Credit Cards Industry

The seven-million Indian credit card industry has been growing at over 25 per cent annually and has now more than 30 banks chasing customers with their cards. The 'Cardable' population in India for credit cards is as high as 35m, suggesting that issuers have realised only 25% of the potential market. Though average card spends at present are much lower than that of other countries in the region, this will change as cardholders imbibe the plastic habit. During the year ended March 31, '02, Citibank is the market leader with a share of close to 26% followed by Standard Chartered Bank which has a share of 23% of the total credit card users.

The total payments using credit cards during '01-02 was Rs. 13,500 crore, reflecting a growth of 35% over the previous year. Citibank accounted for 32% of card spends followed by Stan Chart which had a 25% share of the market. The combined market share, in terms of card spend, of MNC banks is about 75% and they have a market share of around 65% in terms of cards issued. HDFC Bank is one of the latest entrants into the industry. It entered the credit card industry in 2001 in association with VISA. Within a short span of 2 years it has garnered a market share of around 7% and has one of the most profitable credit card companies1.

HBL fetches 65% of the total subscription of the credit card business of HDFC. It has its own structure which operates through the branches of HDFC bank and works in close coordination of the Credit card division of HDFC. As can be seen in the structure (Fig. 1. 2) a sales manager is the head of the sales and distribution for the whole state (Gujarat in this case). He has several (some number 8/10) city managers working under him. Each of the city manager is responsible for two cities in Gujarat. Each city manager is assisted by several team managers who are managing teams of 8 sales executives each.

Each city is divided in several zones and allotment is based on capability and past performance of the sales executives and the potential of the zone. For example, in case of Ahmedabad the city is divided in 4 zones, 2 each in the old and the new city. The education level of sales executives is at least up to graduation. In this channel there are two primary modes of selling credit cards. One is a direct sales call in the field by the executives which fetches around 65% of the revenue coming through the HBL.

Remaining 35% comes through telesales - i. e. - HBL employees certain telemarketing executives who sit at its branches and give calls to prospective cardholders. The prospective cardholder is a person who works at least at a junior executive level or holds certain specified degrees like (CAs, engineers, ) or work for specified organizations. (this lists are made available to HBL by HDFC. ) Figure 1. 22 2. HDFC Branch Channel The Bank at present has a network of over 277 branches spread over 148 cities across the country. These branches serve around 4. 5 lakh customers and all this are present or potential cardholders.

The latest endeavour is to issue a credit card to each and every customer/ deposit holder/ borrower of the bank. There are executives appointed at each branch who have the responsibility of convincing the customers who come for other transactions to subscribe to the credit card. Most of these customers have waivers of membership and annual fee on their credit cards. This channel is currently contributing 15-20% of the total revenues. 3. Internet Marketing There are three primary ways of marketing through internet. The foremost way is to send e-mails to the prospective customers along the application form which can be submitted on-line.

Other important mode is to install cookies/ advertisements along with other frequently used sites which announce various schemes and provide link to the on-line form. The third and the least used mode is the online for available on the website of the bank viz... www. hdfcbank. com in the credit cards section. In all the cases a representative from the bank approaches the customer once he submits the application. This is a minor channel but has shown great promise for growth. 4. Direct Selling Agents (DSAs) 3 Most of the major players in this industry use the DSA channel for their sales.

However HDFC does not use DSA to a very large extent. This is because of the cost savings that accrue to HDFC by using its own channels. A DSA is a independent private company which signs a contract with the parent bank to distribute its products. A HDFC DSA typically employs 25-30 salesmen. The bank sets a monthly target for each DSA which it is supposed to fulfill. For example, one of the DSAs in Ahmedabad had a target of 1000 cards per month on an average. For a sales force of 25 sales people this works out to about 20 cards per salesperson. The salesman gets a fixed salary of Rs.

3500 + travel allowance of Rs. 750. In case the salesman exceeds his target then he gets an incentive of Rs. 25 per card. However there are no disincentives for not meeting the targets. If a DSA consistently does not meet its targets, the bank dissolves the contract. Having a DSA is beneficial to the bank in the following ways: a. It enhances the bank's reach, since a Bank can have DSAs in places where it has no branch of its own. b. It enables the bank to set and monitor targets for sales, which might not be possible at the branch level, due to administrative reasons. c.

It offers the bank the flexibility to enter or withdraw from a region whenever it wants to, since distribution through this channel involves no fixed costs. 5. Co branded Cards / Tie-ups with other banks and corporates Major tie-ups for HDFC are with the Government of Andhra Pradesh (e-seva card) and National Insurance Company Limited (NIC) (Health Card). These tie-ups promote HDFC's products and services as well as open up a large database of customers.. One example of such a tie up is with National Insurance Company (NIC) which provides a large database of Mediclaim policy subscribers to HDFC.

The offices and agents of NIC promote HDFC cards. HDFC is now considering the option of promoting it card through some nationalized banks which do not have their own cards. Customer Profiling / Segmentation HDFC bank divides its customers in following categories: 1. In House customers: These include people who have a past relationship with the bank such as holding bank accounts, borrowers, policy holders, and employees of the company. 2. Open Market Customers: These are individual customers who don't have any kind of relationship with the bank.

These customers are charged 25% over and above the In House customers. 3. Institutions and Corporate: These are further categorized into 3 categories A,B,C according to their market share, past performance, credit history and risk profiles. A is the most creditworthy customer and C is the least. They are charged varying rates according to their ratings with the rates for category C being as high as 50% over and above the In House customers. 4. Government: These are rated at par with category C and are charged similar rates. Information flow

Though the Branches and thereby HBL to some extent are networked to the credit card division, the DSAs and tie-up partners are not yet connected via electronic networks. As a result forms/ applications arising through them are sent across physically with the use of courier services. As far as the policies are concerned, HDFC Bank regularly mails promotional brochures, scheme documents and publicity material to its customers. Queries are handled via email in addition to telephone and branches. The yearly targets and major policies are communicated to DSAs, tie-up partners by sales managers.