Credit card issuers push EMI loans to counter revolver model misfire
With a smaller share of customers carrying balances month to month, interest-bearing receivables are growing more slowly than transaction volumes, pushing issuers to convert purchases into EMIs, deepen personal loan-on-card offerings and extract more fee income from a business that is increasingly being used as a payment product rather than a borrowing product.
Mumbai: Credit card companies are shifting towards EMI loans, merchant promotions and fee-based products to generate revenue from card spending as the conventional revolving model faces challenges. With fewer customers holding balances each month, the interest-bearing receivables are growing at a slower pace compared to transaction volumes.
This trend has forced issuers to transform purchases into EMIs, expand personal loan-on-card offerings, and increase fee income from a service increasingly utilized as a payment tool rather than a borrowing tool. According to Arnika Dixit, head of credit cards at Axis Bank, even if core revolving balances stabilize, the growth of EMI on credit cards will continue to bolster the net receivables or the 'book' of the credit card business.
Improvements in consumer awareness about timely payments, facilitated by multiple platforms that remind customers to pay promptly, have also contributed to reducing instances of accidental revolving. An analysis by Bernstein indicates that interest-bearing card balances, comprising revolving debt and equated monthly instalments (EMI) loans, have dropped to around 11% of annual card spending from approximately 21% a few years ago, despite card spending increasing at a compound annual rate of nearly 27% between 2021-22 and 2025-26.
The decline in interest-earning assets (revolvers and EMI loans) as a percentage of total card spending is compressing margins, notes Pranav Gundlapalle, senior research analyst at Bernstein, in a recent report. The ratio of revolving balances to card spending has dwindled to about 2.8% in the June quarter, down from around 7% in 2019, underscoring a significant reduction in profits generated for each rupee spent on cards.
For SBI Cards, revolving debt constituted about 40% of receivables in March 2020, compared to around 22% presently. Including EMI loans, interest-earning receivables have declined to 55% from 60% a year earlier, even as card usage continues to expand.
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