HDFC Bank Rides On Premium Cards To Grab Market Share

Analysts say the bout of revenge spending has now evolved into a trend of rising consumer expenditure on premium products.

<div class="paragraphs"><p>An HDFC Bank branch in Mumbai. (Photo: BQ Prime) </p></div>
An HDFC Bank branch in Mumbai. (Photo: BQ Prime)

India’s largest private lender HDFC Bank is pinning its efforts to grab maximum share of the industry’s credit card business by tapping on the premiumisation trend.

Over the last few months, HDFC Bank has entered into partnerships with several entities such as Swiggy, Retailio, IRCTC and more for co-branded credit cards to expand its presence in credit cards segment. These cards cater to mass-affluent as middle income segments.

At the launch of its first co-branded credit card in the hospitality industry, with Marriott Bonvoy on Thursday, HDFC Bank's cards chief Parag Rao said the move is driven by Indians resorting to “revenge spending” on both domestic and international travel post the Covid-19 pandemic.

However, analysts believe that the bout of revenge spending has now evolved into a trend of rising consumer expenditure on premium products across all income groups.

"We are using the demand that came in after Covid-19 period now, but it is definitely behind us. There's an economic upcycle taking place in a big way. People are earning more, they are ready to spend, so banks are capitalising on that," Asutosh Mishra, lead BFSI analyst at Ashika Stock Broking said. "Premiumisation is happening across the chain and India, as a society, is more open to take credit," he added.

The bank had lost a chunk of its pie after the Reserve Bank of India, in December 2020, had barred HDFC Bank from issuing new credit cards or digital launches following a slew of outages in its online network. It continues to lose market share on year-on-year basis at 20.7% in June compared with 25.6% before the embargo.

On an incremental basis, HDFC Bank aced credit card transactions in value as well as in volumes in June within Indian banking industry, according to the latest RBI data. During the month, the total value of credit card transactions for the lender stood at Rs 38,751 crore, followed by State Bank of India at Rs 24,980 crore and ICICI Bank at Rs 23,042 crore.

On a year-on-year basis, HDFC Bank saw a 30.8% rise in the value of these transactions, from the previous Rs 29,578 crore in June 2022.

Even in terms of the volume of credit card transactions at point-of-sale terminals, e-commerce and other channels in June, HDFC Bank led the show with a record-high 6.55 crore transactions, followed by ICICI Bank with 4.99 crore transactions and SBI with 4.49 crore transactions.

The bank's outstanding credit cards stood at 1.83 crore in June.,

“At the same time, we will continue to identify relevant categories where customers are spending and focus on getting wonderful partnerships where we get significant value and thereby get the full customer wallet,” Rao added.

HDFC Bank is in talks with the iPhone manufacturer Apple, too, to launch its credit card, dubbed as “Apple Card,” in India, Moneycontrol had reported last month. This potential partnership, if comes to fruition, would cater to premium Apple customers. In the US, Apple currently operates a premium credit card, which is positioned as a high-end offering.

On being asked about disruptions in the lower income category under credit card segment due to a rise in digital lending, Rao said apart from convenience and product, the key is “strong underwriting standards.” Credit cards, which require recurring annual fees, are not affordable by lower income customers. Hence, they resorted to easy credit lines such as Buy-Now-Pay-Later. However, global recession fears, aggressive rate hikes and rising inflation has hampered the growth of the BNPL industry across the world.

The Reserve Bank of India, in June last year allowed individuals to link their credit cards to the UPI.

"The expectation is that the UPI-linked Rupay credit cards will increase adoption and issuances. We are seeing uptick on issuance and usage of credit cards and that too also at all the different price points," Asim Parashar, partner at PwC said.

This facility offers benefits across categories, including travel, shopping and fuel, where HDFC Bank in particular, is seeing “good traction,” Rao said.

“The RuPay’s programme of linking credit cards with UPI has very strong surrogate to the BNPL product, and we are seeing many new members joining the credit card space through that route. It’s early days, but decent good response,” Rao told BQ Prime on the sidelines of the launch event.