Indian credit card industry on a steady growth path: BOB Fin CEO

The Covid-19 pandemic have migrated most credit cardholders to online or e-commerce transactions, thereby opening up more avenues for credit card usage. Shailendra Singh, MD & CEO, BOB Financial Solutions Ltd in an exclusive interview with Bizz Buzz says, "We believe that the Indian credit cards industry is on a path of steady and exciting growth. This growth is powered by acceptance of digital modes of payment, change in customer perception about debt, rising share of youth among the working population, acceptance infrastructure in the smaller cities and towns and adoption of e-commerce."

The Indian credit card industry is expected to grow at a CAGR of more than 25 per cent during 2020-2025. What will be the contributing factors for this?

There are several factors contributing to the estimated growth of Indian credit card industry. The push for digital payments, both by the government and RBI, is a key factor. This is having a positive impact both on the issuance as well as the acceptance side. Customers who were hesitant towards plastic money are made aware of the safety and convenience of digital modes of payment (that includes credit card), and are adopting them at a faster pace.

Another key factor driving credit card growth is increase in issuance to customers from non-metros and smaller towns. A recent study by TransUnion-CIBIL has mentioned that the recovery in new credit card issuance in the current pandemic environment is being driven by small towns and non-metros. The study mentioned that in October 2020, smaller locations registered a growth of 23 per cent YoY compared to a -10 per cent growth for metros.

The share of Millennials or the young population between 18-25 years of age is another significant factor driving credit card growth. As per the CreditScape study by CRIF published in April 2020, this age group accounted for 14 per cent of all new credit card issuance in FY20, compared to just 1.6 per cent in FY16.

Credit cards are now being used to make payments for utility bills, educational expenses, healthcare, and insurance, government payments in addition to the traditional purchases of grocery, electronics, apparel and fuel. The Covid pandemic have migrated most credit cardholders to online or e-commerce transactions, thereby opening up even more avenues for credit card usage.

The number of credit card users in India in 2019 touched 52 million. Yet there are only about 3 credit cards for every 100 people in India, when compared to 32 cards in the USA. How long will it take to reach the level?

As per the latest figures released by the RBI, the number of credit cards in India stands at 58.8 million as of September 2020. As per the CreditScape study referred above, the number of credit cards per 100 people in 2017 was 2.2 for India and a whopping 320 for the USA.

While the two countries are not comparable, especially not for credit card penetration, we should look at the encouraging trend as captured in the growth estimates and key contributing factors mentioned above.

How do you see the surge in default by credit card users due to the lockdown which has resulted in job loss, pay-cuts and closure of units?

There was initial scepticism on the surge in defaults owing to the lockdowns and impairment in normal economic activity. However with the measures taken by the government of India and the lockdown easing in the last few months, the repayment levels have reached very close to the pre-Covid levels and we soon expect normalcy to be restored.

The RBI had asked the banks to give the benefit of waiver of interest on interest to the home loan borrowers during the moratorium period. However, it is reported that credit card companies didn't pass it on to their customers. We passed on the benefit of the ex-gratia scheme on the waiver of interest on interest to all the eligible credit card customers by November 5.

What is the impact of NPAs on your company due to the lockdown?

There were initial stress levels in the entire unsecured lending landscape across the financial institutions, but as the situation has started to ease out over the last few months, we expect the NPA levels to be restored to normalcy. Like most financial institutions, we have adequately provided for any losses, but are optimistic of some of these provisions to be un-winded as the situation improves.

BoB credit card has been raining offers in the festival time. What is its impact?

We do not believe in a burst of tactical offers during festival time. For us, customer engagement is a key and we adopt a three-pronged strategy to ensure the same namely (a) product features that reward the cardholder every time the card is used, (b) long-term or 'always on' offers with strategic partners in different spend categories and finally (c) the festival or occasion specific offers. The expected impact of all initiatives is an increase in customer engagement, reflected in higher ticket size as well as frequency of spends. The impact of our three-pronged strategy has been very encouraging till date and we will continue to build upon the same.

Are you also looking towards ensuring resolution wherever feasible for retail loans?

These are times where we need to show compassion and empathize with our customers who would have continued enjoying our card services but for the Covid emanated difficulties in their cash flows. We are extending all possible avenues for them to ease their repayment burden, trying to sync them with the revised cash flows wherever possible. Customers are also well aware of their obligations and any potential impact of non-repayment to their credit scores.

Your peers have tied up with e-commerce players like Amazon and PayTM for increasing their market share. Are you also looking at doing something in that direction?

We have always mentioned that while the large customer base of Bank of Baroda is our primary target segment, we are always open to partnerships that will prove of strategic benefit to both BFSL as well as the partner. We are closely watching the space and have also seen interest from prospective partners. Any strategic partnership discussion takes time to finalise, as seen in the above mentioned alliances.

What are the future plans of BoB Credit Cards?

In an earlier interaction with the media, I had stated that we would want to join the Top 5 club of Indian Credit Card issuers. That is our aspiration and we are working towards getting there at the earliest possible.

Currently BoB card is ranked beyond top five players active on the space, by when it will join the group of top five?

You're right that we are ranked beyond Top 5; actually we're ranked beyond Top 10, but that's a very superficial way of looking at what BFSL has achieved in the last 2.5 years or so. We have doubled our customer base twice in this period, crossing half-a-million customers recently, from just about 125,000 in March 2018.

From being a member of the bottom half of issuers just 2.5 years ago, we consistently ranked amongst the Top 10 issuers on a monthly new issuance basis during FY 19-20. Our immediate target is to further improve the ranking on incremental issuance and break into the Top 5 on monthly incremental issuance. Joining the Top 5 club in terms of overall customer base is our stated aspiration, and we are all working towards the same.

What is the roadmap for the same?

Under transformation journey 1.0, the focus was on building capacity and capability to scale up the business. With this in place, the transformation journey 2.0 is aimed at positioning Bank of Baroda credit in a different trajectory by leveraging on technology, products and people. We have to leverage on these three key resources to deepen our engagement with customers by offering meaningful payment solutions.

BoB card has already forged partnership with institutes like ICAI and ICMA, any other such alliance in the offing?

We are privileged to have partnered 3 eminent professional institutions of the country. We have launched 3 cobranded Credit Cards in partnership with the Institute of Chartered Accountants of India (ICAI), the Institute of Cost Accountants of India (ICMAI) and the Institute of Company Secretaries of India (ICSI). These are offered exclusively to Chartered Accountants, Cost & Management Accountants and Company Secretaries respectively.

Apart from being an industry first tie-up with all the three esteemed institutions, this is also our token of appreciation for the contribution these professionals are making in building a modern, Atmanirbhar Bharat. We expect these partnerships to be of far reaching, strategic value, as these professionals are opinion leaders and influencers in their own right.

The response to these cobranded cards has been very encouraging. We are looking for and open to more such alliances with professional and educational institutions, and will share whenever we finalise them.

How do you foresee the future of credit card business in the country?

We believe that the Indian credit cards industry is on a path of steady and exciting growth. This growth is powered by acceptance of digital modes of payment, change in customer perception about debt, rising share of youth among the working population, acceptance infrastructure in the smaller cities and towns and adoption of e-commerce. The huge scope for penetration in Tier II, III and beyond locations, leveraging the government's push on digitization of payments and novel co-brand and partnership opportunities with both complementing as well as disruptive partners, are a few of them. To conclude, the fundamentals of a profitable credit card business wouldn't change much in terms of acquiring the right customer and then managing the customer lifecycle in the best possible way right from activation, regular usage, repayments and retention. The tools for ensuring these, however, will definitely change, as they are changing today, and the businesses that will survive and thrive are the ones that will innovate, adopt and adapt.