In the past few months, the Credit Card Industry in India is experiencing a notable shift in strategy. A number of major banks are shifting more and more towards secured credit cards, a product that has been there for a while but was not previously heavily promoted. The financial institutions are prompted to explore alternative growth avenues, owing to the slowdown in the unsecured credit business.
Key Developments:
- To offer secured credit cards, major Indian banks like Axis and HDFC are collaborating with smaller banks. Because fixed deposits (FDs) support these cards, the banks’ risk is reduced.
- The move is partly in response to a decline in new unsecured credit card issuances, which have dropped from around 1.2 million per month last year to 5,00,000-6,00,000 between March and May this year.
- The Secured Credit Cards are increasingly becoming a lucrative option for business professionals, individuals without fixed salaries and startup founders. The approval rate for these cards is nearly 100%, making them suitable for those customers who may not qualify for traditional credit cards.
Market Dynamics:
In an effort to keep possible customers, banks are providing secured credit cards to those whose applications for unsecured cards are refused. These cards usually have a credit limit that is between 70% and 85% of the value of the fixed deposit.
Fintech Innovation:
Fintech companies and banks are collaborating to provide co-branded secured credit cards. Flipkart-backed Super Money is planning to launch a secured card with a small finance bank.
A bank and Bengaluru-based Stable Money are working together to provide a secured credit card. Such partnerships are highlighting the drift towards interaction of traditional banking and fintech innovation in addressing the market needs.
Industry Perspective:
An anonymous fintech founder commented: “Given there is an overall slowdown in unsecured lending, banks are looking for ways to cater to the increased demand for credit cards through secured instruments.” Another fintech executive noted the cross-selling opportunity: “For companies offering fixed deposits, adding a credit card on top of this deposit creates a good customer cross-sale opportunity.”
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Broader Implications:
The shift to secured credit cards is evidence of how flexible the banking sector has been during difficult economic times. Additionally, it shows how to effectively handle risk while satisfying customer demand for credit products. Secured credit cards provide a mechanism for customers, particularly those who have poor credit history or have irregular income sources, to establish credit and take advantage of the advantages of having a credit card.
Future Outlook:
Secured credit cards are expected to become increasingly important in the Indian financial sector as the credit landscape changes. This pattern shows how flexible the financial industry is to changing market conditions and customer preferences.
