If they raise money at 60 while the spot is at 54 and banking sector doesn’t exactly have a great outlook in the next 1 year, then that’s surely a success.
Though not sure if this QIP will sail through if the spot price goes sub 50.
2 Likes
I think the move to the Credit Card business may not be a great one. It will be difficult to scale beyond a certain point. CC is a difficult business now - 1) Enough competition from existing players 2) Consumer preference changing towards UPI given the ease of use 3) Merchant preference changing towards UPI. No merchant would like to pay Rs 2000 for the PoS macine and then the 1.5-3% of their revenue as MDR charges.
Disc: Invested.
2 Likes
@Kishanmundhra : What kind of cut do banks get from credit card transaction ? A big part of that transaction cost goes to VISA, MasterCard, RuPay but I am not sure how much is the cut for banks?
Also, profit comes from credit cards by charging processing fees, late fees or loan against credit which is not possible in UPI, credit cards do not enjoy customers who are paying on time but those customers who spend more than they can afford which may not be possible in UPI case, please correct me if I am missing something
2 Likes
I think banks get 1/3rd of the MDR.
I agree to your points but what I am saying is that the growth expectations in the CC segment have narrowed extensively vis a vis 8-10 months back. Also, you have highlighted the use case from the customer’s viewpoint but from the merchant’s viewpoint, CC doesnt make any sense. They may just not have a PoS machine with them anymore.
I think customers will mostly use the CCs for high value transactions.
And lastly, credit on UPI is also on works as per some news articles. But early days so cant rely much. But if that happens, it will be endgame for CCs.
1 Like
8-10 month is very short period to determine specially when the period itself is exceptional ,customers would like to pay where they get benefitted from , some customers can get lured by being able to spend more than they can afford , or by various CC schemes, while some other by lucrative points schemes of credit cards. Credit Cards reward points schemes are very powerful and IDFC First is doing disruption in this segment, they are thinking out of the box to attract reliable advances. If you check their credit card offers they are much more lucrative for customers than other credit cards.
2 Likes
I have a slightly different view on this… Having lived in the US and EU regions, I can relate to what VV is trying to do. The traditional points based business model is dead which most of the competition is slogging in. What VV is doing is making CC as a walking credit machine in itself. You want to start a firm/start up, use your CC. Pay rent? Use CC. Want to fund your IIM fees? Use CC. Want to buy a car? Use CC. Maybe, eventually, with experience and business processes in place you can even buy your house using your CC. Now imagine that in a credit starved economy like India? And the bank will earn not only a relatively high interest rate (being considerably lower than traditional cards) but also earn allied monthly recurring fees. Benefits both the customer and the bank… say I am a customer, and even if I get charged a few basis points extra to what other procedural driven banks charge me, I am willing to do it for convenience. IDFC is pursuing a 2 pronged approach. Targetting high quality customers in urban cities and the opportunity straved people in rural areas.
Additionally, being a young promoter driven bank, taking decisions at scale even when business models change/don’t work is much easier for VV than say corporate/Govt banks like HDFC, SBI etc.
Discl: Invested and biased
15 Likes
That’s great to hear @sahil_vi . I am sure if you maintain a good credit history and usage, you can go back to them after a year or so and negotiate for even lower interest rates. In fact, once they see your usage history, secured lending for them is virtually risk free at attractive rates, those rates should eventually come down to 9-10% p.a… limits should increase exponentially too.
I also got call from bank that being existing customer , you have offer of credit card with 4 lakh limit @ 1.5 % monthly rate(18% yearly). Easy steps for applying then card delivered on 3rd day.
3 Likes
7495d315-c0c9-446d-9b05-4ec3090af675.pdf (298.7 KB)
.
Looks like another good quarter…the story keeps getting better…
6 Likes
With the kind of CASA coming in they could reduce savings rate even further in the coming days - as in it is an option.
This is great news for future profitability and positions the bank really well.
Interest rates cut by 1% and still 6k crore of CASA collected - hats off to the CASA teams.
4 Likes
i think it is because 6% being still high in the market. If they reduce is further e.g. 5% etc. i will be looking for other options (so not difficult to say others will not be thinking along the same line).
1 Like
Point taken that some would shift
Why would that be? I think you being a financially aware person would want to earn that 1% more if they reduce to 5% - there being a higher interest opportunity you know of.
For a common person who might have less than 5lakh in the account and who has a credit and debit card with them and has had an account for a year I don’t think they would shift. All banks pay low interest- though not idfc right now. So they just want a hassle free bank I think.
We have seen that there is a massive stickiness to savings accounts. You add your payments details in a 100 places. Even kotak cut rates so aggressively below 4% and had no issues with still having high casa.
I think CASA truly is a banks assset- off course should be lower cost than what most can borrow at.
Personally the way I got charged by hdfc for random things, I absolutely love when idfc says no charges at all for credit card. I know that they will keep their word and so now I only use their card.
4 Likes
No. Please consider the disconfirming evidence of RBL banks savings account rate of 6.5% which is higher than idfc first bank and much higher than established banks savings interest rate. Despite this their CASA ratio is only 31% as of December 2020 versus 27% a year ago.
There is some serious brand building and customer engagement that idfc first has done. This cannot be discarded or measured in numbers alone. Otherwise it is hard to justify how despite having higher interest rate RBL has are lower casa ratio and also much slower casa ratio growth.
Similarly consider the indusind bank casa ratio of 40% which was flat during the year and down from 42% a year ago. Despite having 6% headline interest rate and much higher interest rate even for lower balances than large banks.
20 Likes
In the credit card or debit card industry, the merchant acquiring bank (ie the bank that installs the terminal) and the card issuers bank gets to keep the MDR (Merchant discount Rate). If the Merchant is acquired at 2% on per transaction (MDR), then transaction that is carried out at PoS terminal is split 1.1% to card issuing bank and the rest is to the merchant acquiring bank. Visa/ Master card gets a fixed small fee on every transaction. The business is dynamic in nature, the merchant acquiring and card issuing bank if its the same then the entire MDR is kept by the same bank.
Dis: Invested.
5 Likes
Just loving the enriching conversation here.
Can someone please explain how the reverse merger works? Or is there any video/article through which I can understand this?
This topic is temporarily closed for at least 4 hours due to a large number of community flags.
This topic was automatically opened after 8 hours.
Can you pls let us know what’s the bank’s cut in case of online transactions. I see above rates are for PoS terminal…
2 Likes