Giving more credit where credit's due

Credit card companies are offering existing users more credit instead of chasing new customers, limiting themselves to a pool of clients with established credit histories and revealed spending patterns. Since card issuers do not have much leeway over fees, it makes sense to lower the risk profile of their exposure. The target new card user has access to UPI, which has become ubiquitous. And it is free. Indians are conservative card users, and the overwhelming majority do not roll over credit card payments. Card issuers rely on services, and it is easier to design additional features for existing customers. Offers of multiple cards come bundled with extra membership rewards to encourage card usage.

Credit card companies make money by charging interest on deferred payments and through merchant and cardholder fees. Interest rates on credit card debt in India are among the highest globally, which constrains interest income. Most credit card-issuing banks instead offer EMI payments on card purchases at relatively lower interest rates. UPI owes its popularity among merchants to not charging them transaction fees. This has squeezed the main pillar of the credit card business, although merchant fees were heavily discounted because of competition. Cardholder services and fees are, in effect, the principal differentiator. This is where card companies are focusing their energies.

Credit cards are sold as lifestyle products instead of payment-cum-credit platforms. Airport lounge access and concert tickets are thrown into membership benefits. Card companies have clients whose habits they are familiar with. It is easy to market a new card to a person whose spending patterns are out in the open. Such a person could be inclined to swipe her new card if it means free salon visits. Generic reward points are making way for hyper-personalised benefits. Card companies are turning to data-driven analytics to personalise security, finance and services. This requires them to work intensely with existing customers.