This is what i think about the current developments.
Banks have two streams of earning through credit cards.
- Earn the interest on delayed payments (i think this will not be the major stream of income since indian consumers care enough about their credit rating.)
- Earn MDR charges. Around 2% is the MDR charged, out of that even if 0.5% goes to card companies, banks earn around 1.5% (this should be the major income from credit cards for banks).
Now if bank provides a lounge access (paying around ~1k ) to the holder. It only makes sense if the consumer spends at least 1lac (income through MDR 100000*1.5% = 1500), or charge a maintainence.
Cards with AMC will seldom sell in indian market in my opinion if there are lifetime free cards.
Hence lounge access tied to spend based system should be the new norm in my opinion and is not going to go away.
Now considering a middle class family with yearly income of 12-15 lacs. The expenses would be around 5-6 lacs a year. If they try to bring most transactions on cc, then considering transactions worth 4 lac they get around 4 lounge access per year.
Conclusion, not very sure about this part still trying to make up my mind.
4 lounge access is good enough for singles, but not for families. 4 lounge access would not suffice and since the income and expenses is more or less fixed opting for another card for the family member will just divide the expenses/transactions. Hence for this to work out the discretionary spends in the middle class families has to increase.
I don’t see the same growth can continue.
The figures used for income/expenses are to the best of my assumptions
Contrarian views are very much requested.
Disclaimer: Not invested, studying.
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