Origin of Credit Cards In India:
The usage of Credit Cards in India is less when compared to the usage of credit cards in China, Taiwan and Malaysia. It picked up only in the last 10 years until then the Indian looked it as a luxury. The idea of owning a credit card has had its roots in the minds of millions of Indians. They started viewing the card as a convenient substitute to carrying cash. The change in mindset is clear from the growth, both in terms of absolute numbers and growth rates. The industry has grown at the rate of 30% and strongly counts for steady years to come.
Credit Cards in India:
According to Visa International an average Indian cardholder uses his card 9.3 times, spending about Rs.23, 000 per year. A number of card owners do not use their cards and almost 20-23% cards are inactive. In India, two players dominate the credit cards industry. Visa and Master Cards and 15 out of 17 banks provide credit card services through Visa or Master Cards.
The importance of having a pie in the credit cards segment was not lost on any bank, and most banks started their credit card operations. Currently, there are more than 20 banks offering credit cards, but the market share of the top five exceeds 75%. Credit card is a low margin, high volume business. The initial investments required by a bank are very high. The income per card is low, thereby requiring large volumes in terms of cards issued and the transactions finance to make the operations profitable. Another reason for the inability of players to upstage the well-entrenched ones is lower patronage by the merchant and business outfits.
The bigger businesses and merchants are already acquired by the existing players, so far new banks, braking into this business and convincing a merchant is increasing because the banks are shifting towards lower end merchants. Secondly, because of competition in acquiring business, new categories of merchants are coming up. The foreign banks have a dominant share due to various reasons like having been in the field for decades, sound operational and financial strength, strong brand recognition etc. They were catering to the upper segments and charged high annual fees. Later, with aggressive entry of SBI, ICICI Bank and HDFC Bank, the rules of the game changed. The cards were positioned in manners which gave an impression that the cards can be acquired by people from not only the upper class, but also the middle income categories. This was the strategy followed by SBI-GE as a result of which it is the third largest issuer of credit cards today. It positioned itself in a segment as to be of mass appeal and at the same time reinforced a clean and dependable image of the bank.
The new private banks like ICICI and HDFC are also aggressively increasing their share. They adopted a strategy of reaching lower down the income strata by lowering down their eligibility norms. Of course, the credit limits are set at lower levels as compared to the foreign banks. As a result of this strategy, the credit cards base is widening day by day with the increase of base in B-grade cities.