Cards-in-force, or the number of outstanding credit cards in the industry, is likely to fall 8-9 per cent as issuers look to shut down inactive cards following the RBI’s regulatory guidelines.

“The implementation of that is happening over a period of the next 60-90 days, so maybe in the next report you’ll probably see all the issuers reporting a drop. My sense is that at an industry level, it’ll be about 8-9 per cent of the overall number dropping,” said Parag Rao, Country Head, Payments, Consumer Finance, Technology and Digital Banking at HDFC Bank.

He added that the one-time exercise for HDFC Bank has been completed, but for deactivation of new cards it will be an ongoing process.

HDFC Bank saw a decline of 8 per cent in outstanding cards to 1.6 crore cards in August, whereas Axis Bank saw a decline of 10 per cent to 89 lakh cards.

Some mid-sized banks are bracing for a higher decline in the number of cards outstanding, with industry sources saying that by July 2023 — when the process would have completed a year — the dip in cards-in-force due to cancellation of inactive users could be as high as 35-40 per cent.

Inactive cards

The Reserve Bank of India has asked issuers to deactivate credit cards — unused for over one year — with effect from July 1. Further, issuers are required to close cards that have not been activated for 30 days since issuance from October 1.

“Internally, we expect 15-20 per cent of our card base to decline, though a higher number is likely if some customers decide not to have more than 2-3 operative cards,” said the retail head of a mid-sized private bank.

Owing to this, card issuers could see “quite a bit of pressure” on their cards business for the remainder of the current financial year, bankers said, adding that a majority of the impact is likely to be seen in August-September.

Following that, it will be an ongoing process for shutting down of incremental cards, which could lead to some upheaval in cards’ numbers over the next few months, they added.

Impact on issuers

Banks believe accelerated closing down of cards-in-force — a keenly watched metric by the payments industry — could lead to increased focus on customer retention through more value addition and card offers.

“If it means that we need to bump up our value proposition while retaining the current fee structure, you will see us do that,” said the retail head with a large private bank.

It could also lead to a sense of urgency in new customer acquisition, as issuers look to offset and mitigate the “risk of cards which are getting cancelled”, said a banker.

However, others believe that this is a good move and could lead to the much-needed sanity in sourcing of cards across the industry, where cards are issued regardless of their activation to bump up issuers’ numbers.

Issuers will now be a lot more conscious and careful as to who they onboard, because they have no incentive to issue a card if it is not going to be used, said an industry source.

“It’s about the clear intent to use the card. Personally, I believe it’s also a time where fees need to come back because anything you get for free, you don’t use. It’s actually time to get back fees because customers really see true value only when they pay for something,” said HDFC Bank’s Rao.

comment COMMENT NOW