We are very bullish on the Indian economy and payments will have a very big role to play going forward, said Manoj Adlakha, Senior Vice-President and CEO, American Express
Demonetisation was a welcome step for us, Manoj Adlakha, Senior Vice-President and CEO, American Express Banking Corp India told Moneycontrol's Gaurav Choudhury. He added that the company's biggest competition is cash, and in the financial sector, it is HDFC Bank and SBI.
He added that the formalisation of economy due to introduction of GST is good for the cards provider. "GST has also been a very big enabler as we have seen the number of tax payees going up by 45 percent."
What are the changes that we are seeing in the Indian payment system?
There are a lot of changes happening. The overall GDP in the market in India is approximately USD 2.5 trillion. Of this, about 60 percent, or USD 1.5 trillion, is private consumption expenditure. Interestingly, only 10 percent, or USD 150 billion, of that was on either credit cards, debit cards or mobile wallets. And if I were to further break the USD 150 billion, around USD 70 billion was on credit cards and another USD 70 billion odd on debit cards and approximately USD 10 billion on mobile wallets. Thanks to some of the demonetisation spillover impacts that we had, the billings on the card actually grew by 44 percent on credit cards.
But that is in terms of value.
Correct. In terms of cards in force, another very important metric, at this point in time, there are about 37 million credit cards and about 860 million debit cards in the market. When we look at the credit card market (currently at 37 mn), it grew at approximately 26 percent.
When you look at the headroom, there is still 90 percent cash in terms of private consumption expenditure. But we have come a long way from where we were. So some of the interventions which the government did have been noteworthy, which took place in November, 2016. It had taken about 35 years at an industry level to get to about 1.4 million terminals and that numbers, as of March, reported by RBI, stands at about 3.1 million terminals. So it is more than double. So, financial inclusion has got a boost.
American Express has always been a payment systems company. But for Amex as a company, what has been the impact of demonetisation?
Our mission is to become relevant and provide the right experiences to our card members. When we look at the premium space, we want to really own it. And when we are looking at the minimum income, for us, the minimum income to get a prospect to become a card member is about Rs 4,00,000 per annum whereas the industry probably operates at Rs 2,00,000 per annum. But the number of cards that we are adding, on a monthly basis, has grown by upwards of 30-35 percent. So, demonetisation was a welcome step for us.
Who are your competitors in India?
I would continue to think that cash is our biggest competitor but there are other big players in the market. We are very clear about our vision. We start with understanding the needs of the customers and then design our products accordingly. A gap in our system which we had figured earlier was the number of merchants accepting our cards.
So you almost operated like a closed user group. Are you democratising that?
We are uniquely placed and a closed-loop network. We issue cards, acquire merchants and also own the network and that gives us a line of sight into both ends of the transactions. Data is so critical today and we have very good data insights which we can then provide and help in increasing commerce for the merchant. We will also be able to provide enhanced value propositions to the card members.
At present, how many merchants accept Amex cards in India?
We have 15 percent of the point of sale market share and we are at about 4,55,000 point of sale terminals.
Isn’t that quite low given the size of the market?
No, I really do not think so because at 4,55,000, we are issuing cards in the top 15 cities and we are well covered in them.
There is one interesting data point I do want to share with you, which is that from time to time, we reach out to our customers and ask them about their spending needs. It is a very important metric for us and at this point in time, as per the last cut that we have, 80-85 percent of their spending needs are taken care of by the merchants that we have on board. The gap has to now, very quickly close the balance of the residual 15 percent, but about 85 percent of their spending needs are met.
Amex is always seen as a big city operator. What kind of operation do you have in smaller towns and are there plans to penetrate deeper into these towns?
We launched the card in 1993. This is our 25th year of operation and about 6-7 years ago, we were operating in four cities. We were issuing cards in the top-4 cities in India and about 5-6 years ago, we expanded from four to fifteen. Whenever we feel there is a need to go from beyond 15 to maybe 20 or 30 cities, we will do that. But we believe that in the top-15 cities, 85-90 percent of the demographic is being captured appropriately.
Among the Indian service providers which are operating in your space, who do you think apart from cash, is your biggest competitor?
The bigger market share is with HDFC Bank. They have a very big branch network and it supports their acquisition efforts. So while the card members would be getting current accounts and savings accounts and then they would be cross-selling cards to them. The other big player that comes to mind is State Bank of India.
What is the kind of delinquency that you have?
I will not be able to share the exact percentage. All I can share with you is that it is the lowest in the industry. When we look at underwriting, our minimum income threshold is slightly higher than our competitors. Thus, I believe we are attracting the right kind of prospects into the franchise. The ongoing customer management process is also very robust. Having said that, I think it is very important for me to highlight one point. We are the only ones in the market, in the industry who offer, a charge card.
So what is the current subscriber base here? How many cards do you have in India?
We do not share that base, but we are growing at about 25 percent. Overall subscriber base is at 1.3 million cards in India.
What is the target like?
We are exceeding the targets that we have set for ourselves and had a robust growth over the last three years.
Any fresh innovations in the pipeline for the Indian market?
Innovation is in our DNA and we have been reinventing ourselves over the years. For example, Bharat QR was a global first. We were right up there. We have many merchants and are signing them.
Can we expect merchants to have just one POS machine and they can also swipe Visa, Mastercard and Amex?
It has started to happen. The other thing I do want to mention is that a lot of our card members, who are global citizens, are doing a lot of online spends. As a matter of fact, Visa stats show that 57 percent of our total billings are online.
Are they from India?
Yes, around 57 percent in terms of the volume of transactions and 46 percent in terms of value and that is growing.
It is about half.
Exactly and growing at about 45 percent. The point I was wanting to make was that our customers are very comfortable transacting with us online because of the security measures that we have in place. We have one of the innovations that we launched was really in effect the first digital wallet. We call it easy click. It is a single ID check out. You do not need to put in a card number.
Another differentiator is membership rewards. We give reward points for all the sales, all the purchases that card members do. Almost 85 percent of the membership reward points earned get redeemed.
What is your assessment of the Indian economy?
The economy is growing at a rapid pace again. We are very bullish on the Indian economy and payments will have a very big role to play going forward and we have seen that over the last one and a half years (post-demonetisation)
So, eventually it boils down to consumption spending.
Absolutely. GST has also been a very big enabler as we have seen the number of tax payees going up by 45 percent.
And that has formalised the economy.Exactly and that is a very important indicator for us.