Can someone explain how credit card system works from a bank’s perspective? Specifically after how long does it start delivering profits once they start offering? I presume it will be loss making initially due to discounts provided to attract customers.
I always pay off mine each cycle so I have no idea how credit cards make money for the bank, except the fact that they charge merchants for transactions but that can’t be the only source.
Sorry I realized I could just search for it - https://www.quora.com/How-do-banks-make-money-from-credit-cards
But it would be very helpful if someone from the industry can add to these answers.
They aren’t issuing loans to people who aren’t requesting them, there is more to the story. IDFC Bank has partnered with both Flipkart and Amazon for their Pay Later service, as a result when a customer opens a Pay Later account with one of these companies they are issued a credit line which shows up on the CIBIL report even if it’s not being used. Most folks don’t realize that this pay later service from Amazon or FK is actually offered by IDFC and get confused when they see IDFC on their CIBIL reports. Most of the complaints on social media are about this and not about getting unsolicited loans say like personal loans etc. Infact if you goto the IDFC Bank website and are a new customer you will see its not so easy to get something like a personal loan without going through a detailed vetting process.
They are doing something similar with Cred too, see the fourth picture here https://twitter.com/indianrockers/status/1334037709308870656?s=19
I’m glad they invested more time and money on innovative next gen solutions like these than on credit card market which is already crowded all over the world.
On the face of it it looks like the bank is only focusing on some markets but is silently firing on all fronts. It won’t be long before we see a full fledged new age bank.
Nice video of on-ground rural operations, not sure why it’s in a random channel.
You can see why the bank has higher employee count per branch and high number of micro ATMs still in use.
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Idfc first bank is associated with ziploans also…
Interesting move. Does go to show that they are actively looking to reduce cost of funds while focusing on people opening savings accounts.
The above shows that now balances above 1Cr will be given lesser interest.
this will reduce overall interest expenditure and will increase no of savings accounts
MOF_Data (2).xlsx (107.1 KB)
This is excel downloaded from RBI website. It is showing number of IDFC First bank branches more than 680.
Does anyone know what kind of terms or agreements are involved in such partnerships? Just wondering if this is a net positive for the bank since it has more expertise in lending to MSMEs.
One benefit I can think of is operational costs will be borne by ZipLoan but that won’t mean much if too many loans become NPAs, unless they provide some sort of a guarantee? Partnering with CRED gives the bank access to high credit worthy borrowers but why ZipLoan?
IDFC Bank Edel notes Dec 20.pdf (957.7 KB)
Edelweiss hosted management of IDFC First Bank (IDFCB) at the India e-Conference 2020, Asia Pacific.
This report has basic facts wrong for example look at their net interest margin figure. It’s closers to 5% in the results and presentation whereas edelweiss is saving its 3%.
I read above report and also banking sector report published by Edelweiss and referred in this report.
https://www.edelweissresearch.com/Research/Download/6731 (Oct 2020) and https://www.edelweissresearch.com/Research/Download/6032 (July 2020).
There estimates about NPA for IDFCFB bank seem incorrect. Estimates for NIM are also way lower than current level of NIM and expected trajectory. These two estimates will have huge sensitivity to profit and hence book value in coming years. Once bank’s ROE and book value start trending upward book value multiple will follow similar trend.
Their estimates were pessimistic in July 2020 report and later revised in Oct 2020 for entire sector which is ok but I was surprised to see spelling mistakes from July 2020 report repeated in Oct 2020 report.
Oct 2020 report even got networth(FY20) for IDFCFB as 20bn instead of 153bn cr on page 12. Due to this error all further numbers in the IDFCFB column are totally incorrect. Most ridiculous of this is haircut to book value of 208%. This number is illogical and clear outlier from haircut to BV of other banks. Seems like very sloppy work.
Looking at the history of their price target for IDFCFB, I would take these reports with big chunk of salt.
IDFC Bank is also issuing credit cards for Onecard
Mostly old stuff about low tax rates for MSMEs but in the last 5 minutes he mentions collections at 95-98% and talks about the state of economy.
The bank released a new net banking app which appears to be positively received by customers https://play.google.com/store/apps/details?id=com.idfcfirstbank.optimus
And it looks like they are really pushing the referral system https://twitter.com/IDFCFIRSTBank/status/1339171496262942720. Even saw the post on LinkedIn, fun fact - follower count of the bank on LinkedIn is higher than Kotak Bank, due to Vaidyanathan’s popularity? Anyway it is a good sign because it means the bank doesn’t have to look too hard for talent.
I just searched for credit card on idfc first bank website and could get a video and product features of credit card they are launching. The link is here(Click on product guide for video and the features)
Looks like MDR will be main source of revenue for the bank. Estimating it to be 2% p.m, on annualized basis it will be 24% which should be good.
Also, it looks like they would be targeting salaried employees (from a preliminary reading of the features). So expecting underwriting to be good. And the offers should be good to make it the main transaction card for the user.
Hi Naga, thank you for sharing the link. I wanted to check who is heading the credit cards segment and came across this profile - https://www.linkedin.com/in/bhaskar-gupta-53785a15/
It seems they have been working on it since January 2019! Not sure what this means though, it was either low priority or they really wanted to get it right. The latter seems to be the case considering they have been doing a large scale beta testing with employees.
