SBI Cards Business Model – SWOT Analysis

SBI Cards‘ outstanding card base has grown at a CAGR of 28% over FY15-FY2019 (vs industry CAGR of 22%) with market share of ~18% at Sep-19. With low credit card penetration in SBI customers, strong brand name and distribution, SBI Cards has potential to grow its card base at ~23% CAGR over the next 5 years leading to market share of ~22.5% by FY24. In this backdrop, we do a SWOT Analysis on the Business Model of the SBI Cards.

SBI Cards Strengths
The tutelage provided by SBI gives natural advantage to SBI Cards in growing its business. The advantages come in the form of brand, trust, access to vast customer base and distribution strength. For example: In FY19, 55% of the new customers were sourced from SBI’s customer base. With more than 20 years of operation, the company has deep expertise in this highly competitive credit card market. Ranked second largest credit card issuer and has consistent track record of profitability. A strong sales force team, ~33K members based out of 133 Indian cities to source the customers through various channels like physical points of sale, telesales and online. SBI Cards also works with 18 co-brand partners (highest in the industry) to market its credit card products. On top of these, access to extensive SBI network (~22K branches), digital and mobile platforms like SBI YONO provides diversified ways of accessing the potential customers.

SBI Cards Weakness
The company is designated as “NBFC-ND-SI” which means it cannot accept public deposit and thus will solely have to depend on the borrowings for its funding requirement. Lack of diversified funding avenues as compared to its competitors which also includes full-fledged banks, SFBs put it at a disadvantage vs peers. Over dependence on the parent company can be negative if the parent (SBI): 1) terminates the right to use SBI and its logo; 2) provides similar support to the rivals of the company as the current agreements are not exclusive; 3) divest additional stake in the company in future (below 26%) so that same level of support cannot be sought, and 4) The brand SBI itself is adversely affected.

SBI Cards – Ample Opportunities
Fairly young population, increasing urbanisation and increasing dependence on retail credit by the young population present unique opportunity to the company. As per CRISIL, the share of population between the age of 30 and 59 (“working age population”) will go up to 37% in 2020 from 31% in 2000. The share of people in urban areas is expected to go up to 35% in 2021 from 28% in 2001 (still way below than 60% urban population in China). The Share of new accounts has gone down for the Tier-1 cities and focus has shifted to the smaller towns. This opens a door of vast potential for the company given the huge distribution network provided by the SBI. Number of credit cards of SBI Cards is just 3% of debit cards of SBI. This ratio is ~31% for private sector banks which implies huge opportunity for SBI Cards to leverage customer base of its parent.

What are the Threads to SBI Cards ?
The Interchange fee accounts for 21%/51% of the total revenue/fee income as of 1HFY20. This is substantial source of the revenue for the company and may come down if the RBI acts on capping the Interchange fee. The RBI has already capped /rationalized the Interchange fee charged in case of debit cards in 2017. The same can be extended to credit cards as well given high growth in this segment. This poses greater credit risks especially in the current time of economic distress. Going forward, the company may have to provide additional provisions for the credit losses which might impact its profitability. Experience of US card industry shows sharp increase in credit card delinquencies in times of slowing GDP/employment growth. Competition – Other modes of payments like mobile, UPIs are also able to attract large number of volumes. This can put both margin and growth pressure on the company, if not countered well.

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