When will the future come, Sir?!

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Next, let’s talk about competition. The scenario for AEBC is not getting any easier in the country with all multinationals and national players like Citi, Standard Chartered, ICICI Bank, SBI et al eyeing the large untapped credit card market pie. To first talk about the national banks, ICICI Bank has established a huge reach by issuing credit cards across 125 cities. SBI being the largest bank in the country with over 19,000 branches, has its credit card business spread across 110 cities across the country. Amongst MNCs, Citibank is the most widely present with its operations spanning 40 cities. The bank further plans to take the count to 94 cities in which group company Citi-financial operates. In this regard, AEBC faces an uphill task with its strategy of focusing on just the high-income segment, with offices only in ‘four’ cities preventing it from reaching out to anyone beyond audiences in the Tier I and Tier II cities. While this puts a constraint on AEBC’s growth, the other players in the market are merrily grabbing larger chunks of the market while at the same time poaching on AEBC’s customer base. So is the giant planning to move beyond to smaller towns as well? Not soon, as Dutta professes, “As of now we plan to concentrate our operations only in the four cities – New Delhi (including Gurgaon), Mumbai, Chennai and Bangalore. In the coming future we might plan to take our services to Tier I and Tier II cities...”

When will the future come, Sir?!

The competing banks have not only raised the bar in terms of both quality and customer services, but they also have formulated aggressive growth strategies to bag-in higher spending on cards. Moreover, keeping aside the segment they cater to, AEBC has a lot of catching-up to do where customer base is concerned (Refer box titled ‘Plastic... Dangerous?!’). Operating as an restricted entity, AEBC’s role has been limited to just marketing and distribution of co-branded credit cards with little exclusive identity of its own.

When it comes to marketing plans, the entity has some in its bag. It has developed a closed-loop ‘global’ network with 1,700 locations in more than 130 countries, which enables it to effectively design global marketing programmes and benefits for card members in association with merchants. It has clubbed its products and services with various facilities like Protection Package, Membership Travel Services, Membership Rewards Programme et al to attract more eyeballs... “We did an in-depth study to understand the mindset of affluent customers in India. We used these insights to tailor our products and services,” explains Hennin. Well, here the player does not lack what some of its competitors do. Its ads are loud and frequent, therefore ensuring maintainence of the ‘trusted’ brand appeal for AEBC. The player is also looking to build the most extensive network of sales, service infrastructure and collection mechanism for credit cards to boost its services.

Though officials claim negligible credit defaults in India, the increasing outstanding on credit cards (which went up by a massive 87% to touch Rs.265.96 billion by May 2008, as per RBI) clearly threatens to spoil the party for AEBC. This also further threatens to worsen AEBC’s earnings India-specific (and global thereof) figures in the short-to-mid term; a repeat of what happened in the most recent quarter (Q2, 2008) when its earnings fell globally by 37% q-o-q to just $653 million after it was left with no option but to ‘set aside’ earnings to cover up for credit losses on worse-than-expected consumer defaults.

“The darker side of the story says that in course of utilising the facilities provided by credit cards, one keeps on postponing the payment, due date after due date. Many of these users then finally refrain from any future payment, thus hurting credit card players where it hurts most,” explains Robin Roy, Associate Director, PwC. To add to this, AEBC also lacks retail banking facilities, as other players can back their collection activities through their account holders’ deposits and savings. Thus it becomes imperative for players like AEBC to keep an eagle eye on its customers. With McKinsey predicting that by 2010, India would have $7 billion in credit cards outstanding, AEBC has to be more than careful in choosing its clientele! For now though, it’s got to expand beyond just four cities! Four might be even, but it’ll not help AEBC get even with challenges and challengers!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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