MUMBAI: Credit card-issuing banks are going all out to get customers to use their cards within a month of receiving them. On the anvil are offers for early use, linking fee waiver to usage and more intensive communication with customers.
In August, outstanding credit cards shrunk by 22.6 lakh as new RBI norms came into effect. To ensure that banks did not push credit cards to those who did not need them, the RBI has ordered cancellation of cards that are not activated soon after use. All banks say that the focus will now shift to sourcing from channels where the activation is high. For the cards already issued, banks are making intensive efforts to engage with cardholders and get them to use the cards within the first month.
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The industry practice of distributing cards — irrespective of whether the customer uses it or not — will drop, according to Parag Rao, HDFC Bank group head (payments, consumer finance, digital banking & IT. “I believe it is time fees come back,” said Rao.
Fees are not necessarily a deterrent for customers as even in cards where there is already a fee, it is either waived subject to usage or offset by benefits. According to Rao, despite the drop in numbers, there has been an increase in card usage and spending.
“We have been issuing fee-based cards and, as a consequence, we have more engaged and active customers compared to issuers who predominantly issue lifetime free cards. Our 30 days spend active percentage has been at 50%-plus consistently,” said SBI Card MD & CEO Rama Mohan Rao Amara. “Long-term, non-spending customers usually do not pay fees. In case fee is levied, these customers either choose to start using the card after payment of fees or close it. According to RBI guidelines, the closing of 12-month-inactive customers will lead to volatility in card numbers across the industry in the short term and should stabilise in next couple of months,” he added.
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Visa India head Sandeep Ghosh said, “It is activation and usage that drives profits. Weeding out unused cards is not a bad thing. However, there is the issue of sunk cost, which is why there is a lot of effort to get customers who are sitting on cards to get them activated.” According to Ghosh, Visa has already provided many insights to banks on the best way to increase activation and regular usage. For banks, the sunk cost can be high. First, there is the cost of the card itself, which has gone up because of chip shortages and the need to incorporate an NFC feature in every card. Plus, there is the cost of secure delivery and handling. These itself cost the bank a couple of hundred rupees. It goes up further when there are added privileges like lounge access for which the bank will pay the card network (Visa, Mastercard, RuPay) a fee which includes the cost of these privileges.
Axis Bank president & head (cards) Sanjeev Moghe said, “The cost of not activating a card within 30 days goes up significantly. So, our efforts to activate the card in the first month are intensifying. We are focusing more on channels where the activation rates are higher. Second, we are putting more effort into early engagement with customers. There will be some offers and incentives. We can also send communication and obtain explicit consent if the customer wants to retain the card.”
According to Visa’s Ghosh, the trend of selling cards to existing cardholders is not going away thanks to businesses issuing them. “About 10 years ago, one in every 10 cards was co-branded. Now, almost one in every four is co-branded, and these have distinct propositions with distinct rewards,” said Ghosh. “Even mass-market customers now have multiple cards. From the customer’s standpoint, it makes sense to have cards for distinctive needs like consumer durables, travel, frequent purchases, fuel, and marketplace cards to take advantage of the value proposition.”
