Credit card issuers push EMI loans to counter revolver model misfire

MUMBAI: Credit-card issuers are increasingly leaning on EMI-based loans, merchant offers and fee-led products to monetise card spending as the profitability of the traditional revolver model comes under pressure.

With a smaller share of customers carrying balances month to month, interest-bearing receivables are growing more slowly than transaction volumes, pushing issuers to convert purchases into EMIs, deepen personal loan-on-card offerings and extract more fee income from a business that is increasingly being used as a payment product rather than a borrowing product.

"Over a period of time, even if core revolves moderate or balance out, we will see EMI on credit cards continue to build the ENR (ending net receivables), or the book, for the credit card business," said Arnika Dixit, head of credit cards at Axis Bank. She said consumer awareness around timely repayments has improved significantly, helped by multiple platforms that remind customers to pay their dues on time, which has also reduced instances of accidental revolving.


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Converting point-of-sale transactions into EMIs has emerged as an important way of building revenue-accretive balances on the card for issuers, Dixit said.

Estimates by Bernstein suggest interest-bearing card balances-revolvers, or outstanding rolling debt, and equated monthly instalment (EMI) loans-have fallen to about 11% of annual card spending from roughly 21% several years ago, even as card spending grew at a compound annual rate of nearly 27% between 2021-22 and 2025-26.

"The revolver-led credit card model is undergoing a structural disruption," Pranav Gundlapalle, senior research analyst at Bernstein, said in a recent report. "The fall in interest-earning assets (revolvers and EMI loans) as a percentage of spends" is compressing margins, the report said, adding that cheaper and more seamless alternatives have reduced demand for revolving balances. Bernstein estimated that the ratio of revolver balances to card spending had fallen to about 2.8% in the June quarter from roughly 7% in 2019, signifying a sharp decline in profit generated for every rupee spent on cards.

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For SBI Cards, revolvers accounted for about 40% receivables in March 2020, compared with 22% currently.

Including EMI loans, interest-earning receivables have declined to 55% from 60% a year earlier, even as card usage continues to expand.