Corporate: SBI Cards: Power From Plastic

STRATEGY
SBI Cards: Power From Plastic

Having quickly rustled up an impressive customer base, it must now get its customers to like-and revolve-credit.

By Ranju Sarkar

Tucked into a corner in the 2nd-floor office of GE Capital's highrise in Gurgaon is a new reason why the ''Citi Never Sleeps''. Five-feet 10" tall, it boasts of a GE Capital lineage and goes by the name of Iqbal Singh. As the head of SBI Cards, the 40-year-old Singh is the newest warrior in the Rs 7,000-crore credit-card business, giving the ''sleepless'' market leader Citibank a run for its money.

But ask Singh and he will tell you that he hasn't slept much either in the last two years. For a good reason. Besides getting the State Bank of India and GE Capital India's 60:40 joint venture to take shape within a record 10 months of signing the deal, Singh has delivered the fastest rollout in the industry's history. Within 16 months of launch in October, 1998, SBI Cards cranked up a customer base of 2.5 lakh in 25 cities. Today, it has 3.7 lakh cards out in the market and for every 10 cards that Citibank adds, SBI Cards adds 16. Says Singh: ''The SBI brand equity and GE's expertise in financial products are paying off.''

Powerful Alliance

When SBI Cards first hit the market, the easier pickings had already been made. There were an estimated 2.5 lakh cards in circulation, with Citibank accounting for 40 per cent of them, and Standard Chartered, HSBC, and ANZ Grindlays claiming a chunk of the rest. New growth, as the cardholder-to-card ratio of 1.8 revealed, was coming more from existing customers than from new ones. To Singh, it was clear that SBI Cards customers would have to be first-time users.

To begin with, the company underpriced its annual fee at Rs 500 compared to the industry average of Rs 750. Then, it leveraged its backend operations to ensure that applications were processed within two weeks to beat the industry norm of upto five weeks. Any card delivered after two weeks of application would be waived the annual fee. With SBI and its affiliates' 14,000 branches and customer database to back, the firm got down to making the numbers happen.

Pre-launch market research had thrown up some interesting insights. For one, SBI Cards says, the research indicated that many potential card customers were uncomfortable in dealing with foreign banks because of the premium image they carried. More importantly, the research indicated poor card penetration in the Socio-Economic Classification (SEC) segments A and B, which comprise a population of 25 million from the top 50 cities.

For every 10 consumers in sec A and B, there was just one card holder. In contrast, 6 out of every 10 had a refrigerator, and 2 a washing machine. Says Paramdeep Singh, 33, Vice-President (Marketing), SBI Cards: ''Our whole strategy was centred around trying to understand and exploit the low penetration problem.''

Capitalising on SBI's perceived brand qualities of trust, reliability, and accessibility, SBI Cards quickly roped in customers. In fact, even today half of its business comes through SBI branches. Admits Atul Malik, 37, Marketing Director (Cards), Citibank India: ''By any yardstick, it's a reasonable launch.''

Spurring cardspend

In the credit-card business, numbers themselves do not translate into profits. For that to happen, two things are needed: one, the cardholder must spend regularly and two, rollover his credit so that the issuing bank can earn interest income. Here's how a card company makes its money: more than a quarter (around 27 per cent) comes from the annual fee; interest (or service charges) on the outstanding credit fetches another quarter; commissions from merchant establishments contribute around 17 per cent; cash advance fee contribute between 12 and 15 per cent; joining fee (although being increasingly waived off) another 5 to 10 per cent; and late-payment fee, overdraft fee and others 4 to 5 per cent.

Against all this, the card company has to incur expenses on marketing, infrastructure, salaries and wages, and the 30 to 45-day credit it gives to its customers. Typically, the cost of credit works out to 1 per cent a month, while the earnings on some card accounts could even be negative. SBI Cards' parentage, says Singh, allows it to raise money at cheaper rates.

Yet, that doesn't help the core problem. The credit-chary middle class tends to limit its cardspend and pay off the outstanding every month. Doing so denies the card company an opportunity to earn interest income. Then, there's the average default rate of 10-12 per cent (for a 30 day-plus outstanding) to deal with. Says Pushpendra Mehta, 28, Senior Consultant, Credit Card and Management Consultancy: ''If your card-member base is not spending, then you will not make money.'' Adds Vishal Pandit, 38, Country Manager, Visa: ''SBI Cards needs to do two things: one, launch a feature-rich Gold Card and two, make its plain-vanilla card low-cost and no-frills.''

SBI Cards says that it has an average monthly cardspend of Rs 1,400, compared to Citibank's estimated Rs 2,000. The latter, however, has a bigger portfolio of card products. Apples-to-apples, SBI Cards' Silver Card spend is almost 92 per cent of the industry average.

By December, 2001, a breakeven is expected on a card base of between 750,000 and 1 million. By then, the company also expects to launch corporate cards and co-branded cards, which will expand the spending base, and hopefully, fetch profits. Notes Sameer Vakil, 36, Country Manager, MasterCard: ''SBI Cards is a strong vehicle in growing the market.''

For Singh's sake, Vakil had better be right. For, success is one thing that Singh can't buy on credit.

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