At a recent summit in India, MasterCard Worldwide found that a key issue plaguing the credit card industry was inactive cards. It summed up that one of the ways to get cardholders to use the card was to charge an annual fee.
“But markets, where free cards are prevalent, card issuers can only charge fees to the high-end customers,” said Lance Blockley, managing director of Edgar, Dunn & Company. This consultancy is assisting MasterCard in the research.
While MasterCard has released its findings now, many banks have already shifted to getting cards to pay by launching premium segment cards. As a result, nearly 80 per cent of the new cards issued by private and foreign banks in the last three-four months had been issued in this segment, said the credit card head at a foreign bank.
This is also apparent from the recent launches. Around two months ago, Citibank launched the Platinum Select Card, which comes with an annual fee of Rs 4,000. Similarly, ICICI Bank launched a card in a tie-up with Singapore Airlines that has an annual fee of Rs 6,000.
Some of these cards come with an annual fee Rs 10,000. For instance, Deutsche Bank charged an annual fee of Rs 10,500 on one of its platinum card during a promotional offer some time back. Similarly, Standard Chartered charges Rs 10,000 a year for its co-branded platinum card with Emirates Airlines. Going forward, over the next six months, Deutsche Bank is looking at two-three card products in the premium segment.
"The industry is focusing on the portfolio that is more profitable and sustainable. Portfolios are being reshaped and these customers are the key," said RL Prasad, general manager and head -cards and personal loans at Standard Chartered Bank, India.
“The credit card industry as a whole has renewed the focus on this segment and we have seen new launches of platinum credit cards in this space recently,” said Anil Ramachandran, director, head of credit cards, India at Deutsche Bank.
Blockley pointed out that profitable customers are the need of the hour. Cards companies earn money from three avenues. The biggest earning is through transactions. "But there is little activity on cards in India due to a low card base," said Blockley. Then there is the revolving of credit — companies earn interest on it and even this is not rampant due to high inactive cards. "Annual fees, hence, assume significance in such markets where the industry is in the nascent stage," Blockley said.
The card base in India is around 25 million, a quarter of credit card holders in China's, where the industry is comparatively newer.
Bankers said customers in the premium segment understood their financial responsibility better than cardholders with marginal profile. Also, they were more disciplined in payments. This is a lesson companies have learnt after aggressively selling cards and over-leveraging customers by increasing credit limits, which has resulted in high delinquency rate.
"Banks also prefer this segment as they are high spenders. For instance, they travel more and spend abroad. Banks also cross sell other financial products to them," Prasad said. Out of the total card base of 1.3 million, Standard Chartered has 70,000 platinum card holders and around 250,000 titanium card holders.
To select customers for platinum cards, the companies look at various combinations. The first parameter is an annual salary of Rs 10 lakh or more. Then come designation, industry, lifestyle, standard of living, education qualification, credit bureau history and so on. The final decision is taken on the basis of the combination of these parameters.
