Indian banks are changing their credit card business model as customers increasingly pay bills in full to avoid high-interest charges. Lenders are now pushing EMI schemes and fee-based services to maintain profitability. This strategic shift reflects a fundamental change in how credit card companies generate revenue from consumer spending.
The credit card business in India is undergoing a significant change. For years, the traditional business model relied on customers carrying over their unpaid balances month-to-month, known as revolvers. These customers were highly profitable for banks because they paid high interest rates on their outstanding dues. However, that segment of the customer base is shrinking.
Today, more consumers are paying their credit card bills in full every month. This change is driven by better financial awareness and the widespread use of digital payment tools that make it easier to manage finances. As a result, the portion of card spending that earns high interest is falling. Industry data shows that interest-bearing card balances, which include both revolving debt and EMI-based loans, now make up a much smaller share of total annual card spending compared to a few years ago.
To counter this, issuers are aggressively shifting their focus. Instead of relying on unpredictable interest income from revolving debt, banks are now pushing customers to convert their large purchases into Equated Monthly Installments (EMIs). EMI loans offer more stable and predictable income for lenders. Banks are also looking to increase fee-based revenue, such as joining fees, annual fees, and merchant-related commissions, to protect their profit margins.
Taking the example of SBI Cards, the shift is clear from their recent trends. The company saw the share of revolver receivables drop significantly from 40% in early 2020 to 22% in recent periods. When factoring in both revolving debt and EMI loans, total interest-earning receivables for the company have also seen a decline. This forces management to find other ways to ensure that the revenue generated per rupee spent does not drop too sharply.
For investors, this shift changes how they should look at the sector. The focus is moving from just tracking spending volume to monitoring the quality of earnings. Lower revolver numbers mean lower net interest margins, unless the company successfully increases fee income or grows its EMI loan book profitably.
There are risks to watch as well. If consumer spending slows down due to economic pressure, both credit card usage and EMI conversion rates could suffer, putting further pressure on bank earnings. Additionally, since EMI loans are essentially personal loans on cards, investors should monitor the asset quality—or the ability of customers to pay back these EMIs—to ensure that shifting to this model does not lead to higher bad loans.
The next important trend to follow will be management commentary from credit card issuers regarding their strategy to offset the loss of high-interest revolver income. Investors should track whether the growth in fee-based income and EMI conversion is sufficient to maintain profitability in the coming quarters.