India is going through a period of economic growth. This has seen an increase in the mass affluent segment in the country. Patrick Brusnahan looks at this growing demographic and how banks are targeting this segment in the credit card sector
India is expected to have a bright economic future. The Organisation for Economic Cooperation and Development (OECD) has forecast India to be the only major economy to see a pickup in growth momentum. Additionally, while growth was below 5% for the previous two years, the Reserve Bank of India predicts growth of 5.5% in 2014-15 and 6.3% in 2015-16.
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The rise in wealth has resulted in growth within the mass affluent sector. Timetric’s sister consultancy WealthInsight found 2.61m affluent individuals in India in 2013 with this number predicted to rise to nearly 3m by 2017. India is also a significant contributor to the Asia-Pacific region’s growth in the mass affluent sector with just under 6% CAGR between 2008 and 2012 with a further 3.4% growth expected by 2017.
Despite the emerging wealth in the country, card penetration remains low. There are 19.47m credit card users in a country populated by 1.2bn according to the Reserve Bank of India. Of these users, 25-30% of them are in the mass affluent category according to the State Bank of India (SBI). Vijay Jasuja, chief executive of SBI Card, tells CI: "Banks are seeing that there is a lot of potential in penetrating this market. Banks are very optimistic about the future of the credit card market."
David Parker, head of Polymath Consulting adds: "In Asia, there has been a push, for a long time, for credit cards by banks. What they are seeing in these markets is a growing middle class with aspirational needs and wants. Credit cards are an ideal product for a middle class with aspirations greater than their income. This group has a higher FX/International spend where they make far more money. As the markets mature, there are a greater number of credit bureaus and data that allow people to be assessed and credit offered."
Many have already taken steps to use this opportunity to their advantage. Yes Bank is currently considering the launch of a credit card specifically aimed at the mass affluent segment. This is a process anticipated to last at least eight months, but comes with a significant advantage as the bank plans to waive all ATM costs directed at the customer. Large lenders such as HDFC Bank and Citibank have also been pushing hard in this category leading to growth in each of their credit card portfolios.
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By GlobalDataThere was a lot of hesitation towards credit cards, and lending in general, after the 2008 financial crisis, but Jasuja believes that is no longer b the case. He says: "In terms of credit, the market has matured and we have better tools to manage our risk. As a result, if you see the current trends, the risk with credit cards is much less than it was post-2008."
SBI Card is in a better position than most to cash in on this opportunity. Jusauja says: "SBI is the largest bank in this country and the reach of this bank is much larger than any other bank. We represent every corner of the country and our customer base is very large. We see huge opportunities in leveraging the relationship we have with our client base and it gives us some competitive advantage."
Travelling along the credit card path is a risky one with many pitfalls to avoid. Parker says "Credit scoring and learning how to do this is the number one difficulty. It is easy for banks and customers to get into bad debts. Then there are technical and compliance issues which need to be considered."
SBI Card has realised this and is not focusing all of its efforts on the credit card market. Jasuja concludes: "Our focus is on connecting with our customers through alternate methods. Online banking, mobile banking, ATMs. We are looking at alternate forms of banking."
