Innovations in plastic money to grow the market

At the end of June 2011, the number of credit cards in circulation has declined by over 7 per cent to 1.76 crore from 1.89 crore at the end of the same month last year. On the other hand, there were over 23.95 crore debit cards in use in the country as of June 30, 2011, up 25 per cent over 19 crore in the year-ago period.

The decline in credit card numbers over the last one year is a direct consequence of the customer delinquencies the card issuing banks experienced due to the recession that began in 2008. Moreover, banks themselves discontinued many unused, dormant cards which they had thrust on customers.

But the declining trend in plastic money is soon expected to make a u-turn as many banks are now becoming aggressive in issuing credit cards, albeit with different features.
Learning from the past mistakes of offering unsolicited cards or issuing cards to people without verifying their creditworthiness, banks are now playing safe. Some of them have issued cards with a built-in safety net. ICICI Bank has cards which work somewhat like a pre-paid card. Under this scheme customers are asked to open fixed deposits starting from Rs 25,000 with varying maturity and then they are given linked credit cards with a spend limit equal to 80 per cent of the deposit.

In case of a default, the bank can break the FD to recover card dues. Said Debt Doctors CEO Ashwin Cannonkadu, “It is true that such linked cards have limitations, but they are safer for the card holders because he or she won’t be caught in a debt trap.”

Last week, IDBI Bank launched a combo card called “IDBI Magic Card” that has the features of both debit and credit card. This card is being offered to eligible salary account holders of IDBI Bank with a credit limit in a multiple of the monthly salary earned by the card holder.

“The card will work as a debit card till the account holder has balance in it but once exhausted, any further withdrawal or expenditure on the card will act similar to a credit card,” IDBI Bank Chairman & Managing Director R M Malla said at the launch event. There is no free credit period once the limit exceeds and all transactions will start attracting interest. IDBI, however, claimed that the interest charged was lower than the average rates of other banks.

Niche segments

Then there are others launching cards with a niche segment in mind. HDFC Bank has launched Infinia ultra premium card, which has no limit on spending, aimed at the super rich in the country. Though there are around 62,000 ultra rich people in India, the bank is planning to issue only 5,000 Infinia cards at the initial stage.

HDFC Bank has also launched a pack of three premium credit cards that will make air travel for the card holders easy.

Branded as Regalia, Superia and Platinum Edge, these cards will offer customers a variety of solutions to all their travel needs. Free access to airport lounges, redemption of reward points for air tickets in many airlines, free air tickets, varied reward points on different transactions, etc, are the major features of these cards. “With this range of products, we have addressed all possible needs that a global Indian traveller may have.
We want to see these travel cards in the wallet of every jet-setter in India,” said HDFC Bank Country Head (Retail Assets and Credit Cards) Pralay Mondal.

Another example of innovation is the State Bank of India’s combo card that can be used as a debit card and a transit card to travel on Bangalore Metro Rail. The card has an embedded smart chip that can be used for charging cash to pay for Metro travel and at the same time it can be used as a debit card for any other transaction.

Recently, Bangalore’s Christ University has provided identity cards to its hundreds of students that doubles up as a debit card of South Indian Bank. These new initiatives, hopefully, will raise transactions on credit cards which amounted to Rs 75,515 crore in 2010-11, up 22 per cent from the previous year.