Credit cards that come with a no-cost equated monthly instalment (EMI) feature have seen strong traction since the onset of the pandemic, Adhil Shetty, chief executive officer of BankBazaar, said. In fact, both EMIs and no-cost EMIs have grown at a faster pace than revolvers, where customers carry a balance on their credit cards and pay that off over time.
“In the US, for example, BNPL has been developed as a new industry and the credit card never adapted to offer that product feature. The interesting thing that happened in India is that credit card issuers ended up innovating and building no-cost EMI and BNPL as features on their credit cards,” Shetty said.
“Today, more people are converting to EMI than leaving it as a balance, which is a feature of the pandemic. I think credit cards in India did an innovation that did not happen in the US, where they are encouraging people to convert into EMI rather than revolving. This ends up having a lower interest rate,” he said.
A recent study by consumer finance provider Home Credit India concluded that more than 50% of borrowers surveyed show a preference for EMI cards as far as their shopping needs are concerned. On the BankBazaar co-branded credit-card, no-cost EMIs are availed across 100 different products on the Amazon website on a monthly basis.
No-cost EMIs are basically interest subvention schemes. While there is no cost for the consumer, the actual product does have an interest component borne by the retailer or the manufacturer depending on the tie-up. On the other hand, a pure-play EMI may have a processing fee and an interest rate, which is disclosed to a consumer during the sign-up process.
“The difference between a no-cost EMI on a card and BNPL is that a BNPL will, say, pay it three months, and the first payment date can be as near as 5-10 days,” he said.
“EMI on credit cards is offered for six, nine, and 12 months and that gives you more time. The first payment date is at least till the end of your billing cycle and the due date. Your billing cycle can end anytime because it is a rolling 30-day cycle. Typically, your due date is 15 days later. Also, there is no processing fee for a no-cost EMI and it is the same price even if you pay on UPI. So, you are getting the benefit of this in the long term,” Shetty said.
Shetty’s comments came in the backdrop of BankBazaar’s latest Moneymood Retail Credit Trends report.
According to the report, credit card disbursals on the BankBazaar platform rose 103% year-on-year in 2022. Among other types of retail loans, those against assets like fixed deposits, gold, shares and bonds have risen 54% since the end of 2020.
“The advantage of loan against fixed deposit is that it is treated as a secured loan unlike an unsecured loan, so you can get it significantly cheaper. A loan against FD can be 3-5% cheaper than an unsecured loan. So, you are able to get that benefit,” Shetty said. “If you liquidate an FD ahead of maturity, there is a 1% penal fee. Also, people want their savings to remain on their books. So if people need money, they are tending to take loans against fixed deposits nowadays.”