Merchant EMI

The credit card industry has grown tremendously in India.
There are many

developments happening in the space, with varied innovations and changes in
technology. These new developments offer smooth onboarding journeys,
differentiated card products, personalized offers and rewards, and better mobile apps,
which have proved to be greatly beneficial to existing customers and attracted new
customers as well.
The credit card industry in India has witnessed a compound annual growth rate
(CAGR) of 20% in the last five years. The most important feature which is talk of the
town today is affordability in the form of EMI or pay later. Making products affordable
for the customer by letting them pay later or pay in easy EMIs, with low cost or no cost.
This is not just helping the consumer industry in terms of volume but also letting
individuals to buy products in much simpler & easy way not worrying about the price
of the product. Various products that are offered today to create affordability are:
• Credit Card EMI: All credit cards provide an option to buy a product on EMI
• Debit Card EMI: Today customers are eligible to buy products on EMI using
their debit card as well. The only difference is not all are eligible for the
same, viz only selected pool of customers are eligible for debit card EMI.
• Buy now pay later: The Buy Now Pay Later (BNPL) scheme of payments is
the new craze, especially among the younger generation. Many e-
commerce and retailers now have various rewards on BNPL schemes and
are also offering 'buy now, pay later' EMI options
• Paper finance: This is the loan offered for consumer durables by

banks/NBFCs at the point of sale. For ex: while making payment at the
counter of Reliance Digital/Croma, sales executives from such
banks/NBFCs will offer you instant loan by collecting a few documents like
PAN, Aadhar etc.
Currently Kotak is one of the fastest credit card issuer with current card base of 43M
+, and we are growing exponentially. For any issuer the strategy is to increase the
share of customer wallet, viz. the customer should spend more on their card, so is for
us.
Creating affordability with easy credit card EMIs is where we have immense
potential/room for growth. Credit Card EMI is a product which helps customer to buy
any product of their choice on EMI. Customer can simply select EMI option at the time
of buying the product from any online platform- like Amazon/Flipkart or in case of
offline store- like Reliance digital/Croma select EMI option on the POS device.
Here comes our problem statement to grow our space on affordability/credit card EMI.
Product in Scope- Credit Card EMI (at point of sale- online & offline)
Problem Statement
1. Currently our EMI% Spends is only 5% of retails spends of 3800 Cr, which is
lower than the industry penetration of 7%.
2. We book ~15 (count) EMI loans per 1000 card vs best in class players book
~25 loans per 1000 cards
3. Customers also actively take paper finance loans instead of opting for credit
card EMI, this is a lost opportunity for us. This can be due to multiple reasons
like
a. Lower credit card limit
b. For any EMI loan the credit limit gets blocked, so customer may prefer
paper finance which is a separate loan
c. Awareness of credit card EMI & offers associated with the same
d. People in the stores promoting the offer
4. There are other products like Debit Card EMI & Buy now pay later which also
poses competition in the game
Goals
• Increase EMI% Spends to 6%
• Increase count of EMI loan booked to 25 per 1000 card base
We are undertaking multiple efforts currently to make this possible.

1. Running multiple cashback alliances with various brands- this comes with a
cost of 5%. Average cost on the total portfolio being 2.5%, which will increase
if you run more offers.
2. Offering No cost EMI on multiple brands at various tenures
3. Improving awareness on cashback offers & no cost emi offer, by running
multiple communications- email, sms, WhatsApp, mobile app notification
Below are some of the plans which can help in increasing penetration:
1. Planning to deploy people on various outlets to promote Kotak card EMI – this
comes with a cost of 2%
2. Merchant incentive plan viz. incentivizing merchants to pitch Kotak credit card
EMI – this comes with a cost which can range from 1% to 2.5%, basis the size
of merchant
3. Digital modes to activate higher credit line on the customers card or offer loan
above the credit line to customer
Below are some metric on commercials of the product:

1. Blended interest rate- 13% (income)
2. Blended Tenure – 9 months – (loan tenure)
3. Cost of Funds- 7% (expense)- (just like cost of raw material, in banking the raw
material is funds, this is the cost Bank will incur to lend funds, viz if Bank lends
Rs 100 to a customer, Bank will incur a cost of Rs 7 & earn an interest rate of
Rs 13)
4. Interchange earned – 1.5% (income)- (This is the income issuer bank earns for
transactions processed)
5. Cost of campaigns 2.5% (expense) – (This is the cost of cashback campaigns)
6. Processing fee – 1% (income)- (this is the processing fee we levy on customer)
7. Other expense – 1% (expense)
Please help explain what should be the go to strategy to meet the goal & still be
profitable. For each strategy, share a detailed plan, including for digital what should
be the customer journey.
You are free to make intelligent assumptions wherever required.

Merchant EMI

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Merchant EMI

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The credit card industry has grown tremendously in India.

There are many

• Paper finance: This is the loan offered for consumer durables by

a. Lower credit card limit

d. People in the stores promoting the offer

• Increase EMI% Spends to 6%

• Increase count of EMI loan booked to 25 per 1000 card base

We are undertaking multiple efforts currently to make this possible.

Below are some metric on commercials of the product:

You are free to make intelligent assumptions wherever required.

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