The Credit Card Frenzy Is Back. Is It Different This Time?

Check in at the airport; you'll be offered a credit card. Out shopping at the mall; you'll be offered a credit card. Getting fuel for a car; here too you will be offered a credit card. Staying home; you'll get at least one call with an offer for a pre-approved card.

After turning cautious through the Covid-19 period, banks and other credit card issuers are now chasing this segment aggressively, in a frenzy that is reminiscent of the early 2000s. That rush ended badly with banks having to bear large defaults.

Will this time be different? Bankers and analysts believe it will.

Between January and May 2022, outstanding credit cards in force have risen from 7.02 crore to 7.69 crore. In May alone, cards in force rose 23% year-on-year, according to monthly card data available with the Reserve Bank of India. This is the highest growth in cards in force since the Covid-19 pandemic hit in March 2020, Axis Securities had noted in its report on June 27.

Spends on these cards during the month of May also rose 108% year-on-year to Rs 1.14 lakh crore. Of these spends, 63% were on e-commerce platforms.

HDFC Bank Ltd., Axis Bank Ltd., ICICI Bank Ltd., and SBI Cards and Payments Services Ltd. have stepped up with new card issuances. Of the 67 lakh incremental new cards issued between January and May, these four issuers account for 70%.

"The cleanup at banks after the Covid pandemic lasted till the fourth quarter of FY22. Now, the industry is better placed to push up credit card issuances," said Sanjeev Moghe, president and head-cards and payments at Axis Bank. "We are expecting the momentum to continue for some time at 15-20% year-on-year growth (in number of cards) for the system."

Credit card issuers are also competing for partnerships with multiple merchants, said the CEO of a credit card company, speaking on the condition of anonymity. This has helped card issuers gain new customers from locations they were earlier unable to reach, at a fraction of the acquisition cost, he said.

While HDFC Bank has a co-branded credit card with Paytm and is working on another card with a large telecom company, ICICI Bank has been building on its partnership with Amazon.com Inc. Axis Bank has announced partnerships with Flipkart India Pvt., Google Llc., and Bharti Airtel Ltd., among others. SBI Cards, too, announced its partnership for a co-branded card with Aditya Birla Finance Ltd. last week.

While the aggression in pushing credit cards has risen, bankers claim this time is different.

Things are very different now than 14 years ago, said Moghe, of Axis Bank.

"A lot of us in the system now were there in 2008 too. The crisis had pinched all of us very hard and there is some guilt we all carry around. What has changed now is that digital capabilities are much stronger than before," he said.

According to Moghe, banks have a better understanding of the repayment track-record of customers with the help of credit bureau data, internal checks and customer behaviour during the pandemic.

"These have given us a lot of learnings on the customer segments we want to choose and grow in. We are targeting professionals over the age of 25, who meet specific income levels, whether salaried or self-employed," he said.

Axis Bank is issuing about two-thirds of its new credit cards to its existing customer base, while targeting customers outside the bank for the rest. The lender has grown its card base from 83.5 lakh in January to nearly 95 lakh in May, as per RBI data.

Ambuj Chandna, president-consumer assets at Kotak Mahindra Bank Ltd., shared that view.

"We have invested a lot in customer analytics, which allows us to underwrite on the fly," Chandna said. "At Kotak, we have also moved our risk parameters from being conservative during Covid to pre-Covid levels, which is boosting card growth."

Alongside improved technology, credit card issuers are also relying on the experience of the pandemic. Despite a sharp downturn in the economy, job losses and salary cuts, large credit card defaults were not seen. In fact, in some segments, roll-over of credit card spends fell and consumers have limited avenues to use their funds.

"We are still seeing customers mostly repay their dues in full. To us, this indicates higher quality customers on our balance sheet. There is a cost impact that comes with it for the bank, but we can take that on as we grow," said Moghe.

Roll-over rates, which had dropped last year, are more or less back to pre-Covid levels now, the executive quoted earlier said. The more circumspect customers are paying back in full, but there is a growing trend among customers to split their repayments over a few months, this person said.

Vivek Ramji Iyer, partner at Grant Thornton Bharat, said that credit card users have also shown that they can adequately manage repayments during a crisis.

"Customers have shown strong financial discipline during Covid. Banks are also seeing that the macroeconomic conditions in India are not as bad as some other geographies. This is giving them confidence to grow," Iyer said.

With the RBI asking non-bank prepaid instrument issuers to stop loading customer wallets or cards with credit lines, new growth opportunities may emerge for card issuing lenders.

Fintech companies were offering buy-now-pay-later options on prepaid cards, where customers could repay their dues over a fixed period of time. With this business now disrupted by the RBI's latest directions, banks may pick up some of these customers.

"The PPI customers have shown steady repayment track record and have shown financial discipline. There is a large chunk among these customers who do not have credit cards. Banks will look to target them going ahead," said Parijat Garg, a fintech industry advisor and former credit bureau official.

These customers are currently on the lookout for new payment options, since they have gotten used to a certain lifestyle, said the credit card company official quoted above. Given their spending patterns and quick repayment history, they are a strong market for low limit credit cards, he said.

Axis Bank is in talks with fintech firms, including those who have seen recent disruption in their business, to expand its customer base, Moghe said. Whether these talks result in new business is still to be seen, he said.

Chandna of Kotak Mahindra Bank differs. The accuracy of the risk algorithms employed by fintech players, while acquiring these customers, is unknown, he said. "Any risk algorithm takes time to stabilise. A lot of these players started off late, so the real time to test the richness and correctness of the risk algorithm will be 12-24 months down the line," Chandna said.