TABLE OF CONTENT

Sr. No. Description Pg. No.

1 Objectives of the Report 7
2 Executive Summary 8
3 Credit card Overview 10
4 Characteristic of credit card
5 Types of credit card
6 Credit card history
7 Development in the credit card industry
 8 Credit card looking for an Ace
9 Indian scenario
10 Customer Analysis
11 Potential Strategy Harmonisation
12 Competitors Analysis
13 Competitive Landscape in India
14 Recent events in the industry
15 Advantages of credit card transaction
16 The selection process-Credit card company
17 Marketing of credit card
18 Types of credit card usage
19 Advertising and promotion
20 Credit card fraud on rise in India
21 Ways of reducing credit card abuse
22 Smart cards-A window to future
23 Action taken by credit card giants
24 Quantitative market research
25 Smart card in India
26 Smart card application for prospective companies
27 Summary of proposed future strategy

Sr. No. Description Pg. No.

1 Individual player positioned
2 EDC terminal cost
 4 Survey conducted by Business Today
5 Reason for purchase of credit card
6 Information source about credit card
7 Customer segment
8 Credit card Indices
9 Competitors charges
10 Market size of various players
11 Card purchase process Designed
12 Comparative survey of different cards technology
13 Uses of smart card in today’s world
14 Industry Update

• To Study the Credit Card Industry in terms of its characteristics,

factors affecting the market and trends visible in the market and
future prospects
 • Portrayal of an unbiased view of the industry for Potential

Issuers

• Recommendations to enter the market

• Strategies to enable a new entrant, to capitalize the opportunity

prevailing in the market, establish itself and gain a market share

Banking has evolved a long way from the days of the medieval
moneylenders counting coins on the bench to the present scenario, where it is hard
to trace the trail of money from the beginning to the end. The trail starts right from
the small saver leaving a few rupees in his local bank to the billions of rupee loans
raised by syndicate banks and financial institutions, capable of financing projects in
any country in the world. Still, these banking majors are heavily dependent upon
their retail home base of savers and borrowers and therefore, most of the bankers
began focusing on this retail market segment as global competition intensified in
late seventies and early eighties. This led to the evolution of plastic cards as an
alternative to hire-purchase or loan on consumer goods

Today, plastic cards come in more flavours than Baskin Robbins ice cream.
Credit cards, charge cards, debit cards, co – branded cards, ATM cards, in – store
cards are some types of plastic cards. Of all these types, credit cards have emerged
as the best form of consumer lending with regard to growth rate and profitability.
Credit cards today have become a way of life for most of us. It is no longer the
privilege of the few. It has wide acceptance beyond the five star hotels and airline
offices. Today, one can buy groceries or petrol or train tickets through credit cards.
At times of medical emergencies, hospital bills can be paid out of credit cards. As a
tool of convenience, cards are an essential part of our wallet.

Credit cards are further categorised into various forms based on their
features. No annual fee, low rates, with grace period, frequent flier miles, free air
time for your cell phone, free fuel for your car and cash back are some of the
features which help to isolate a particular type of credit card from its peers.

In India, credit cards are offered by banks who are members of a payment
system like Visa or MasterCard. Members issue their own cards and handle all
accounts, processing and billing of cardholders themselves. They also have
contracts with hotels, restaurants, and other merchants to accept these cards,
irrespective of the card-issuing member. This ensures a wide acceptance of credit
cards across the country, notwithstanding the bank that has issued your card.
Accordingly, services offered by credit cards vary from one bank to another,
catering to a variety income groups and consumer preferences.
Most of the banks in India national or foreign; are franchises members of
either of the two international card organization; Visa or MasterCard. Worldwide
Visa has taken a leadership role in pioneering emerging payment card technology
that supports debit cards and chip cards and its many applications including stored
value cards. The Visa family is rapidly evolving into the ‘relationship’ card. The
relationship card is an umbrella strategy for a number of card related services
which eventually offer consumers access to funds through domestic and
international credit and debit function payments. ATM access is a stored value
function for small cash transactions and secures access to electronic commerce on
the information highway.

Without the mention of Internet, an introduction to the credit card business

cannot be complete. Credit cards are the imperative aspect of E–Commerce, as the
banks are not yet geared to handle the transaction directly on a public network like
the Internet. Every 2 seconds a new consumer enters the web market place... and
while fortunes have been made in web access and web hosting, these industries
have really just “laid the foundation" for the next major growth phase: the rise of
E–Commerce.

The report throws light on various aspects of the credit card industry. From
the types of cards to the actual process involved in a credit card transaction, it
traces the history of credit cards from the start to what it is today, who are the
leaders and how they operate. From the global scenario we move closer home to
what the Indian scenario is all about, the players today and the share of the market
that they dictate today... The advantages that all the three parties involved, the
issuer, the acquirer and the customer, enjoy has also been taken into consideration.
The customer decision-making process has been mapped out in addition to the
Issuers mode selection of the customer.

The report also offers a marketing insight including the advertising and
promotion strategies for the industry. The credit cards, however in India today, are
not as popular as they were presumed to be given to their international
counterparts. Hence, to do away with this problem, ways to reduce its abuse and
fraud related incidents have also been mentioned.

The next logical step in today's world of high technology in the credit card
industry is Smart Cards. A very exhaustive description of its functionality and all
other aspects
related to it has been
given

importance.
 Everyday we hear environmentalists yelling at top of their lungs "Say No to
Plastic". It certainly doesn't seem to affect one industry; the plastic card industry.
An appetite for cards does exist as people are increasingly experiencing the cash-
free culture. With the advent of the MNC’s and liberalization of economy, the
urban consumer is flooded with variety of choices. The plastic card industry is no
exception. The various types of plastic cards are:

A) CREDIT CARD
Credit cards are plastic cards with scan-able magnetic strips
issued by a bank or a business, which allow the cardholder to
purchase goods or services on credit. Common credit cards include
Visa, MasterCard, American Express, Discover, and Diner’s Club.
They are the most versatile form of retail lending. Credit cards
have now been loaded with a host of attractive benefits to promote
the plastic card culture in India.

B) CHARGE CARD
Charge cards are similar to credit cards, except that on the due date for
payment, the entire outstanding amount has to be repaid. The amount cannot be
settled in parts. Diner’s Club and American Express are significant examples of
this type of card. These cards are for convenience and not for credit. Charge card
was the first product to be offered by card companies across the world.

C) DEBIT CARDS
Debit cards give you the freedom to access
your Savings or Current Account at merchant
locations and ATMs. Whenever you make
payments, the amount will be instantly debited to
your bank account. All your purchases and cash
withdrawals will be in the currency of the
country you are in, while your account will be debited in rupees. So you needn't
carry traveller's cheques or foreign exchange the next time you travel. Debit cards
are basically plastic cheques. One can use them to buy things in the same way as a
credit card but they work like a cheque. A record of what one has bought with his
debit card appears on his normal bank statement each month. One may keep a copy
for his records to compare against the statement either by writing on the cheque
stub or keeping the copy of the transaction slips on which he has signed.

D) AFFINITY CARDS
Affinity cards are cards that have an emotional factor that attract and retain
customers. These cards may or may not have special offer or package to
differentiate the offer. Examples of this kind of a card would be freedom card
issued during the 50th year of independence or a special world cup card. Affinity
cards address the needs of a highly niche market place and can be fairly successful,
if the target audience is well researched. MasterCard along with member banks are
most aggressive in affinity cards and are presently putting together an affinity card
for India. E. g. Shoppers Stop in India - First Citizens Club Card.

E) CO – BRANDED CARDS
When two brand names jointly put together a value – based package for the
customer it results in a co – branded card. In India, Citibank has approximately 40
co – branded cards including Times Card, Citibank Maruti Card and Army, Air
Force and Navy Card. Citibank and Shoppers' Stop recently launched a co –
branded credit card with MasterCard International.

F) ATM CARD
ATM or Automated Teller Machine, also known as Any Time Money has
been the significant factor for exponential growth of the debit card business. An
issuer can own a network or can hire one depending on the networking capability
of the issuer and the ability to invest in ATM technology. In India the number of
ATMs has raised from 80 in 1994 to 1000 in 1998 to 5000 in 2002. This is set to
touch a figure of 12000 by the year 2006. However these are still concentrated in
the top 7 cities in India. ATM cards are used at ATMs to withdraw cash, make
deposits, or transfer funds between accounts. To use an ATM card one has to insert
the card into an ATM and enter a personal identification number, or PIN, for
security. The system checks the person's account for adequate funds before
permitting any transaction. The transaction fees may vary depending on which
ATM one uses. Some institutions may give a limit of free electronic transactions
and charge a per transaction fee above the limit.

G) IN – STORE CARDS
These are very popular in the US where retail
chains offer credit cards to shop in their stores across the
country. Some of the popular in store cards, which have also become a credit card,
are Harrods card, Macy’s card, and Safeway and Wal-Mart card.
WHAT IS A CREDIT CARD?
A credit card is referred to as 'plastic money'. Credit cards are plastic cards
with scan-able magnetic strips issued by a bank or a business which allow the
cardholder to purchase goods or services on credit.
Carrying a lot of cash on you can be cumbersome, risky and sometimes, you run
short of it, just when you most need it. A Credit card is the smart solution to these
problems. It is a convenient and safe alternative for cash.

Besides, it says things about you. Most people associate a credit card with a
prestige, which it most certainly bestows on you, but more importantly, it says that
you have taken the onus of being responsible - to be extended credit! So, when you
get yourself a card, remember that, your bank does trust you.

Credit card terms differ on annual fees, percentage rates, payback terms and
creditworthiness restrictions. There are some cards that are impossible to receive
without having excellent, established credit. There are others that are specifically
marketed to those just establishing a credit history—and almost every scenario in-
between. It is important to know that applying for a credit card shows up on your
credit report—thus, multiple applications can be detrimental to your credit rating.

When choosing a credit card, it is important to know all the details of how
your credit card will work. Important things to consider are whether or not there are
annual fees you will be expected to pay, what the APR is – or annual percentage
rate – which is the interest you will pay on any balance you accrue, and what your
repayment options will be. Other considerations such as air miles or other perks
should also be taken into consideration.

Credit cards can be very convenient, but it is very easy to get into financial
difficulty by misusing them. It is always important to know your limits when using
credit cards and to carefully weigh all factors when choosing your cards.

CHARACTERISTICS OF CREDIT CARDS

Each credit card has the following characteristics:
A) CREDIT LIMIT
All banks have different limits set for customers depending upon the type of
card in their possession. Even within a particular type of card, limits may vary
depending upon the credit worthiness of the individual. This depends on the gross
income of the individual and the period for which he/she is using the card.
However, some banks have cards which have no set credit limit. American
Express, for e.g., has a charge card which has no upper limit and allows one to
spend as much as one likes (provided the holder repays the amount at one go).

B) INTEREST CHARGES
This is the biggest source of revenue for the issuing banks. The interest rates
generally range from 1.99% – 3% per month. This is equivalent to around
24% – 35% per year. The interest charges are also applicable on accrued interest.
Therefore, a customer can end paying up heavily for the credit taken.

C) ANNUAL CHARGE
This is a fixed amount, which has to be paid every year irrespective of the
extent of usage. Over the past few years, with increase in competition a general
decline in these charges can be observed

D) GRACE PERIOD
This is the extra period, which is offered to the consumer for repaying the
credit. In the Indian scenario, the first warning is given at the end of three months,
and a black mark is put against the customer in case of non-payment for more than
seven months. Further grace period is decided on a case-to-case basis.

E) LOST CARD LIABILITY.

If one is travelling and has lost his/her credit card, then reporting the loss
will not be much of a problem. HSBC, Citibank, Standard Chartered and American
Express can be reached from any corner of the world for reporting the loss.
However, except for American Express, all others will mail a replacement card to
the holder’s mailing address. American Express will replace the card within 48
hours free of cost. Liability for a lost card is nil for Citibank, HSBC, American
Express and Standard Chartered (photo card). However, the non-photo card from
Standard Chartered carries a liability of Rs. 1,000.
F) VALUE ADDED BENEFITS
These include airline ticket booking and insurance benefits on lost luggage
and accidental deaths. HSBC, for e.g., offers discounts of 3.5% on domestic
airfares and 6.5% on international ones if tickets are charged to their cards. The
latest in line of value added features are the rewards programs. Here a cardholder
earns a certain number of points by spending a particular sum of money from their
credit cards. Standard Chartered, for e.g., uses a conversion of Rs. 125 (spent in
India) or Rs. 80 (spent abroad) for one point. HSBC, on the other hand, only allows
points collected to be squared against a discount on the annual fees. A minimum of
350 points is needed to get a discount on the annual fee. Citibank awards one point
on spending Rs. 100.
 Credit cards were first issued by department stores and other retai1operators.
They were essentially an extension of the revolving credit accounts provided to
many customers. As the popularity of revolving credit grew, the amount of data
entry increased and a solution was needed to reduce the time it took to record sales
transactions and improve accuracy. A metal plate much like a dog tag was
embossed with the name, address and account number of the customer. A company
by the name ‘Addressograph’ provided these plates and ink roll equipped
imprinters that would imprint the customer information on the "charge plate" to the
sales documents. This solved the immediate problem of recording data. This took
place in the nineteen fifties and early sixties.

Later as the popularity of charging grew, a way to machine read this

information from sales documents was needed. OCR technology was developed
and the OCR 7B font was adopted for the account number. A standard form was
designed to record the imprinted data in a consistent location. Machines that could
rapidly scan the information on these forms were developed and the credit card was
on its way. Plastic cards were later used and embossers that could personalize large
numbers of cards were introduced. There were two sizes of cards and a variety of
form configurations but they all worked basically the same way. The charges were
posted directly to the cardholder's account at the store. Bills were sent out monthly.

With the improvement of the automated processes and the acceptance of

credit purchasing by consumers and retailers the credit card concept spread to the
retai1 petroleum market and credit cards became a familiar and popular payment
alternative to cash and cheque. The retailers were not only making large profits
from increased sales that credit provided; they were earning significant revenue on
the interest their credit counts generated. The credit card system was entering
adulthood.

The next big development was the entry of banks into the business. Banks
began issuing cards and soon the banks formed associations to act as clearing
houses for transactions and to promote their own card brands. BankAmerica, Bank
Mark, Master Charge were a few of these. They are now consolidated into just two
associations of card issuers Visa and MasterCard.

The next step in the evolution of the credit card business was the addition of
the magnetic stripe to cards and the expansion of the verification systems into
transaction Point of Sale data collection. Encoding the account number on the
magnetic stripe allowed the merchants to rapidly and accurately enter the account
number into the verification terminals. The next logical step was to enter the
amount through a keypad and send the entire transaction electronically to the
processor. This eliminated the cumbersome paper handling and rapidly improved
the systems' ability to handle increased transactions and greatly reduce costs. This
in turn helped even more to promote credit card acceptance by merchants and weed
out inefficient processors.

The next big development was the ATM machine. Systems were designed to
provide automated teller services at remote locations. ATM machines were
engineered and produced by Die Bold, NCR and several other large manufacturers.
They quickly gained popularity and several regional networks of ATM transaction
processors appeared. The next logical move was to allow merchants to accept these
ATM cards for purchases. Secure PIN pads were developed to accept the
cardholders' PIN numbers and the debit card business was underway. This was
called on – 1ine debit. Soon off – line debit or cheque cards were brought to the
market and became very popular with consumers. ATM system makers have grown
and today ATMs are located everywhere there is a need for them.
The credit card industry has now entered the phase of maturity and the
industry has begun to consolidate. There are fewer but much bigger processors,
issuers and merchant acquirers. The coming of age of Internet commerce has
opened new opportunities for on – line merchants to accept credit cards and new
challenges for banks and processors to provide secure and compliant transaction
services. Transaction terminals have become more sophisticated with graphic
displays, integrated thermal printers and increased processing power. New
standards for transaction handling such as PS2000 and the Y2K problem have
created new terminal requirements for many merchants using now obsolete,
equipment. This and the popularity of card based loyalty and frequency programs
present challenges and opportunities for transaction processing equipment and
services.

MASTERCARD INTERNATIONAL
 • Headquarters: Purchase, New York

• Business Locations: The US, Latin American countries, Canada, Europe,

Japan, Korea, China, India, Taiwan & Australia

• 95% of all their card payments is from 20 countries

• They have 14 million establishments worldwide to their credit

• Their Strategy is: Centralized Decision Making

• Their staff is dedicated to serving big issuers globally

• They have 18 member banks in India

• They have a present card base of 1.7 million in India

• Their Brand Recognition Increased with 'Priceless" Ad campaign

• The general perception however is that MasterCard products are superior

to Visa, though Visa is the leader

• Their focus is to make payment business more successful for members and
merchants & life simpler for customer

• Their future plans include establishing 'Multose'-a debit, credit & store
value card all in one

AMERICAN EXPRESS
• Headquarters are in New York

• Business Locations: Spread in 75 offices in 56 cities across 38 countries

• Major operations: The US, China, Germany, India, Taiwan, Greece and
the UK
 • They dominate the Travel & Entertainment (T & E) Market

• 70% of Fortune 500 companies are their corporate service clients

• They also dominate 80% of Traveler's Cheques Market

• Their present card base in India is 0.5 million

• Their aim is the creation of a market in the so called 'me too' market

• Pro consumer, not anti-competition strategy

• Their strategy is that of Exc1usive Membership i.e. Credit Card for Elite

• Their approval rate is 20%, which is considered to be very low.

• Their market positioning is Premium

• Their annual fee is 33% higher than that of the competitors.

• Their target customers are financially prudent from upper and upper
middle class strata of society

• Charges exceptionally high rates from merchants

• Payment lead time is very high by industry standards

VISA INTERNATIONAL
• Headquarters: San Francisco

• Business Locations: 200 countries

• They have 16 million establishments worldwide

• They have already issued over 600 million cards.

• 50% (volume) of all card charges are Affinity / Co – branded cards

• Their promotions include Sweepstakes, Charitable Programmes & Event

&
Sports Marketing

• They have 23 member banks in India

• They have a present card base of 1.2 million in India

• They have brand recognition for World's #1 payment system

• Their focus is on Infrastructure Development.

• They follow the strategy of Usage Activation & Branded Promotion

 MARKET ANALYSIS:
A) SIZE OF THE MARKET:
Credit cards in India made their debut in the year 1981 and have witnessed
an unprecedented boom in recent years. The number of credit cards has been
increasing steadily from 1.5 million credit cards in 1995 to 5 million credit cards in
1999 to 12 million credit cards in 2004 and is expected to reach 20 million in 2007.
This would mean a compounded annual growth of around 25 – 30% in the number
of credit cards. This would still be a low penetration considering that the number of
plastic cards in India is expected to reach 100 million in 2007. But, this does not
mean that the number of cardholders is expected to reach 100 million in 2007,
because in urban India, particularly in major cities, multiple cards usage is a way of
life. By a liberal estimate, the actual number of cardholders could be around 7
million in 2004. This is against the 50 million mobile telephone subscribers, 80
million cable connections and 300 million bank account holders.

How does this compare with the Asia – Pacific market? The Visa and
MasterCard data available for 2004 shows that Japan has 1.21 billion cards,
followed by China (1.1 billion) and South Korea (72 million). However, these
numbers are inclusive of credit and debit cards. In India, the comparable number in
2004 was 24 million.

Also, the size of the credit card portfolio of the banking sector is around
15,000 crores which is a minuscule portion of the banking sector’s over Rs. 9.5
lakh crore outstanding loan book. This means that on an average, a credit card
holder spends between Rs 1,500 and Rs 2,000 on a card in one month.

B) INDIVIDUAL PLAYERS POSITIONED:

(Exhibit 1 – Individual Players Positioned)

Individual Players Card Base Coverage Co – Branding Affinity Cards
(in millions)
Citibank 2.40 30 cities 29 29
ICICI 2.40 67 cities 6 8
Standard Chartered 1.70 18 cities 4 --
SBI 1.60 40 cities 2 --
HSBC 0.90 20 cities -- --
HDFC 0.50 25 cities 2 --
ABN – AMRO 0.40 15 cities -- --
ANZ Grindlays 0.30 21 cities -- --
Bank of Baroda 0.25 16 cities -- --
Bank of India 0.20 24 cities -- --
Others 1.35 -- -- --
Total 12.00 -- -- --

How are individual players positioned in the credit card space in India? Both
Citibank and ICICI Bank claim to be number one with a card base of over 2
million. State Bank of India has a card base of around 1.6 million. Standard
Chartered Bank may have a slight edge over SBI with a 1.7 million card base,
while HSBC issued around 900,000 cards. These five collectively account for
about 75 per cent of the market. Among the rest, HDFC Bank, the latest entrant,
has acquired a card base of over 500,000 and ABN-Amro, around 400,000.

The aggressive players are adopting a two-pronged approach: (i) increasing

the customer base and (ii) treading new zones by expanding the coverage area
beyond metros and big towns. ICICI Bank has taken its product to 67 cities, SBI
Cards is present in over 40 cities and HDFC Bank plans to cover 25 cities soon.
Among the foreign banks, Standard Chartered is present in 18 cities and Citibank,
30 cities.

Another strategy is to launch more and more co-branded cards. For instance,
ICICI Bank has six co-branded cards and eight affinity cards. HDFC Bank and SBI
Cards have two co-branded cards each and Citibank has 29 co-branded and affinity
cards. Public sector oil companies, mobile telephone players, retail chains and even
airlines are joining hands with banks to float co-branded cards.
C) CREDIT CARD USAGE:
Overall, about 0.6 per cent of personal consumption expenditure in India is
through credit cards. This means that for every Rs. 100 spent on consumption, only
60 paise is routed through credit cards. The comparable figure in the US is 16 per
cent. The Asia-Pacific region also shows higher usage of credit cards in terms of
personal consumption expenditure.
 One way of increasing credit card usage could be by making all utility
payments through cards. One can use credit cards for paying petrol bills, mobile
phone bills, insurance premiums, airline and railway tickets, and besides other
consumer goods. But there are many other payments that cannot be made through
credit cards even now. For instance, school tuition fees, water tax and other
municipal taxes, electricity bills and fees for doctors and clinics, although some
hospitals have now started accepting cards.

Two state governments in South India have initiated steps to make all utility
payments through cards. Chandrababu Naidu had started a concept ‘E – seva’ in
Andhra Pradesh, that ensures all utility bill payments at one point through cards.
Kerala has launched a project called "Friends" that works on the same model.
Incidentally, the southern states are far ahead of the rest of India in the use of credit
cards. Bangalore, for instance, sees more credit card usage than Mumbai.

The second way of increasing credit card usage could be by waiving the tax
on credit cards. Currently, a 10 per cent service tax is imposed on credit card
transactions. Some countries in Asia-Pacific actually offer tax incentives to
encourage credit card use. This is to bring down cash transactions and bring in at
least a part of the parallel economy into the mainstream economy.

Once the volume of business transacted through credit cards grows and
consumers start rolling over a higher percentage of credit instead of clearing the
bill instantly, banks will be in a position to cut interest rates on credit cards,
provided NPA levels are kept low.

The third way could be increasing the distribution of Electronic Data Capture
(EDC) terminals. Now, there are less than a lakh EDC terminals used by merchant
establishments that accept credit cards. These terminals, which process credit and
debit card payments, are put up by the card – issuing banks. HDFC Bank has set up
about 27,000 EDC terminals, ICICI Bank about 25,000 and Citibank about 24,000.
(Exhibit 2: No. of EDC Terminals)
 40
34
35 32
30
30
25
in thousands

25
18 19
20 17 No. of EDC Terminals
15
15
10
5
0
Citibank ICICI Standard SBI HSBC HDFC ABN – Others
Chartered AMRO

An imported EDC terminal costs between Rs 18,000 and Rs 25,000,

depending on the bulk of the order. The cost has come down from Rs 32,000 over
the past years because banks are aggressively placing orders for them. However,
the Hyderabad-based Linkwell Telesystems has recently started manufacturing
these terminals and brought down the cost to less than Rs 10,000. This will help
increase the number of terminals manifolds. The banks can now afford to put up
EDC terminals even in provision stores as the break-even point for these terminals
has come down to less than Rs. 50,000 worth of transactions a day from Rs.
100,000. The convergence in the telecom sector, with greater use of mobile
telephones and the Internet, will bring down the transaction cost further. Some
players have already tied up with CDMA operators and replaced the landlines of
EDC terminals to bring down processing costs.

CUSTOMER ANALYSIS
A) CUSTOMER SEGMENTS
The segmentation of the card industry can be done on the basis of income.
The Indian market reflects considerable diversities in income levels and lifestyles.
A World Bank estimate places average annual household incomes (in terms of
purchasing power) at US $ 3452. But there are large segments of people, whose
income levels are significantly higher, growing faster and spurring a consumer
revolution. It is difficult to obtain correct estimates of this group, as there is a very
small percentage of India’s ‘rich’ who pay income tax and their income levels are
correctly reported. Therefore to conduct this segmentation, I have made use of
National Council of Applied Economic Research (NCAER) data and not the
estimates from the income tax department. The segments which have been
identified are as follows:

(Exhibit 7: Customer Segments on the basis of income)

SR. SEGMENT / ANNUAL NO. OF HOUSEHOLDS
NO. CLASS INCOME (Rs.) 1997 - 98 2006 – 07
1 Very Rich 2,15,000 + 1 million 6.2 million
2 Consuming 45,000 – 2,15,000 28.6 million 90.9 million
3 Climbers 22,000 – 45,000 14.2 million 40 million
4 Aspirants 16,000 – 22,000 20 million 18.7 million
5 Destitute > 16,000 128 million 90 million

SR. SEGMENT / COMMENTS

NO. CLASS
1 Very Rich Maximum credit card holders are from this segment.
Each holder has an average of 3.4 credit cards.
2 Consuming There are few credit card holders in this segment. This
segment holds maximum potential, as there is distinct
change in consumption habits in the past few years.
3 Climbers Segment represents potential growth
4 Aspirants --NA--
5 Destitute --NA--

B) SURVEY CONDUCTED BY CREDIT CARD MANAGEMENT

CONSULTANCY (CCMC)
 A survey was conducted by Credit Card Management Consultancy (CCMC)
of 10,000 people who hold either a credit card or charge card in 15 cities across
India reveals the following facts:

• 78 % were unaware of the difference between a charge card and a credit

card.
• 67 % were unaware of the financial loss to be borne if they lost the card and
that they would have to bear all expenses incurred on the card until the loss
is reported.
• 70 % were unaware of the action to pursue in case of loss of the card.
• 84 % believe they are entit1ed to 30 days of free credit or more in all
situations. In reality this is applicable only in those cases where monthly bills
are settled in full.
• 70 % were unaware of a charge on outstation chouse.
• 35 % were unaware that the banks charged an annual fee.
• Nearly 60% were unhappy with the credit limits offered on their cards.
• 65 % were unaware of the high interest rates charged on outstanding
balances.
• 70 % were unaware that outstanding balances are waived on the death of the
cardholders.
C) SURVEY CONDUCTED BY ORG MARG IN ASSOCIATION
WITH BUSINESS TODAY

According to a survey conducted by ORG MARG in association with

Business Today, the features that are considered most important in the case of
credit cards in India are convenience, acceptability, and the quality of service in
that order. Other features that are considered important are also given in following
table:

(Exhibit 3: Importance of features of credit cards in India)

SR. NO. FACTOR IMPORTANCE
1 Convenience 66 %
2 Acceptability 58 %
3 Quality of Service 52 %
4 Cash Advance / Credit 48 %
Limit
5 Annual Fees 42 %
6 Special Privileges 35 %
7 Interest Rate 25 %

At the same time the important reasons for purchase of a credit card are
travel & entertainment followed by cash advance. Other reasons that are considered
important are also given in following table:

(Exhibit 4: Reasons for purchase of a credit card)

SR. NO. REASON IMPORTANCE
1 Travel & Entertainment 56 %
2 Cash Advance / Credit 49 %
Limit
3 Credit Period 38 %
4 Emergency Services 32 %
5 Special Privileges 28 %
6 Status 25 %
 The various occasions where cards are used in India naturally flow from the
reasons for purchase of cards. Still the majority of card spending was on Travel,
Hotels and Restaurants. Other occasions of credit card use are:

(Exhibit 5: Occasions for Credit Card Usage)

SR. NO. OCCASION IMPORTANCE
1 Travel, Hotels and Tickets 68 %
2 Restaurants 56 %
3 Clothes Store 49 %
4 Provisions Store 41 %
5 Consumer Durable - TV, Refrigerator, 32 %
etc.
6 Petrol Pumps 29 %

According to the survey, the ‘very rich’ class of credit card holders (income
of more than Rs. 2,15,000 per annum) has an average of 3.4 credit cards each. The
reasons cited for multiple cards are:
• Wider acceptability, say by having cards from all issuers – MasterCard, Visa
and American Express.
• Increment in credit limit.
• Flexibility in making payments – using the card with the higher credit limit,
with highest time to billing date and often a different card for different
occasions (e.g. unlimited credit ‘Gourmet’ card for the bigger hotel and
travel bills).
• Maintaining different cards for personal and official purposes.
• Nationalized bank cards were found to be attractive in their local regions,
e.g. Bank of Maharashtra card in Pune.
• Nationalized bank cards were maintained as their billing recovery was
erratic, resulting in enhanced credit periods for the holder.
The existence of multiple cards holding among consumers has the implication
that spending volumes enjoyed by an operator are reduced, because the same client
would then utilize multiple cards for his credit needs. Thus the need to generate as
well as sustain consumers’ interest in the card is essential. The most common mode
of acquiring the card has been the issuer bank’s Direct Selling Agents (DSA’s).
However, awareness about the card comes from other sources as well. Relevant
results of the Business Today survey are presented in the following table:

(Exhibit 6: Sources of awareness about credit cards)

SR. NO. SOURCE OF AWARENESS REACH
1 Advertising 54 %
2 Word of Mouth Referrals 35 %
3 Direct Mail 7%
4 Bank Personnel 4%
 COMPETITOR ANALYSIS
The competition in the credit card industry in India is fierce. Competitive
battles are moving to the consumer front. Others seem to be well armed for the
battle. The tables below give us a picture of the current scenario

(Exhibit 7: Competitive Analysis)

Individual Players Discounts Acceptance Advertising Hidden Innovative
Costs Strategies

Citibank Average Very Good Very Good Average Good

ICICI High Very Good Very Good Average Good
Standard Chartered High Good Good Average Average
SBI Average Very Good Above Average Low Average
HSBC Poor Good Poor High Poor
HDFC Average Good Average High Average
ABN – AMRO Average Average Poor Average Poor
ANZ Grindlays Poor Average Poor Low Average
Bank of Baroda Average Very Good Average Low Average
Bank of India Average Good Poor Average Poor

(Exhibit 8: Card Charges)

Individual Players Card Base Joining Fees Annual Fees Interest
(in millions) (Rs.) (Rs.) (%)
Citibank 2.40 --Nil-- 750 2.95
ICICI 2.40 100 750 3.00
Standard Chartered 1.70 100 700 2.95
SBI 1.60 250 500 2.50
HSBC 0.90 300 500 2.75
HDFC 0.50 200 600 2.95
ABN – AMRO 0.40 300 700 2.50
ANZ Grindlays 0.30 200 750 2.75
Bank of Baroda 0.25 150 900 2.50
Bank of India 0.20 100 250 3.00