others


32 25 18 19




No. of EDC Terminals

An imported EDC terminal costs between Rs 18,000 and Rs 25,000, depending on the bulk of the order. The cost has come down from Rs 32,000 over the past years because banks are aggressively placing orders for them. However, the Hyderabad-based Linkwell Telesystems has recently started manufacturing these terminals and brought down the cost to less than Rs 10,000. This will help increase the number of terminals manifolds. The banks can now afford to put up EDC terminals even in provision stores as the break-even point for these terminals has come down to less than Rs. 50,000 worth of transactions a day from Rs. 100,000. The convergence in the telecom sector, with greater use of mobile telephones and the Internet, will bring down the transaction cost further. Some players have already tied up with CDMA operators and replaced the landlines of EDC terminals to bring down processing costs.


The segmentation of the card industry can be done on the basis of income. The Indian market reflects considerable diversities in income levels and lifestyles. A World Bank estimate places average annual household incomes (in terms of purchasing power) at US $ 3452. But there are large segments of people, whose income levels are significantly higher, growing faster and spurring a consumer revolution. It is difficult to obtain correct estimates of this group, as there is a very small percentage of India’s ‘rich’ who pay income tax and their income levels are correctly reported. Therefore to conduct this segmentation, I have made use of National Council of Applied Economic Research (NCAER) data and not the estimates from the income tax department. The segments which have been identified are as follows: (Exhibit 7: Customer Segments on the basis of income)

1 2 3 4 5

Very Rich Consuming Climbers Aspirants Destitute

2,15,000 + 45,000 – 2,15,000 22,000 – 45,000 16,000 – 22,000 > 16,000

NO. OF HOUSEHOLDS 1997 - 98 2006 – 07
1 million 28.6 million 14.2 million 20 million 128 million 6.2 million 90.9 million 40 million 18.7 million 90 million

1 2 3 4 5

Very Rich Consuming Climbers Aspirants Destitute

Maximum credit card holders are from this segment. Each holder has an average of 3.4 credit cards. There are few credit card holders in this segment. This segment holds maximum potential, as there is distinct change in consumption habits in the past few years. Segment represents potential growth --NA---NA--


A survey was conducted by Credit Card Management Consultancy (CCMC) of 10,000 people who hold either a credit card or charge card in 15 cities across India reveals the following facts: • card.

78 % were unaware of the difference between a charge card and a credit 67 % were unaware of the financial loss to be borne if they lost the card and that they would have to bear all expenses incurred on the card until the loss is reported. • 70 % were unaware of the action to pursue in case of loss of the card. • 84 % believe they are entit1ed to 30 days of free credit or more in all situations. In reality this is applicable only in those cases where monthly bills are settled in full.

70 % were unaware of a charge on outstation chouse. Nearly 60% were unhappy with the credit limits offered on their cards. 65 % were unaware of the high interest rates charged on outstanding balances.

• 35 % were unaware that the banks charged an annual fee.
• •

• 70 % were unaware that outstanding balances are waived on the death of the cardholders.

According to a survey conducted by ORG MARG in association with Business Today, the features that are considered most important in the case of credit cards in India are convenience, acceptability, and the quality of service in that order. Other features that are considered important are also given in following table: (Exhibit 3: Importance of features of credit cards in India)

1 2 3 4 5 6 7

Convenience Acceptability Quality of Service Cash Advance / Credit Limit Annual Fees Special Privileges Interest Rate

66 % 58 % 52 % 48 % 42 % 35 % 25 %

At the same time the important reasons for purchase of a credit card are travel & entertainment followed by cash advance. Other reasons that are considered important are also given in following table: (Exhibit 4: Reasons for purchase of a credit card)

1 2 3 4 5 6

Travel & Entertainment Cash Advance / Credit Limit Credit Period Emergency Services Special Privileges Status

56 % 49 % 38 % 32 % 28 % 25 %

The various occasions where cards are used in India naturally flow from the reasons for purchase of cards. Still the majority of card spending was on Travel, Hotels and Restaurants. Other occasions of credit card use are: (Exhibit 5: Occasions for Credit Card Usage)

1 2 3 4 5 6

Travel, Hotels and Tickets Restaurants Clothes Store Provisions Store Consumer Durable - TV, Refrigerator, etc. Petrol Pumps

68 % 56 % 49 % 41 % 32 % 29 %

According to the survey, the ‘very rich’ class of credit card holders (income of more than Rs. 2,15,000 per annum) has an average of 3.4 credit cards each. The reasons cited for multiple cards are:

Wider acceptability, say by having cards from all issuers – MasterCard, Visa and American Express. Increment in credit limit. Flexibility in making payments – using the card with the higher credit limit, with highest time to billing date and often a different card for different occasions (e.g. unlimited credit ‘Gourmet’ card for the bigger hotel and travel bills).

• •

• Maintaining different cards for personal and official purposes. • Nationalized bank cards were found to be attractive in their local regions, e.g. Bank of Maharashtra card in Pune. • Nationalized bank cards were maintained as their billing recovery was erratic, resulting in enhanced credit periods for the holder. The existence of multiple cards holding among consumers has the implication that spending volumes enjoyed by an operator are reduced, because the same client

would then utilize multiple cards for his credit needs. Thus the need to generate as well as sustain consumers’ interest in the card is essential. The most common mode of acquiring the card has been the issuer bank’s Direct Selling Agents (DSA’s). However, awareness about the card comes from other sources as well. Relevant results of the Business Today survey are presented in the following table: (Exhibit 6: Sources of awareness about credit cards)

1 2 3 4 Advertising Word of Mouth Referrals Direct Mail Bank Personnel 54 % 35 % 7% 4%

The competition in the credit card industry in India is fierce. Competitive battles are moving to the consumer front. Others seem to be well armed for the battle. The tables below give us a picture of the current scenario (Exhibit 7: Competitive Analysis) Individual Players Discounts Acceptance Citibank ICICI Standard Chartered SBI HSBC HDFC ABN – AMRO ANZ Grindlays Bank of Baroda Bank of India Average High High Average Poor Average Average Poor Average Average Very Good Very Good Good Very Good Good Good Average Average Very Good Good Advertising Very Good Very Good Good Above Average Poor Average Poor Poor Average Poor Hidden Costs Average Average Average Low High High Average Low Low Average Innovative Strategies Good Good Average Average Poor Average Poor Average Average Poor

(Exhibit 8: Card Charges) Individual Players Citibank ICICI Standard Chartered SBI HSBC HDFC ABN – AMRO ANZ Grindlays Card Base Joining Fees (in millions) (Rs.) 2.40 --Nil-2.40 100 1.70 100 1.60 250 0.90 300 0.50 200 0.40 300 0.30 200 Annual Fees (Rs.) 750 750 700 500 500 600 700 750 Interest (%) 2.95 3.00 2.95 2.50 2.75 2.95 2.50 2.75

Bank of Baroda Bank of India

0.25 0.20

150 100

900 250

2.50 3.00

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