According to TransUnion September 2018 quarter report, Indians have 3.69 crore credit card accounts (up by 31.7% in the same quarter a year ago), outstanding balance of Rs 84,400 crore (up by 35.8% for the same quarter a year ago) and the average balance per credit card holder was Rs 46,000 (up by 8.1% for the same quarter a year ago). Attractive discounts and deals on credit cards have fuelled the demand for cards from first-time users. Financial planners caution in using credit cards as its most expensive forms of credit. Generally, on a credit card outstanding amount gets charged about 3% per month which turns out to be 36% on an annualised basis.
In August 2016, YES bank commenced the credit cards business and was the 17th credit card issuer in the market. The bank is now offering 11 variants of credit cards for mass affluent, affluent high net worth (HNW) and super high net worth customers.
Rajanish Prabhu, Business Head-Credit Cards at Yes Bank, talks about USP of their credit cards, using multiple credit cards and its drawback, avoiding debt trap while using credit cards, explains WiFi enabled credit card, using a credit card in foreign country and more.
Edited Excerpts:Qs What is the USP of your credit cards compare to other banks offering?
A: We have never expiring reward points on all the variants of credit cards. This feature is available only in some of the bank credit cards. In our high end credit cards (Yes Private and Yes Exclusive), we have low FX conversion rates of 1.75% compare to peers in the industry. This is beneficial for frequent international travellers and using their credit cards for regular transactions. We offer reward points across all categories (including EMI
transactions, while loading mobile wallets, etc.) except for fuel.Qs. You have several schemes / offers on your credit cards for customers. How your bank manages to offer it whereas other banks charges for it or have limited offers?
A: As we were the 17th credit card issuer in the Indian market. So, we had to make sure customers have ample reasons to choose not only YES bank card but also make it the preferred card in their wallets for transaction. So, the schemes and offers are designed keeping our customer preferences. We don’t see this offers and schemes as additional cost to company but consider them as an investment for the future growth of our credit card business. This helps us advance our customer engagement.Qs. Often customer uses multiple credit cards. What are the benefits and drawbacks of holding multiple cards?
A: When you have two or more credit cards, you have a choice. Some cards might give you more reward points and offers. So, you have the choice in your pocket and able to decide which bank credit card you want to use. It also depends on bank’s service and your relationship with particular bank. Accordingly, you decide one of the bank’s credit cards as primary product and use it often.
You can also segregate your expenses while using multiple cards. For instance, use XYZ bank credit card to pay utility bills and ABC bank credit card for shopping and travelling related expenses, etc.
The flip side of using multiple credit cards is you have much more credit money to spend. And if you don't spend money responsibly, then chances are at times you tend to get over leveraged. So you have to spend your money wisely. It’s important to set up credit limit while using multiple credit cards.Qs. Suggest ways for a customer to stay away from debt trap while using credit cards?
A: It’s important having a financial discipline while using a credit card. You need to set up a credit limit for yourself while using a credit card say overall 30-40% of monthly income is sufficient (including EMI on loans). Avoid impulsive purchases using credit cards. Identify between your needs and wants before swiping a card while shopping. While using credit card you should even keep a watch on available resources and track the expenses to repay the bank when credit card statement is generated.
Qs. Key things a customer needs to check while choosing a credit card as well as while cancelling a credit card.
A: While applying for a credit card you must decide what benefits you want from your credit card and how often do you use and purpose. For instance, if you are looking for a lifetime free credit card then you must clarify this requirement with your bank and verify this term before applying. Then if you are a frequent international traveller then you want to protect the most from foreign currency (FX) markup of the bank. So, you must apply for a credit card with the lowest FX markup in the market.
Similarly, if you are frequent air traveller then you must apply for a credit card which gives enough reward points to book air travel tickets and which can be utilized again to book airline ticket in future. If you are using your credit card while shopping, then you should look for banks which keep on coming up with schemes or discount offers regularly. Also, ties up with retailers / shops for cash back schemes. Lastly, it’s important you must know the important terms and conditions from bank issuing your credit card while applying.
While cancelling a credit card, you must make sure that you get a letter of closure from a bank and no amount is outstanding on your credit card while closing an account. In case you have stopped using XYZ bank credit card then don’t keep a minimum amount outstanding on that card and let it continue to bloat. It’s best to cancel the inactive cards and close the account.Qs. What is WiFi enabled credit card and how does it work? What if it gets stolen?
A: WiFi enabled credit card is actually contactless card. There is an upswing in the usage of WiFi enabled / contactless cards. Just to give a perspective, last year close to 0.20% of overall Yes bank card transactions were on contactless cards, but now close to 3.3% of our card transactions are on contactless cards.
It works on the radio-frequency identification (RFID) / Near-field communication (NFC) technology. You need to keep it close to payment machine; approximately three to four centimeters away and the transaction will go through. It’s very convenient especially in these fast food restaurants, shopping malls and so on.
In India, contactless transaction without pin is limited to Rs 2,000. As per Reserve Bank of India (RBI) guidelines for contactless transaction over Rs 2,000 pin is mandatory.
In case, this contactless card gets stolen you need to immediately inform the bank call center and block the card. Alternatively, you can even send an SMS block from registered mobile number to bank with last four digits of your card number.Qs. Key point a customer should be aware of while using a credit card in foreign country.
A: We would like to advice, do not use dynamic currency conversion (DCC) while using a credit card in the foreign country. This is a process whereby the amount of a transaction is converted by a merchant to the currency of the payment card's country of issue at the point of sale. You should always prefer to pay in foreign currency and not to opt for INR in foreign country while using the credit card.
This is because when you pay in INR it is treated as DCC and their FX markup is then decided by the acquirer bank in that country and that markup and conversion could be at higher rate (3% to 4.5%). Whereas, when you pay in foreign currency, you are basically assured of FX markup and conversion rate which is 1.75% to 2.5% depending on the card and the bank. So, this is inexpensive option compare to DCC.Qs. What is the key difference between forex / travel cards and credit cards?
A: There are typically three types of cards at the conceptual level one is pay in advance (prepaid cards), second pay as you go (debit cards) and third is pay later (credit cards). So, forex / travel cards fall in prepaid cards category wherein you have to load money before you use while travelling abroad.
Whereas, in credit card you enjoy the credit period while travelling abroad and pay later when bill gets generated. Further, while using credit cards you earn reward points which are not available in prepaid cards. Also, some of the banks offer higher reward points during international travel then FX markup charges (conversion charges). So, the consumer is net gainer while using credit cards internationally only if reward points are higher than FX markup charges by the bank.
A benefit in forex / travel card is rate of conversion is fixed when you buy the card and load the amount. However, you should to evaluate the FX markup charges, earning reward points on transactions and available offers on your credit card against forex / travel cards before opting.