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Wednesday, Oct 19, 2005


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Will cashback bait make cardholders spend more?

N.S. Vageesh

Chennai , Oct 18

GIVING a discount is the oldest trick in the book to boost sales. Credit card companies are now offering you a part of your money back. Called `Cash back offers', and started as promotional offers by a few companies earlier this year, they have now caught on across the industry.

Everyone, from ICICI Bank and HDFC Bank to Standard Chartered, SBI, and HSBC, are offering to pay back 5-10 per cent of your purchases. This is the festival season and most offers extend till December. The money will come back to you by way of a credit or a deduction in your first card statement after the offer period ends.

And it is not the merchant establishments that are bearing the costs. Mr Puneet Chaddha, Head (Cards and Retail Products) at HSBC, said: "The cost of the cash back programme is borne by the banks."

There are some conditions attached, of course. Minimum purchases that need to be made using the card range from Rs 1,000 to Rs 5,000. Different banks have conditions about what can be purchased under this offer.

Standard Chartered stipulates that the offer is valid only for purchase of consumer durables bought on instalment plans and on select cards in select merchant establishments.

SBI has an offer that is limited to purchase of Railway tickets through IRCTC.

HSBC's offer covers everything - apparel, jewellery, watches, electronic items, consumer durables, leather goods, groceries, books, music, etc.

The maximum amount that can be given as `cash back' is usually between Rs 1,000 and Rs 1,500 for most cards.

In the case of Standard Chartered, the maximum `cash back' is limited to Rs 6,000.

If all the 13 million cardholders in the country were to avail themselves of these offers, card companies may have to fork out about Rs 1,000 crore. Why are these companies parting with that much money?

Credit card companies want you to spend more. Not just because this is the festive season, although that helps matters. Having waived the annual membership fee and offering cards free, most card companies can make money only if you spend more on your cards. And hopefully delay your payments so as to avail of the credit. Companies are hoping you'll spend more than the average of Rs 20,000 per card every year.

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