Why India’s Largest Private Lender Is Sharpening Its Focus On Millennials

India’s largest private sector lender HDFC Bank Ltd. is working its way into the wallets of young, working and aspirational ‘millennials’, who, by the bank’s assessment, are willing and eager to spend on products and experiences.

Millennials, a term broadly used for those within the age group of 20-35, make up nearly 25-30 percent of HDFC Bank’s credit card base, according to Parag Rao, country head for card payment products at the lender. Moreover, they account for 40 percent of the incremental credit cards issued by the bank, Rao said.

No surprise then that the lender is planning events and products targeted specially at this category.

At an event organised at a posh mid-town pub in Mumbai last week, HDFC Bank offered a fare of stand-up comedy, conversations with influencers and chatter from senior bankers on their experience in dealing with millennials in their families.

Amidst the seemingly casual setting, HDFC Bank launched a new ‘Millennia’ range of cards, which includes credit cards, debit cards and easy EMI cards. The cards are being offered at a “nominal price”, according to Rao. Even this nominal price could be waived off if customers hit a certain value of spend on the cards in the first few months.

The bank aims to have 10 million ‘Millennia’ credit cards in circulation within the next five years, he added.

HDFC Bank has the largest base of credit cards with 12.8 million outstanding cards, shows monthly data from RBI. As on June 30, the outstanding amount on the bank’s credit cards stood at Rs 49,523 crore, up nearly 29 percent year-on-year.

What Do Millennials Want?

HDFC Bank’s assessment of its own customer data suggests that millennial customers spend over 23 percent of their incremental income on discretionary spending and personal grooming. At least one in three of these millennial customers work in managerial positions and have the right profile to be offered a credit card.

According to Rao, millennial customers want products which not only offer them freedom and choice, but are also digital in nature and allow them to have control over their spends. As these customers tend to be more digitally savvy and are more aware of better deals available online, a credit card meant for online spends get them started on the habit of using credit responsibly.

Millennials also don’t care much for reward points on credit cards. To counter this, the bank decided to issue cards with cash backs. The cards focused on millennial customers offer higher cash backs on online spends, as compared with offline spends. If the customer were to use HDFC Bank’s mobile applications such as PayZapp and SmartBuy, the cash back would be larger.

Another insight the bank gathered from its study is that the millennial customers better experiences. This means that lifestyle-rewards through special treatment at restaurants, airports and other social venues will go a long way in drawing these customers, HDFC Bank believes.

The eventual aim, Rao said, is to bring in more customers who are new to credit, so that the bank can slowly build up a relationship and eventually sell them other credit products like auto and home loans.

Within Risk Limits

While expanding its focus on this potentially high-growth customer segment, HDFC Bank will continue its strategy to ensuring that roughly 75 percent of its credit card base is made up the bank’s own customers.

“There will be no relaxation on the bank’s underwriting standards with these products,” said Rao. HDFC Bank has a credit card base of about 13 million, while it has 40 million customers banking with it. This gives the bank ample opportunity to grow its credit card business within the bank, he said.

The Millennia range of cards will target all three categories of customers, the ‘credit eligible’, the ‘credit shy’ and the ‘credit ineligible’, who will be offered debit cards. Going ahead, as these customers start banking with HDFC Bank more, the bank could look at introducing them to savings and investment products tailor made for them, Rao added.

A Broader Trend

Industry level data shows that the younger customers are slowly participating more in the credit economy.

A study by TransUnion CIBIL, conducted in December 2018, showed that customers within the age group of 20-29 years now make up 20 percent of all customers with a credit balance. In 2015, this proportion was at 17.5 percent.

Though their share of overall credit balances rose marginally in this time frame, it bodes well for the country to see more of these younger consumers participating in the Indian economy.

Yogendra Singh, Vice President of Research and Consulting, TransUnion CIBIL

HDFC Bank and peer lenders are trying to capture this slow change in the customer base.

Last month, Axis Bank launched a co-branded credit card with online market place, Flipkart. The card is aimed at new-to-bank customers and focused on providing cash backs over reward points. Just like the HDFC Bank card, Axis Bank promises to waive off charges after a customer spends Rs 2 lakh annually.

According to Axis Bank, there are about 200 million credit worthy customers in India, of which, only 72 million have active accounts with banks or other lenders. This provides ample space for banks to grow their credit card base.

Grow With Caution

Credit card outstanding balances are the fastest growing retail loan segment for the banking industry.

RBI’s monthly sectoral data shows that as on June 30, credit card outstanding for the industry stood at Rs 94,900 crore, up 27.5 percent year-on-year.

There are, however, early concerns over whether some segments of Indian households are seeing increased indebtedness. Default rates have also been inching up. According to the TransUnion CIBIL report quoted above, delinquencies in credit cards have risen by 28 basis points year-on-year to 1.78 percent.

HDFC Bank’s Rao, however, said that default rates are still low and are not a cause of worry. “We have not seen any reason to be worried about the rise in revolving credit or higher delinquencies in our book,”