Future of plastic money in India?

Answer 1

FUTURE SCENARIO OF PLASTIC CARD.

Starting from 'Diners Club', some 50 years ago, the card industry has been growing with a rapid pace world over and so has been the growth in the domestic card industry. With only two players in domestic card industry, HSBC and Citibank in the early 80s, the number swelled to over 25 in the year 2001. Credit cards in India, made their debut in 1981, and are on the verge of an unprecedented boom. Between 1987 and 2001, the market has virtually grown to over 4 million cards with over 25-30% of compounded annual growth in new cardholders base.

Its not that only the card numbers have increased, but even the types of cards on offer have seen a surge. Today the domestic card industry is flooded with different types of cards ranging from gold, silver, global, co-branded credit cards, smart to secure, ….the list is endless. Foreign banks have shouldered the major responsibility of increasing the card base and adding value-added services to the card products in the past. This is also evident from the fact that the market share of these foreign banks is estimated to be well over 70%. But the scenario has changed dramatically in the last of couple of years with the entry of State Bank of India (SBI), a domestic major in the banking sector. More and more nationalised banks and private sector banks like ICICI and HDFC Bank are aggressively launching credit card with value added features.

There is immense growth potential in the domestic card industry. A glance at the Indian population reveals that India's middle/upper middle class (target segment) represents a population of over 10 m. There are only 2 to 3 m cardholders, each possessing an average of 2 cards. This is a very low figure given India's huge middle to upper class population. There is no doubt that the domestic card industry has to yet to mature and offers significant long-term growth potential.

Given the lack of maturity of the domestic card industry, its growth will depend upon building core retail business, with more sophisticated products. In the expansion of domestic credit card market, the existing foreign players, SBI, other nationalised banks and the new domestic private sector banks are expected to play important role with complementary strategies.

Foreign banks with the advantage of technology and industry experience are expected to concentrate on increasing card spending and customer loyalty in the major cities. SBI, on the other hand is expected to capitalize its superior distribution network to expand card acceptance in the smaller towns. The new private sector banks would have the opportunity to capture significant market share by combining the strengths of foreign banks and nationalised bank like SBI.

Although at present the card market is mainly limited to India's relatively bigger cities and tourist locations only, there is also a potential in smaller cities. Domestic banks, owing to their vast network and reach to smaller cities, can easily tap this potential. They would be better off, penetrating into smaller cities and bringing credit card to the masses rather than cannibalising other foreign banks' existing cardholder base.

The efforts of these banks to increase the card base is going to be wholeheartedly supported by the residents of these smaller cities with their higher disposable income, changing lifestyle, increasing travel and the growth in the entertainment sector.