Upselling Through Instant EMI On Credit Cards?

ReTechCon 2012
Rajeev Agrawal rajeev@innoviti.com

What Is EMI On Credit Cards?

A facility retailers can provide their consumers to

pay for their purchase in EMIs

Helps merchant upsell and improve conversions Helps consumer manage cash flow
Purchase month Jun Normal transaction 3 months EMI transaction Rs 3000 Rs 3000 July card statement Rs 3000 Rs 1000 Rs 1000 Rs 1000 Aug card statement Sep card statement

Why Is It Needed?
Consumers often postpone purchase due to lack of easy loans Merchants wish to pull in new customer segments
Loan options for consumers Issues

Revolving outstanding on credit card Personal loans from banks EMI from specific banks Consumer finance companies (Bajaj Finance)

High interest rate 2.99% per month Not instant, paper work, high interest rate 1.5% per month Limits retailers choice of credit cards accepted for EMI Not available in all market segments, high interest rate 14% per annum

May 29, 2012

How Does It Work?

How Do Credit Cards Work?

All Card Issuers

Store Till

Acquiring Bank

Rajesh swipes his SBI card for Rs 1000 on 6th June at Vijay Mart

Vijay Mart gets Rs 1000 bank commission (e.g. 1.2%) on 7th June

Rajesh pays Rs 1000 to SBI (issuer) after 45 days

Who Earns What? Case 1: Rajesh pays outstanding within due date

Rajesh swipes his SBI card for Rs 1000 on 6th June

Rajesh pays Rs 1000 to SBI on 21st July

SBI has provided a loan of Rs 1000 to Rajesh for 45 days at 1.2% interest earned from merchant

Party Rajesh Merchant Bank

Earns Rs 988 Rs 12

Pays Rs 1000 -

Case 2: Rajesh pays minimum within due date, balance outstanding next month

Rajesh swipes his SBI card for Rs 1000 on 6th June

Rajesh pays only Rs 100 to SBI on 21st July

Rajesh pays Rs 900 + INTEREST to SBI on 21st August

SBI has provided a loan of Rs 1000 to Rajesh for 45 days at 1.2% interest earned from merchant and Rs 900 for 30 days at 3% interest per month earned from Rajesh

Party Rajesh Merchant Bank

Earns Rs 988 Rs 39

Pays Rs 1000 + Rs 27 -

How Do Credit Card Banks Make Money?

Fee from customer 25%

Contribution

From merchant 30%

Interest from customer 45%

Customer Profile And Income Source

Type Transactor Fence Sitter Revolver Customer fee Yes Yes Yes Customer interest No Yes Yes Merchant income Yes Yes Yes

Transactor is biggest consumer segment for retailers and banks Transactor: Pays outstanding within due date Fence Sitter: Occasionally revolves outstanding Revolver: Often revolves outstanding

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Transactor Spending Profile

60% of card base in India are

transactors
80% of credit limit on a transactor

card is unutilized

Ex: Credit limit: Rs 2,00,000 Transactor monthly spend < Rs 40,000

EMI helps transactor increase

spending in retail

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How Does EMI Work, Who Pays Interest? Case 1: Rajesh Pays For EMI interest
6th Jun Rajesh buys for Rs 1000 on 3 months EMI @ 1% per month Party Rajesh Merchant Bank Earns Rs 1000 Rs 30 21st July Pays Rs 334 + Rs 30 (interest) 21st Aug Pays Rs 333 21st Sep Pays Rs 333

Pays Rs 1030 -

Merchant gets full amount, improving margins

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How Does EMI Work? Case 2: Merchant Pays EMI Interest

6th Jun Rajesh buys for Rs 1000 on credit card on 3 months EMI @ 3% Party Rajesh Merchant Bank Earns Rs 970 Rs 30 21st July Pays Rs 334 21st Aug Pays Rs 333 21st Sep Pays Rs 333

Pays Rs 1000 -

Merchant drives sales by bearing EMI charge

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EMI Success Stories

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EMI Volume (Rs Cr) Across All Card Issuers

EMI Volume (Rs Cr) Across All Banks
6000 5000 5000 4000 3000 2000 1000 0 2010-11 2011-12 2012-13 Est 2013-14 Est 1100 2232 3400

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EMI Segments

Consumer durables Mobiles Fashion &

Travel & vacations Apparel IT products Watches Home furnishings

accessories
Jewellery Furniture Department store

Virtually any category

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Typical EMI Share By Bank

SCB 7% AXIS 3% Citibank 13%

SBI 15% Kotak 1% ICICI 14%

HSBC 2%

HDFC 45%

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Average Bill Value Pre and Post-EMI

30,000 25,000 20,000 15,000 10,000 5,000 Online shopping Pre-EMI (ABV in Rs) Mobile Jewellery Post-EMI (ABV in Rs)

ABV Increase Due To EMI

Typical increase in ABV due to EMI is 10-15%

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Up-selling Pattern, Mobile Category

40% 35% 30% 25% 20% Pre-EMI 15% 10% 5% 0% 1000 to 3000 to 7000 to 10000 2999 6999 9999 to 14999 15000 to 19999 20000 to 29999 30000 to 49999 Post-EMI

Number of bills in each bill-range bucket

Pre-EMI: Jan-March 2011 Post-EMI: Jan-March 2012 Like period analysis of bills in bands

Due to EMI customers movement seen to higher value goods, leading to upselling
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Geography Analysis (70% EMI Volume)

Hyderabad, 10.25% Chennai, 13.22%

% Share Of EMI Volume By City (Top 70%)

Bangalore, 19.50%

Mumbai, 13.38%

Delhi, 13.44%

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Geography Analysis (Next 20% EMI Volume)

Secunderabad, 0.57%

% Share Of EMI Volume By City (Next 20%)

Guwahati, Lucknow, 0.41% 0.56% Cochin, 0.38%

Coimbatore, 0.60% Jaipur, 0.65% Gurgaon, 0.90% Surat, 0.91%

Pune, 6.00%

Ahmedabad, 3.48%

Kolkata, 5.51%

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Mobile Category: EMI Tenure Analysis

ABV (Rs) Mobile Category

25,000 20,000 15,000 10,000 5,000 -

EMI Tenure Preference: Mobile 18

9 Months 41% 12 Months 2% Months 1% 3 Months 8%

6 Months 48%

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CDIT Category: EMI Tenure Analysis

ABV (Rs) CDIT Category

25,000

EMI Tenure Preference: CDIT

9 Months 13% 3 Months 14%

20,000

15,000

10,000 6 Months 73% 3 Months 6 Months 9 Months

5,000

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Online Shopping: EMI Tenure Analysis

ABV (Rs) Online Shopping

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 3 Months 6 Months

EMI Tenure Preference: Online Shopping

3 Months 28%

6 Months 72%

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Example: Sales & Margins Increase

Sample Store Card sales per month EMI sales Margins (5%) Bank charges (1.2%) Margins net of bank charges

No EMI Rs 2,00,000 Nil Rs 10,000 Rs 2,400 Rs 7,600

With EMI

Remarks

Rs 2,30,000 15% increase Rs 69,000 30% of all card sales Rs 11,500 Rs 1,932 Rs 9,568 Over store margins improve by Rs 2000 ~ 1%

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In Summary

EMI on credit cards can help upsell by 10-15% and

improve margins by up to 1%
Typical conversion improvement on card sales is

30%
Unlike other financing options, available to all

merchants
Available for purchase of any value

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Innoviti Multi-bank EMI Solutions

Supports all Visa, MasterCard
Bank HDFC ICICI SBI Citibank Standard Chartered HSBC AXIS IndusInd (Deutsche Bank portfolio) Kotak AMEX Others Total Card base (in million) % Share 5.1 27% 3.8 20% 2.5 13% 1.8 9% 2.2 1.8 0.7 12% 9% 4% Rank 1 2 3 4 5 6 7

and AMEX cards

Provides consumers instant,

low-cost loan on their credit cards

Loan (EMI) charges borne by

merchant, consumer, OEM or bank

Multi-channel - online, IVR,

in-store and at-home

EMI on 98% of Indias card base

0.4 0.3 0.2 0.4 19

2% 2% 1% 2% 100%

8 9 10

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Thank You
Rajeev Agrawal rajeev@innoviti.com Please visit our stall No. 9 to share with us your feedback

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