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Neena Haridas
in New Delhi

When was the last time you wished you hadn't fallen into this plastic trap? The last time you splurged on goodies just because your credit card could bail you out? And then wished you hadn't indulged?

While on one hand, the plastic money fad has pampered the Indian middle class, on the other, it has left many a card holders confused. Despite the fact that there are about 3 million credit card holders in the Rs 70,000 million Indian credit card industry, majority of them are ignorant about card usage. This has been revealed in a study conducted by the Credit Card & Management Consultancy.

The study involved an intensive survey of 10,000 customers holding credit cards and charge cards in 15 cities across India.

Says Vijay Mehta, chief consultant, CCMC, "It is surprising that majority of card holders in the country are ignorant of the fundamentals like interest rates. Through this study we have realised that there is a wide discrepancy between what card holders know and what the reality is. There is an urgent need to educate card holders and our study will provide individuals with the right knowledge to enhance card literacy and help create a well informed card base in the country."

The Indian market today offers a variety of cards. Credit cards are for customers who would like to rotate the money and charge cards for those who wish to settle their bills in full. The CCMC study revealed that 78 per cent of card holders were unaware of this difference.

Another interesting finding was that 67 per cent of card holders were unaware of the financial loss they could suffer in case of loss of card with most card companies holding card holder liable for all expenses incurred on the card until report of loss.

While ignorance may be bliss in some cases, in credit card business it definitely is dangerous. According to the study, 84 per cent of cardholders believe that they are entitled to an interest free period of 30 days or more in all situations, whereas in reality interest free period is applicable only in those cases where the monthly bills are settled in full. And due to this ignorance, 65 per cent of card holders in India pay interest rates higher than what they believe.

The study further revealed that there was a critical gap in the understanding of card holders in areas such as interest rates and processing fees on outstation cheques.

But what is the reason for this widespread ignorance?

"The problem is that customers perceive that they know all about card usage, while in reality they don't," says Mehta.

The reasons stated by customers for possessing a card were interesting: while travel and entertainment were the two most frequently stated reasons, in reality acquiring a credit card, the study found out, had more to do with the snob value.

Besides, among the middle-class consumers credit is a basic financial need. The 'buy now pay later' factor attracts most middle class populace to the plastic card.

The three features considered most important when a applied for a card were: convenience and acceptability, service quality, cash advance and credit limit. The survey found that growing importance was also being attached to medical services and emergencies. However, only 16 per cent of these customers considered ATM connectivity to be important. Overlooking, in the process, repayment and interest rates levied.

Over 65 per cent of card holders were unaware of the interest rate calculations and found the rate calculation to be too complex, and 35 per cent of them did not know of the annual fee charged on the card.

In fact 70 per cent of the customers were not aware of waiver of outstanding balance upon death of the card holder, while a similar percentage was unaware of the action to pursue in case of loss or theft of the card.

Says Sandeep Ahuja, a software consultant, "I was quite excited in the beginning and splurged on my card. But later I realised I was paying just the interest rate every month and my account never closed. Now, I have stopped using the card. But I am still paying off the debt."

Similarly, 80 per cent of card holders in India do not have rewards/point programme on their cards, though in the western countries reward/points are considered to be very important features on the cards. In fact, nearly 60 per cent of the card holders were unhappy with the credit limits available to them and wanted credit limits in the range of Rs 15,000 to Rs 1,50,000.

This demand to increase the available credit limit probably stems from the fact that the average card spend in India is rather high owing to the 'buy now, pay later' attraction. For an average monthly income of less than Rs 10,000, the average spend is Rs 2,600, for income up to Rs 10,000-Rs 15,000, the card spend averages around Rs 4,300 and those with income above Rs 15,000 the spend goes up to Rs 4,800. While in some cases, the card spend is deliberate, in others the customers feel that credit cards prompt them to buy beyond their means. About 32 per cent card holders in India are in fact against credit cards due to this 'buying-beyond-one's-means factor.'

Says CCMC's Mehta, "It is the responsibility of card companies to educate customers. While card companies do a good job of explaining all about new benefits and services, they could do much more to educate customers about the growing interest rates, transaction fees and the likes so as to make them financially responsible."

The CCMC study, in fact, also charted out a few recommendations that would help in creating a more responsible plastic money culture. The study said the card issuers should help the customers in selecting the appropriate card and judicious usage through awareness programmes. And that the card issuers could simplify the methodology of calculation of interest rates.

"The card companies could also explain the importance of managing and keeping card borrowing accounts clean as bad records can affect card holders ability to avail card/consumer/auto/housing loans from another bank/card issuer. In fact, CCMC has set up an individual card advice service which will address individual problems," says Mehta.

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