Credit Card Adoption

The first credit card in India was introduced by the Central bank of India in 1980. From there we have come a long way with around 20 million credit card users in India today. But still India is one of the least penetrated markets in the world with a penetration rate of about 2%. Credit card adoption is on the upswing as financial literacy improves as well as public sector banks becoming more comfortable with the product. Banks are becoming more comfortable with handling electronic payments and there is a distinct move towards cashless forms of money.

Another factor contributing to the increasing adoption is a payment innovation termed as EMI at POS which enables manufacturers and retailers to sell consumer durables on monthly installments

Foreign banks have a 36% share in the total number transactions and a 41% share in the total amount transacted. Public sector banks perform poorly in these parameters.

Recent trends show that the focus now is on security enhancements, rural penetration as well as collaboration with third parties.

Advantages of a credit cards : o Convenience : They are easier to carry and use than cash o Budgeting : For high ticket items it reduces the financial burden by paying in installments rather than at one go. With EMI schemes it allows for predictable payments for high ticket items o Security : Credit cards are more secure than money. Once money is lost it cannot be recovered, but if a credit card is lost it can be cancelled and a new one issued in lieu. o Emergency : In emergency situations where access to savings or current accounts is not possible, credit cards provide credit cards provide access to extra money, fast o Travelling, online payments : Credit cards make it easier to make purchases online and they are also accepted throughout the country

Consumer segmentation has in the credit card has traditionally been done on the basis of behavior. The primary classification are

Revolvers : these are opposite of transactors, customers who carry balances, paying off those balances over time, thus "revolving" them and hence paying interest charges

3. Subprime : customers with no or poor credit history. Banks usually charge higher fees and interest rates to offset the risks associated

Nowadays with a lot of banking activities being conducted on digital and mobile platforms banks have a lot more customer insights and can tailor their product offerings. Banks are also turning to a new customer segmentation methodology which is :

1. Prosperous and content : This is the premium segment who use credit cards for majority of their purchases. They dislike revolving debt and look for convenience and minimum effort.

2. Deal chasers : This segment searches for the best deals in credit cards and are most likely to switch issuers to gain benefits. They maintain revolving debt but are confident of handling it. This segment is also most likely to use co-branded credit cards.

3. Financially stressed : This segment is usually incapable of sticking to a budget plan and have problem controlling their expenditure and hence carry a high level of