Ever since I got my first credit card in the late '80s, I’ve been a fan of plastic. Rewards, deferred payment and a built-in line of defence from fraud - these are some of the reasons I pay with credit cards as far as possible.
That said, during the same period, I’ve come across many people who're wary of using credit cards. When I ask them, they give me several reasons for eschewing plastic. Some of these reasons are genuine (e.g. fear of incurring hefty fees if they forget to
pay the bill on time) whereas others are rooted in misconception (e.g. credit card implies debt).
Banks earn interchange when their customers pay with credit cards. On the other hand, when consumers pay with cash, banks are hit with a double-whammy: They incur a cost on the ATM withdrawal without earning any interchange revenue on the cash transaction.
Therefore, it's in their interest to increase credit card usage (and reduce cash usage).
There are many ways by which banks can help fencesitters among their customer base to shed their inhibitions towards credit cards, which would stimulate credit card transaction volumes. Some of them are outlined below.
#1. Reiterate Deferred Payment
The average credit card holder knows that they get 30-45 days to pay off a credit card purchase without incurring any additional charge. This is unlike debit card purchases where the money is taken off from the bank account within a day or two. It would
help if banks reinforce this message, especially to convert debit card users to credit card.
#2. Stop Nickel And Diming
As far as I can recollect, all my credit card statements always specify the payable amount to the second decimal place viz. ₹ 48,758.78.
Since the 78 paise seems to be such a big deal for the bank, it can go ahead and round up the payable amount to the next higher ₹ (or £ or € or $ as the case may be) viz. 48,759. I’d rather overpay by 22 paise than incur late payment fees and interest charges
if I miss out the figures after the decimal point and end up paying only ₹ 48758.
#3. Alert Payment Deadline
I normally pay my credit card bills before the deadline so I don’t get any payment reminders. But, on the one occasion that I forgot to make the payment – more on that in Credit
Where Credit Is Due – HSBC Case Study - I didn't get any alert from the bank. Therefore, I’m assuming that reminders are not an industry practice du jour. It should become one. By sending reminders a couple of days before the due date, banks can
assuage the common anxiety of forgetting to pay the bill on time and incurring hefty fees.
#4. Make Redemption Frictionless
Presently, the rewards redemption process is fraught with friction at several steps: Accessing the gift portal via SSO from Online Banking fails half the time; gift portal is unwieldly, so by the time you select your gifts and add them to the shopping cart,
the portal times out and you have to start all over again. Once you’ve placed the order, you’ve to follow up with the bank and / or courier company to avoid falling victim to theft, which is not a rare problem as I’d highlighted in Beware
of Credit Card Reward Redemption Theft and Bank Insources Credit Card Reward Redemption Theft.
Instead of making customers jump through so many hoops to get what's rightfully theirs, banks should make sure that cardholders can order and receive their gifts in a painless manner.
#5. Increase Credit Limit
According to Balance Due: Credit Card Debit Nears $1 Trillion As Banks Push Plastic in Wall
Street Journal, CapitalOne, the fourth largest credit card issuer in the USA, increased credit card spend 20% year-on-year by raising spending limits. So can other card issuers.
The above list is by no means exhaustive. I'm sure readers can think up of a few more ways to stimulate credit card use.
I'm also sure that skeptics among readers will be wondering why a bank shouldn't stick to the status quo and ignore the above suggestions. After all,
- by making the gift redemption process cumbersome, banks discourage cardholders from claiming their gifts, which leads to breakage, which in turn saves money for banks; and
- by specifying the payable amount to the second decimal place, banks may earn late payment charges and interest charges when cardholders pay only the amount before the decimal place, which would count as shortpayment.
I wouldn’t disagree with the skeptics.
But I'm just hoping that banks take a slightly more customer-centric approach and implement one or more of the above measures. By doing so,
- they'd stand to earn greater interchange revenues when credit card volumes go up
- they'd save cash handling and ATM processing costs when cash volumes come down
- they may regain the trust of the common man that they’d lost in the wake of the Great Financial Crisis.
If not, there's always regulation!