26 July 2014

Musings of a change agent

Mukesh Gupta - SAP India Pvt ltd

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Retailer Credit Card - possible engine of growth for banks

21 February 2013  |  3611 views  |  1

Farmers in India are offered Kisan Credit Cards to provide adequate and timely support from the banking system to the farmers for their short-term credit needs. The banking industry can take a clue from this and introduce a retailer credit card for exclusive use by small-time retailers to pay to their suppliers. 

The idea: 

  1. Banks to offer small retailers a Retailer Credit Card with a minimum credit limit of 10000 INR. 
  2. This offer will also come with the credit card swiping machine which the retailer has to use in his retail counter. The rent will be waived off if the retailer does a minimum of “x” number of swipes in a month.
  3. The credit limit of the retailer goes up by a % of the total transactions done via the credit card swipe machine. For example, if the retailer has swiped for INR 100000 in a month, his credit limit on his card goes up by (for example) 1.5% of INR 100000, i.e., 1500 INR. 
  4. The retailer can use the credit card to pay his suppliers. The suppliers will only be charged rent for the machine and the transaction costs will be waived off (may be for the 1st year to induce usage).  

What’s in it for the bank: 

  1. Currently, the number of retailers who accept credit cards are limited. The bank can increase this number by a large margin. 
  2. The profit for the banks will come from the transaction fees. By combining the credit limit for the retailer to the value of transactions, the bank can incentivize the retailer to increase the transaction via credit cards thereby leading to higher profits. 
  3. There is also the possibility for the end consumers to make part payments towards their credit card spending, thereby generating very high interest fees for the bank. 
  4. This has the potential to increase the total spend via credit cards twice or even more than the current usage.  
  5. As the next phase, banks can then start using these retailers to serve as an extended branch for the bank (where the bank does not have any presence). This 

What’s in it for the retailer: 

  1. Currently, one of the big pain points that the retailers have to grow their business is to be able to procure more goods to sell in their shops. One of the limiting reasons is the limitation of working capital. Most of these micro-retailers are unbanked and can not get access to working capital loans on offer due to variety of reasons. This credit card provides them an easy way to get short-term working capital. The fee that they pay is much less than the other options they have (local money lenders). 
  2. By accepting credit card payments, they have the opportunity to increase their sales as they loose some sales to organized retail due to the ease of paying with a credit card that the organized players provide. 
  3. This can also provide them an additional business opportunity. 

My personal opinion is that this can provide the banks a lot of growth in the next few years.What do you all think? Pls let me know.

 

TagsCardsRetail banking

Comments: (1)

Harin Dias - Independent - Reigate | 22 February, 2013, 10:05

Sounds like a very innovative approach which can be used all over the Sub-continent plus other parts of Asia and Africa.

As ever, the key to success is the approach of banks to implementation which needs to be hands on, iterative and flexible to cater to the needs of farmers in rural areas.

Definitely one to watch.... 

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Mukesh Gupta

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Customer advocate

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SAP India Pvt ltd

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2013

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I currently work for SAP as Customer advocate. In this capacity, I am responsible to ensure that ...

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