Our approach to the credit card business is different than how it has been done traditionally. We want to make it a credit product instead of a convenient payment mechanism. We want cards to be a credit line for our customers
MUMBAI: IDFC First Bank is taking a different approach to the credit card business, where it is a late entrant. Typically, issuers have looked at credit cards as a convenient payment model, but IDFC First Bank is treating it like a credit instrument, as it happens in developed countries.
Mint spoke to B Madhivanan, chief operating officer, IDFC First Bank, on the lender's business plans. Edited excerpts:
How do you manage to keep interest rate low across all cards when no other issuer has done so? Is it to cause a disruption in the business?
We use proprietary algorithm to evaluate the credit profile of an applicant. The higher the score, the lower the interest rate or annual percentage rate (APR). We offer dynamic rates, depending on the score. The lowest APR is 9%, and the highest is 36%. So, it starts with 9%, some would have an APR of 10%, then 12%, 14%, and up to 36%.
Most customers who get the lowest rate would be those who have an existing relationship with the bank.
Thanks to credit bureaus, we have decades of data on customers to categorise them. If we get our scoring and underwriting right, we will be successful.
Lower interest rates on credit cards is not to cause any disruption. It's a latent need.
What's the reason behind keeping cash withdrawal interest-free?
Our approach to the credit card business is different than how it has been done traditionally. We want to make it a credit product instead of a convenient payment mechanism. A personal loan involves a process. We want cards to be a credit line for our customers.
You can say that interest-free cash withdrawal is an experimental feature. Cash withdrawal comes with a limit. It can be 10%, 15%, or 20% of the credit limit provided to the customer on a card.
When a customer withdraws cash at an ATM, he will not be charged any interest for up to 48 days, depending on the payment cycle. There will only be a flat fee of ₹250 irrespective of the amount. The idea is to treat cash withdrawal at ATMs like a purchase made on the card.
Have you also introduced new features in rewards?
We have focussed on keeping cards as simple as possible. The idea is to keep underwriting strict. But once the customer is onboarded, there shouldn't be any friction points.
We will be giving up to 10 times reward points depending on the spend; there is no cap on how many points a customer can earn, and points will not lapse. Each point equals 25 paise. The customer can use points for payment when making a purchase.
Our cards are also free for life, and there won't be any over-limit fee up to 10% of the credit limit.
How many cards are you offering, and how are you segmenting them?
We are offering four cards – First Millennia, First Classic, First Wealth, and First Select.
Fist Millenia targets 21-35 year olds, with income less than ₹12 lakh. This segment of customers is digitally savvy and shop online. The card's benefits include a 25% discount on movie tickets, 20% on dining, and complimentary railway lounge access.
First Classic is for those above 35 and earning over ₹12 lakh. This segment typically uses a credit card for the household purchase. The benefits are similar to that of First Millenia cardholders.
First Select targets those above 35 but are in the middle to senior management and earn between ₹15 lakh and ₹35 lakh. They, typically, need a card that is high on rewards and offers better privileges. Therefore, benefits include complimentary domestic airport and railway lounge access, buy one and get one free movie tickets, and 20% discount on dining.
For the affluent segment, we have the First Wealth card. Customers in this segment get complimentary airport lounge access in India and abroad, complimentary golf rounds on every ₹20,000 spent in a statement cycle, and free movie tickets.
For now, we are offering credit cards to our customers only. Post April, we will accept applications from those who are not yet our customers.