Business: Credit Cards; Enter Colossus

SBI's Visa card spells competition for the industry but a depressed market could belie its expectations.

State Bank of India Chairman M.S. Verma is upbeat these days. The country's largest commercial bank -- it has a network of 8,900 branches -- has just entered the credit cards market and he is all ready to give the existing players a run for their plastic money. "This will shake the entire market," says Verma with uncontained assurance. "It will shake the very economics of the credit card system in the country."

THE NUMBERS GAME
	Cardholders (in lakh)	Joining fee(Rs)	Annual fee(Rs)	Monthly Interest(%)
CItibank	10.0	-	750	2.95
Stanchart	4.5	100	700	2.95
ANZ Grindlays	2.7	100	700	2.50
Bank of India	2.1	200	250	2.50
Bank of Baroda	2.0	-	750	3.00
Hongkong Bank	1.2	300	500	2.75
StateBank of India	-	250	500	2.50

While that is to be seen, the SBI Card -- which claims to "make life simple" for the compulsive buyer -- is getting the dozen or so banks vying for the 2.7 million pieces of plastic in India's payment cards business to pull up their socks. Industry watchers say SBI's extensive network and competitive pricing will help it lure a significant chunk of vanilla cardholders from its rivals, already reeling under a general slowdown in spending. Admits N. Gopalakrishnan, executive vice-president of bob Cards: "We will have to guard against the onslaught into our territory."

The new Visa card, a partnership of SBI and GE Capital, was launched in Delhi on October 15 and is due to hit Mumbai this month. Within the first two hours of the card's launch, there were over 700 enquiries about what it offered. By the third day, the bank had received over 3,000 enquiries. Queries do not necessarily translate into memberships but Verma believes it is a positive sign and is confident his bank will soon be a dominant player in the market.

His plans are simple: identify 1,000 branches and ask them to get 1,000 cards each in 1,000 days. The immediate target is to notch up a million customers in three years. "It's good to be confident, perhaps they look at the market from a different view," says Kurt Schneiber, director of marketing, Citibank, which took eight years to touch the one million mark.

Nevertheless, Schneiber acknowledges the competition. "Is SBI our competitor? Certainly. Do we keep our eyes open? Certainly. Will Citi have to stay on its toes? Absolutely. This is the most significant player to enter the market in the past four years," he says. But the entry, he predicts, will only deepen the market and ultimately benefit all those issuing credit cards.

Vishal Pandit, CEO of SBI Cards & Payment Services, the newly-formed marketing and distribution company, says the 13 cities where SBI's local head offices are located will be the primary target markets. Next in line will be those cities with the bank's 35 to 40 zonal offices. "We plan to focus on first-time users in new cities, dissatisfied customers from our competitors and SBI's customer base," he explains. The bank will also cross-sell to the databases of its partners' credit-tested customers -- GE Capital has joint ventures with HDFC for consumer finance and with Maruti Udyog Limited for auto finance. Given this vast potential, Pandit feels SBI would be able to garner not just one million but would capture about 30 per cent of the card market which he believes will touch six million in the next three years.

But business is more than just a numbers game, say the other players. "We are not interested in issuing a large number of cards," says Gopalakrishnan. His bank's strategy is to increasingly focus on companies and high net worth and upper middle class individuals. The bank also plans to concentrate on marketing bob Global, its international card.

Bank of India has a similar plan. Entire companies will be wooed with discounts so that every employee becomes a member. "We are changing our whole concept of marketing and shifting our focus away from the individual to the corporate," says P.R. Yagnik, general manager, credit cards and recovery. "All employees can use the card and a moderate, flat fee will be billed to the company concerned." The bank is also planning to centralise processing and collection operations, provide better infrastructural facilities to merchants and increase adspend on its India Card.

Yagnik acknowledges that the industry has been hit by the economic slowdown, both in terms of the number of cardholders and the volumes transacted on their cards. Bank of India itself has seen annual collections drop from more than Rs 400 crore in 1995-96 to just over Rs 300 crore in 1996-97. Less than half the bank's customers use their cards every month. The slowdown has resulted in declining card spend at not only hotels and restaurants but on airline travel as well. The turnover growth from purchases on consumer durables has also fallen drastically.

According to Visa International's latest data, the average Indian cardholder uses his card 9.3 times, spending about Rs 14,700 a year. In contrast, the average annual Visa card usage in Singapore is 25.8 times and Malaysia 25.5 times. "A number of card owners don't use their cards," says Chandra Agnihotri, country manager for Visa in South Asia. "In general, we have seen that around 20-30 per cent of cardholders are inactive and use their cards only once in three months."

In such a scenario, maintain the existing players, SBI's unbridled enthusiasm and aggressive targets could get diluted once the bank actually begins issuing cards. "It's an industry where paybacks can take five to 10 years," says Harpal Duggal, Standard Chartered's head of card services in India. "And even then the payback is not enough when you look at the low spends in this country."

The credit cards business usually makes its money from fees levied and from interest charged on outstanding balances. Annual interest rates of leading card issuers are in the range of 30-36 per cent. The SBI Card, priced more or less in line with the market, charges an annual fee of Rs 500 and an annual interest of 30 per cent on outstanding balances. In Delhi, the bank has waived its Rs 250 joining fee for customers who sign up in the first month.

Schneiber says Citibank's Indian credit card operations will be able to make good profits only in the next 15 years. "As income levels grow over time, the chances of success also go up. Right now we may be present and significant in size but the business remains relatively insignificant in terms of value," he adds.

For now the industry players agree their common goal is to see that credit cards are more widely used in everyday purchases. It is perhaps with this in mind that SBI is aggressively marketing its card as "the currency of modern India".