Wanted: 2 Million Credit Card Buyers
Over the last 16 years, the number of all credit cards in India grew from zero to 2.5 million. Over the next three years, State Bank of India (SBI) alone expects to sell 2 million cards. Yet, no one is laughing at the audacity of it. In fact, the Indian credit card industry was watching intently when M S Verma, chairman of the countrys largest commercial bank and Pramod Bhasin, president of GE Capital India, subsidiary of one of the worlds largest financial services companies , shook hands on the biggest ever deal in the countrys payments card business.
A banker at ANZ Grindlays predicts, There is an SBI branch in every street. And soon, there will be an SBI card in every home. Adds a senior executive of Standard Chartered Bank, SBI can cross the 2-million mark. It has over 8,000 branches in the country and a customer base of more than 2 million people. G Rajagopal, chief executive, BoBcards Limited agrees: The SBI claim to sell about 2 million cards will depend on their technical and back office capability. And this is where the GE connection will help.
GE Capital does not miss an opportunity to crow about its role in the venture. This alliance is consistent with and important to GEs vision which is to recreate GE in India. The tie-up with SBI is a demonstration of GEs commitment to bring world class technology, processes and services to India, says Bhasin. At GE Capital, a select team is now working overtime to put in place the first stand-alone processing company of its kind in India by July 1, 1998 the day the first of the two million cards will be issued. This company, called GE Capital Business Processes Management Services (GECBPMSL), will handle all the technology and processing needs of the joint venture. We will utilise our worldwide processing capabilities to support the SBI tie-up similar to how we have managed over 80 million cards across 20 countries, says Bhasin.
Meanwhile, SBI is getting ready to launch a countrywide marketing offensive for the card through SBI Cards and Payment Services Limited (SBICPSL), its maiden foray into the consumer finance business. A confident G S R Anjaneyulu, general manager, card unit, SBI, says, We will bring about a plastic revolution based solely on our strengths without the support of any intermediaries. Bhasin agrees, SBI brings enormous value to the joint venture in terms of a strong brand value and an extensive distribution network that extends beyond the metros.
There are thus two companies in this Rs 150-crore joint venture. While GECBPMSL is the processing company,. SBICPSL will take care of marketing and distribution. In the former, GE Capital and SBI hold 60 per cent and 40 per cent respectively of the proposed equity capital. The holding pattern will be reversed in the marketing company. Since SBI has the benefit of a large network, it will a higher stake in the distribution company. And given that GEs strength is its expertise in technology, it will hold a higher stake in the processing company, explains an SBI official.
In their goal of bringing the credit card to the doorstep of every Indian middle-class household, SBI and GE Capital will be helped by the recent burst of growth in the market. Credit cards were first launched in India in 1981, and by 1987, there were only 1,50,000 cards in the country. But by 1993, this number had increased to 9,60,000. Plastic is now fast replacing cash in the Indian customers wallet. Says Harpal Dugal, head, credit cards, Standard Chartered, We see the Indian card market growing at rates between 25-30 per cent in terms of new card holders and between 35-40 per cent in terms of cardholders spends given the increase in personal consumption expenditure on which credit share will tend to increase over the years. It is estimated that there will be about 8 million credit card holders by 2000.
The market is currently dominated by Citibank which has issued around 1.3 million cards so far. Stanchart follows with 3.5 lakh cards. Hongkong Bank has 1 lakh credit card customers. But Vivek Kudva, manager, card products, Hongkong Bank says: We expect to reach the 1 million figure by 2000. This optimism is shared by Rajagopal of BoBcards: We will touch 4 lakh by the year 2000. At 1.7 lakh cards, BoBcards leads the Indian bank cards market, roughly 30 per cent of the total market.
With market projections looking rosy and with the Indian partners formidable distribution network and the multinationals processing expertise, it seems that nothing can go wrong for the SBI card. But as an ANZ Grindlays banker points out, The issue is not whether or not they can sell 2 million cards. Purely in terms of numbers, the market is big enough for several players. The real issues are: who is the target customer and how will the card be priced?
Says Kudva of Hongkong Bank, There may be 2.5 million cards today. But the catch is that there are not 2.5 million card holders one person has multiple cards. This makes the job of selling cards all the more difficult since every body is targeting the same population. According to Dugal of StanChart, The key to success will be quality portfolio and customer service. And Rajagopal says, SBI must realise that in this business the margins are thin and volumes not so high. So, there is very little room to give freebies or other incentives. If at all, they come up with something, we can match it.
But SBI and GE Capital have it all worked out. Though SBI will begin its hardsell in the metros, bank officials say the real thrust will be on smaller cities with a population of 1-5 lakh. We will have a close rapport with our branches where our card centres will be based and through them will touch every cross section of society, says Anjaneyulu.
And the pricing? Well, thats something the two partners are tongue-tied about. The price of a Stanchart Gold card is around Rs 5,000, that of a Hongkong Gold is Rs 2,500, while a BoB card costs only Rs 200. The industry says it is too early to hazard the price of the SBI card, but since the target customer is the middle-class, small town dweller, it is likely to be closer to the BoB card. The final numbers on the exact cost, the organisation profile, and the locations of the card centres would be ready by the first week of June, says Anjaneyulu.
Meanwhile, a section in the industry is of the opinion that far from dislodging them, the SBI-GE Capital combine will help them. Says Kudva, We feel that the alliance will expand the card market, increase the geographical coverage and accelerate the development of the industry in India. Adds Dugal, It will lead to a build-up of infrastructure necessary to support the industry.