More number of credit card users but average spending stagnant, reveals SBI Cards’ DRHP

New Delhi: SBI cards, the credit card arm of India’s largest public sector lender State Bank of India, expects credit card industry spends to grow 2.5 times in the next five years.

SBI Cards initial public offer (IPO), which aims to raise around ₹9,600 crore and is awaiting regulatory approval, is set to be India's biggest this financial year.

With a market share of 18%, SBI Cards is the second-largest credit card issuer in the country with 9.46 million credit cards as on 30 September.

In its draft prospectus filed with the Securities and Exchange Board of India (Sebi), the company expects credit card volumes to grow at a CAGR of 25%. “The number of credit cards issued stands at 47.0 million in FY19, having grown at a CAGR of 20.0% over the last five years, and is expected to grow by 25.0% from FY19 to FY20,” said the draft document.

While the draft prospectus forecasts a robust growth for card volumes, the annual average spends per card is expected to grow just 1% year-on-year in FY20 compared with a healthy 12% growth during FY14-19.

Here are the key growth factors that could be driving the credit card industry in the next 5 years:

The millennial factor: The proportion of credit card originations among millennials (persons below 30 years of age) has increased over the last four years to 35.0% in FY19 from 19.0% in FY15, while the share of customers below 25 years of age has increased ten-fold in the same period.

The EMI factor: The EMI financing option is one of the major forces driving credit card growth. Credit card dues accrue when customers prefer to reduce their lumpsum payments by converting it to EMI, whereby they pay the minimum amount due and roll-over or revolve their payment or take loans on their credit card. The increasing focus of banks on retail loans amidst a muted environment for corporate loans has led to higher growth in unsecured retail loans, including credit cards. According to CRISIL Research, credit card dues are anticipated to grow at a CAGR of 23.0% to reach ₹3,313.0 billion by FY24.

The tech factor: Faster adaptability of technology by a younger generation and a change in consumer mindset has boosted credit cards penetration. The last five years have witnessed increasing acceptance of digital payments by Indian consumers and the rise of e-commerce businesses, which gave a huge impetus to credit card usage. On the supply side, banks’ focus on cross-selling to their existing customers in the form of pre-approved offers has driven growth. The increased use of cards for purposes such as travel, shopping, lifestyle purchases, entertainment, healthcare, utility bill payments, etc., have increased the spend per card.

Payments infra: Payment infrastructure includes POS terminals and payment gateways which facilitate online payments. The number of POS terminals has grown at a CAGR of 29.0% from fiscal 2015 to reach 3.7 million terminals in FY19.

The retail factor: Organized retail penetration has nearly doubled to 10.6% in FY19 from 5.6% in FY09 on the back of a supportive macro-environment, a rise in discretionary spending, higher product penetration, a rise in e-commerce and favorable regulations. According to CRISIL Research, organized retail penetration is expected to grow to approximately 15.0% in FY24.