In the middle of 1996, American Express (AMEX) Travel Related Services (TRS), India was concerned about the course of action it should follow to protect and consolidate its card business in India. The heat from the fiercely competitive card market had finally begun to tell on American Express. Since its entry into the Indian market in 1973, American Express had carefully shielded itself from the battle by nurturing a small niche at the top-end of the market. So if the leader, Citibank and the late entrant Standard Chartered had followed the traditional low-margin, high-volume route to market leadership, American Express chose to swim against the tide by cultivating its exclusive niche at the super-premium end of the card market by offering its charge card. For American Express, the first indication of a crisis appeared in 1995, when its card spends began to stagnate. In 1996, the average card spends hovered around Rs. 35,000 to 40,000 per annum band and did not show any signs of increasing. Should AMEX have been concerned? After all, its average card spends were still two-and-a-half times that of the industry average.
Robert McNamara set up Diners’ Club in 1950 which issued charge cards to its members. This unique idea of extending charge privileges on the mere flourish of a signature caught on like a wildfire. Soon worldwide networks came into existence. Diners’ Club made its entry into India ten years later when Mr. Kali Modi bought over the franchise. But the real impetus came when Mr. Shyam Sunder Agrawal took it over in 1976 and the membership shot up from 9,000 to 65,000 in the next 14 years. For a decade and a half, Diners was the only card in the field. But soon banks realized the immense need for credit facilities in the fast growing consumer society of India and entered the fray.
INDIAN CARD MARKET
The three most common types of cards available in the Indian card market in 1996 were: the credit card, the charge card and the corporate card (Exhibit I) After the success of Diners’ Club, the early 80s saw the launch of cards in India by some public sector banks such as Central Bank and Andhra Bank which had affiliations with Visa and Mastercard – the two international credit card franchisers, who had a large number of merchant establishments accepting their cards worldwide. Visa and Mastercard were the only major franchisers, with AMEX and Diners’ running their own independent network of member establishments. Citibank, a U.S. based bank with a strong presence in India, entered the card market in 1990 with the Diners’ Club card as a result of Citibank Worldwide’s (its parent) purchase of Diners’ Club franchise. Diners’ Club then had 65,000 card members which gave it a market share of about 17% of the Indian card market. As of 1995 the comparative number was around 200,000. As per statistics, of about 18 lakh cards in 1995, the nationalized banks (i.e. the public sector banks) accounted for 55% or nearly nine lakh cards, while the rest was in the hands of foreign banks. Also, Citibank had a giant share of the market, serving some eight lakh customers. Card accepting establishments could be found in over 600 towns across India. The total number of card establishments had expanded to over 90,000. These included outlets such as hotels, airlines, retail establishments, travel agencies and jewelry shops, supermarkets, grocery stores, hospitals, petrol pumps, mail order shopping outlets etc. India was expected to reach the one-crore mark in credit cards by the year 2000, second only to the U.S. The multitudes of global opportunities that Visa’s and Mastercard’s alliances with the banks brought were immensely abundant. For the card members, benefits included access to merchant outlets, a higher spending limit without the hassles of stringent credit appraisal, teller facility at any of Visa’s or Mastercard’s branches in India,...