Page 51 - Banking Finance November 2022

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Why banks want you to swipe

new credit card soon

Credit card-issuing banks are going all out to get Visa India head Sandeep Ghosh said, “It is activation
C receiving them. On the anvil are offers for early and usage that drives profits. Weeding out unused cards is
customers to use their cards within a month of
not a bad thing. However, there is the issue of sunk cost,
use, linking fee waiver to usage and more
intensive communication with customers. which is why there is a lot of effort to get customers who
are sitting on cards to get them activated.” According to
Ghosh, Visa has already provided many insights to banks on
In August, outstanding credit cards shrunk by 22.6 lakh as
new RBI norms came into effect. To ensure that banks did the best way to increase activation and regular usage. For
banks, the sunk cost can be high. First, there is the cost of
not push credit cards to those who did not need them, the
the card itself, which has gone up because of chip shortages
RBI has ordered cancellation of cards that are not activated
soon after use. All banks say that the focus will now shift to and the need to incorporate an NFC feature in every card.
sourcing from channels where the activation is high. For the Plus, there is the cost of secure delivery and handling. These
cards already issued, banks are making intensive efforts to itself cost the bank a couple of hundred rupees. It goes up
engage with cardholders and get them to use the cards further when there are added privileges like lounge access
within the first month. for which the bank will pay the card network (Visa,
Mastercard, RuPay) a fee which includes the cost of these
The industry practice of distributing cards — irrespective of
privileges.
whether the customer uses it or not — will drop, according
to Parag Rao, HDFC Bank group head (payments, consumer Axis Bank president & head (cards) Sanjeev Moghe said,
finance, digital banking & IT. “I believe it is time fees come “The cost of not activating a card within 30 days goes up
back,” said Rao. significantly. So, our efforts to activate the card in the first
month are intensifying. We are focusing more on channels
Fees are not necessarily a deterrent for customers as even
where the activation rates are higher. Second, we are
in cards where there is already a fee, it is either waived
putting more effort into early engagement with customers.
subject to usage or offset by benefits. According to Rao,
There will be some offers and incentives. We can also send
despite the drop in numbers, there has been an increase in
communication and obtain explicit consent if the customer
card usage and spending.
wants to retain the card.”
“We have been issuing fee-based cards and, as a
According to Visa’s Ghosh, the trend of selling cards to
consequence, we have more engaged and active customers
existing cardholders is not going away thanks to businesses
compared to issuers who predominantly issue lifetime free
issuing them. “About 10 years ago, one in every 10 cards
cards. Our 30 days spend active percentage has been at 50%-
was co-branded. Now, almost one in every four is co-
plus consistently,” said SBI Card MD & CEO Rama Mohan
Rao Amara. “Long-term, non-spending customers usually do branded, and these have distinct propositions with distinct
not pay fees. In case fee is levied, these customers either rewards,” said Ghosh. “Even mass-market customers now
choose to start using the card after payment of fees or close have multiple cards. From the customer’s standpoint, it
it. According to RBI guidelines, the closing of 12-month- makes sense to have cards for distinctive needs like
inactive customers will lead to volatility in card numbers consumer durables, travel, frequent purchases, fuel, and
across the industry in the short term and should stabilise in marketplace cards to take advantage of the value
next couple of months,” he added. proposition.” (Source: ToI)

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