The Hindu Business Line : Card games companies play

A 20 per cent discount at the newest food haunt in town, an opportunity to win diamonds with every purchase or a holiday package dirt-cheap — each time you receive your credit card statement, out will pop a host of rewards along with it, luring you to binge on your card. Almost all the credit card companies are looking at the same old F&B tie-ups, offering discounts at retail stores or tying up with hotels for holiday packages to ensure customer loyalty.

Is the credit card market heading for clutter? Are credit card companies struggling to differentiate their respective brands? Although industry experts claim that the market is growing at a rate of 25-30 per cent every year, with a customer base of seven million people, they feel that the usage and understanding of the card users are not high, and that only 20 per cent of the card base actually generates revenue for the card issuers.

Says T. R. Ramachandran, Director (Marketing - Cards), Citibank India, "Cash and cheque payments continue to be the biggest competitors for us. The percentage of card spends to overall PCE (personal consumption expenditure) for the industry as a whole, is less than one per cent. As of date, there are only around 1.1 lakh card-accepting merchants in the country."

"One of the concerns of many card issuers in India is to ensure that once the customer is sold the credit card, it becomes the preferred payment mechanism in his wallet vis-à-vis other cards that he may own. While the market is getting cluttered with offers, incentives and tie-ups, Standard Chartered Bank takes great care in ensuring the relevance of such offers to the customers. The relevance of such offers is ascertained through extensive research and feedback from customers," says Neel Chatterjee, Director (Corporate Affairs), Standard Chartered Bank.

Agreeing with Chatterjee, a spokesperson of ICICI Bank also feels that despite the growth rates being impressive, increasing the penetration of plastic money and converting cash transactions into card transactions continues to be a challenge for the credit card industry. "ICICI Bank has taken several incentives . We recently launched a TV campaign, promoting the use of credit cards for routine purchases. The TV campaign also encourages card spends against cash for even low-ticket items."

Rewards and sales

The strategy of offering rewards in the form of a discounted meal or a holiday may sound run-of-the-mill, but credit card companies still feel that it is a good way of increasing sales. Says Uttam Naik, Deputy Country Manager, Visa International, "Encouraging cardholders to use their cards initially through rewards and benefits is a good way of increasing category awareness and drives up card sales volumes."

Says Chatterjee of Stanchart, "Our Reward Plus programme is one of the most successful loyalty programmes in the country. We are running extremely successful promotions with Tanishq, FoodWorld, Globus, Westside, Gili and other leading players. We are constantly in discussion with our partners to ensure that we have relevant promotions in which the customer sees great value. We have extremely innovative redemption options and this again ensures high level of customer involvement with the SCB credit card."

Value proposition

However, with the market reaching a certain level of maturity now and with consumers no longer being sceptical to use plastic, most credit card companies feel that understanding customer needs and the ability to offer value-added benefits is what will now matter.

"The payment card is a versatile product and can be tailored to suit the needs of a specific customer base. As the industry grows, member banks will come out with innovative products to provide special benefits to their customers and to differentiate themselves in the market. These unique products will meet the special needs and provide a value proposition to certain segments of customers and will go a long way in growing the industry," says Naik of Visa.

"Smartfill, the co-branded card launched by Standard Chartered Bank and Bharat Petroleum in association with Visa, is an example of offering a value proposition. It enables cardholders to earn one reward point for every Rs 125 spent on the card. Cardholders also get a fee waiver on purchase of fuel at over 225 designated Bharat Petroleum outlets in 10 cities across the country," he added.

Neeraj Swaroop, Country Head (Retail Banking), HDFC Bank, says the need of the hour is to develop new and innovative areas of usage of cards, which are not only relevant to the customers but also make business sense to the companies.

HDFC recently launched the Health Plus Credit Card, where it has joined hands with National Insurance Company and MasterCard International to offer cashless mediclaim of Rs 50,000 and a critical illness cover of Rs 1.5 lakh on each card, discounts at leading hospitals and on healthcare services and products. "By offering such value-added services we feel that we will not only win the loyalty of our existing customers but also get new customers," says Swaroop.

The company had also launched a co-branded card earlier this year for government employees, with e-seva, an e-governance initiative of the Government of Andhra Pradesh.

On the other hand, Ramachandran of Citibank says that apart from growing the overall payment category for cards, what the companies actually need to do is to try and make usage of cards simple and convenient by offering suitable value-added services. "The companies should encourage usage of cards for daily needs, micro-payments (buses, trains, cinema tickets) and utilities (telephone, electricity and gas). Our thrust areas are therefore on increasing usage avenues through tie-ups with new categories. For instance, paying MTNL telephone bills at IOC pumps through credit cards and so on."

Apart from this, Citibank also has a variety of tailor-made products to suit every need — `a card for every reason'. It has exclusive cards for the top customer tier (Citibank Platinum, Diners Club, Citibank Gold), affinity cards (World Wildlife Fund, CRY, cricket), cards for youth (Citibank-MTV), cards for women, cards for teens (Times I Card) as well as powerful co-brands delivering unique benefits — be it airlines co-brands with Jet Airways and Diners Club-British Airways, fuel (Indian Oil), automobile (Maruti), entertainment (Times Card), hotels (Diners Club-Taj), a card specifically designed for Internet usage (Citibank e-Card) and so on. "Each of these cards comes with customised features, rewards schemes and usage offers and is specifically targeted at relevant customer usage needs," adds Ramachandran.

Also, Citibank will shortly launch a `Family Pack' in which the customer has an option of going in for a different add-on card. "A Gold Card customer, for instance, can give his wife a Women's card, daughter an MTV card and so on. Also on the anvil is a co-brand with a telecom player," says Ramachandran.

Yet another example of a credit card company trying to offer its customers value propositions through co-branding is ICICI Bank. "We identified co-branded cards as one of the core strategies for growth in the credit card markets. The bank has four co-branding relationships — ICICI Bank-HPCL, ICICI Bank-BPL, ICICI Bank-Trinetra and ICICI Bank-Amway. Each of these targets the need of particular groups of people; we would continue to look for partnership and associations to provide other value added services to the consumers," says the ICICI spokesperson.

Co-branding works

With virtually all credit card companies talking about offering additional value to their customers and encouraging them to use plastic instead of cash or cheques to fulfil their basic needs, co-branding with an essential service provider, say a telecom operator, a fuel company or an insurance company, seems to be an ideal way to create product differentiation and at the same time build customer loyalty.

Says Naik of Visa, "Co-branded cards offer tremendous value to customers as they are empowered with special value-added offers, such as rebates and discounts to attract new customers, encourage usage and build stronger ties with customers. Successful co-brands have doubled the spends, resulting from the rewards attraction offered to cardholders which is much more than non co-branded cards."

He also says that co-branded cards also generate higher retention of customers because of the rewards linked to these cards. "The Air Sahara-Visa co-branded card, for example, has been a huge success with Air Sahara customers as it is linked to miles and other special benefits like frequent upgrades to business class."

On the other hand, though Swaroop of HDFC agrees that co-branded cards definitely go a long way in offering additional value and customer retention, he says, "Credit companies have to react to customer needs while deciding on their co-brand strategy."

Responding to the market's inclination towards entering into co-branding strategies and coming up with value propositions for customers, a Chennai-based analyst says, "Looking at value-propositions such as offering cashless mediclaim or offering rewards on a petro-card is definitely a good marketing strategy, but I don't foresee a huge surge in revenue. With the entry of new players, the credit card market has become cluttered and I really don't think the average spends have really gone up through these initiatives."

The analyst says that the number of people going in for roll-over credit continues to be less, as people in India still use a credit card as a charge card and prefer paying back within the stipulated 45-day credit period. "What the credit card companies need to do is identify new segments more frequently and come up with more and more value-propositions which will give the customers enough and more reasons to use their credit cards. The companies could probably look at offering a credit card to college students for their educational expenses."

Fortunes could be made in how well the credit companies are able identify new areas of usage.

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