Wednesday, December 23, 2009

Indian credit card industry looks black

I have been looking at the profitability of online card payments in India, specifically from a card issuer's perspective.  This post is following up on a related post (Oct 09).  A couple of trends triggered this post:
  • 2FA (Two-factor authentication), mandated by the RBI, deployed since Aug 09 seems to be a success.  The timing of this deployment is helping increase the size of the ecommerce pie in the nascent Indian market, at just the right time.  Early indicators are that both merchants and issuers are seeing reduced fraud.
  • Stung by the credit defaults during the [temporary] recession of 2008-09, card issuers are offering credit backed by a card holder's asset (e.g., a fixed deposit / CD)
Recognizing that the main cost drivers for card issuers are credit risk, fraud risk and transaction processing costs, the relatively high interchange fees (3% and higher) and lower costs must be making the balance sheets of Indian credit card issuers look nice and black.

What are the implications of the above trend/development as we step into 2010? 
  • Aggressively pursue new markets [in India] to get credit cards into more hands?
  • Migrate to EMV [finally]?
  • Any other suggestions?
Looking for dark clouds on the horizon.  India Pay initiative is a major development which could have far reaching impact.  A possible course for card issuers would be to milk the current profits while not growing the market until the picture clarifies around India Pay, and MasterCard's and Visa's reaction to it?

Though the above post has focused on the online payments space, the dynamics of the F2F / payments at stores are similar leading to the same conclusion.

This is to wish all a wonderful holiday season and a great 2010

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