Why credit card companies are a happy lot

After a lull of almost a year, some banks are beginning to pull out their databases to contact potential credit card customers. Having cleaned up their credit card portfolios and sensing a change in the economic environment, issuers such as SBI Cards, Standard Chartered and HSBC are seeing an increase in their credit card base at a marginal pace. Others such as HDFC Bank, which was dependent largely on its own set of customers, are maintaining the tempo.

"We have managed to stem the losses and we are back on the growth path with better risk management and a new product range. There will be more synergy (with the bank) in the form of cross-selling," said State Bank of India (SBI) Chairman OP Bhatt.

Having restructured in July, SBI Cards, the country's third largest card issuer with a base of around three million cards, has seen an increase on a month-on-month basis.

"There has been a marginal rise in credit card issues across the industry," said Ravi Subramanian, head of consumer assets and credit cards at HSBC which has a credit card base of about two million.

R L Prasad, head of credit cards at Standard Chartered Bank, which has a base of about 1.3 million cards and has kept its credit base flat over the past few quarters, said there was a marginal increase in issues over the past quarter but declined to share numbers.

The overall numbers are, however, yet to reflect the trend. For instance, in June, the latest period for which the Reserve Bank of India has released the data, the credit card base shrank to 22.8 million, the level last seen in February 2007. The total credit card base at the end of May 2009 was 24.05 million

Industry players said the June shrinkage was more the result of ICICI Bank, the country's largest credit card player, culling cards to reduce delinquency levels. ICICI Bank now issues just around 1,000 cards a month.

At its peak around two years ago, ICICI Bank was issuing 100,000 cards a month. That number dropped to around 10,000 cards in October-November and almost stopped around January.

ICICI Bank had stopped issuing cards as it was reworking the sourcing model, which was earlier dependent on direct sales agents. Now, the business is generated in-house with focus on cross-selling to existing clients, a banking source said.

Meanwhile, as part of their revamped strategy, banks are focusing on the premium segment and only acquiring customers who are willing to pay an annual fee to cover a part of the cost.

SBI Cards, for instance, has made it a matter of policy to issue only cards for an annual fee since April this year. The company's Chief Executive Officer Diwakar Gupta said it had to rework its model as card spends on free cards barely sustained the cost to the issuer. "We offer 50-day credit to the customer, but the cost of holding that card is equal to the interchange earned on that card. Without an annual fee, this model is not sustainable," said Gupta.

"HSBC had never done away with the fee on its cards products, despite the competitive pressures. Issuing and managing a card product costs money so it is important to charge the customer a certain amount as a fee," said Subramanian.

Bankers say the market is shifting towards the high end which is less susceptible to delinquencies. Apart from being more secure credit category, high-end credit card categories such as Platinum cards also earn banks a higher interchange fee from merchants every time a customer swipes his or her card at a terminal.

"With Platinum cards, issuers earn a 1.75 per cent interchange on the transaction, whereas with Gold cards the interchange is just 1.25 per cent. Platinum cards could become the base level cards in the future," said the retail assets head of a private sector bank.

"The industry is trending towards differentiating on the basis of value added services which become very important in the premium card space. As a result we are seeing a shifting trend in the industry towards the higher end customers," added HSBC's Subramanaian.

"Premium cards could become the most offered card," predicted Standard Chartered's Prasad.