India Ahead Of US & Canada in Prompt Credit Card Bill Payments
India remains one of the few remaining bright spots in the world economy and that is exactly why manufacturers and service providers are making a beeline to gain entry into this huge market. Most of the world renowned banking service providers have already established full-fledged business operations in India.
One sector that has shown tremendous growth over the past few years is the credit card industry. There are numerous factors that fuel this growth, but perhaps the most important reason may only have been uncovered by a recent study conducted by TransUnion Cibil. The report says that India is well ahead of countries like USA and Canada when it comes to repayment of credit card bills. It goes on to state that Indians are more aware of the penalties caused by defaulting on credit card bills or their late payment and hence make sure that they pay more than their minimum monthly dues well ahead of time.
India also tops the list of countries with the maximum number of credit card holders who pay in excess of their minimum due every month. This has resulted in India making rapid progress when it comes to reducing delinquent credit card users. Considering that the penalty on late payment or defaulting is almost similar to that of other countries, this behavioral pattern is impressive for a nation which is the fastest growing credit card market in the world.
What explains this shift in repayment behavior?
Although Indians are known for their penchant for avoiding extra charges, the sudden change in repayment behavior may be attributed to various factors. First and foremost is the extent of penetration that the banking sector has been able to achieve in the metros as well as tier 1 and tier 2 cities. Along with banking awareness, banks have spent considerable capital in educating them about the benefits of digital transaction and building a strong credit score.
Home to the largest middle class population in the world, Indians are increasingly turning towards credit cards and loans to meet their immediate monetary needs. Credit history and credit scores have become common household terms in this context. Among the countries surveyed by TransUnion Cibil, India has displayed the greatest awareness when it comes to relating healthy credit scores to borrowing capability. This means that most of the Indians are aware that in order to secure a credit card or a loan, credit score is of utmost importance. And to ensure you have a healthy credit score, the easiest way is to never default on your credit card bills. This explains why 9 out of every 10 Indians pay their minimum due every month on time.
The study was predominantly held in metros and large cities like Delhi, Ahmedabad, Pune and Mumbai. One might argue that the average city dweller may be better educated and hence more aware of the nuances of credit card usage. It may hold true to some extent but considering the kind of penetration banking services have been able to achieve even in rural India, it wouldn’t come as a surprise even if the survey showed similar trends for tier 2 cities as well.
So what does it mean for the country?
Banks do love a loyal, law-abiding customer and the result of this study is going to give them all the more reason to continue their push into rural India more vigorously. Considering how only a fraction of India’s humongous population possesses or is even aware of a credit card, the business potential is mind-numbing. Combine this with the government’s recent push into digital economy and you have a win-win situation for all parties involved. The study will also pave the path for banks to go easy on the restrictions placed on issuing loans and credit cards, thereby resulting in deeper penetration and enhanced business growth.
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