Summary
Changes in the credit card industry will have far reaching implications not only for card issuing banks but also the entire corporate sector. The entire exercize of working capital management will have to be re-done and liquidity will be given additional prominence. Purchase managers will come under scrutiny as constantly they will have to answer questions on the rationale of going for credit purchases using company credit cards and how much additional cost it has meant for the company vis-a-vis additional revenue that could have been earned. Even to provide such data, one has to track down interest rates on bank deposits as well as money market instruments. Surely, working capital management will become a little more complex.
Analysis
If we compare the impact industry-wise, the FMCG (fast moving consumer goods) sector is likely to get the major brunt as these are the items (typically electronic items for households) where consumers were paying using credit cards as automatically at least one month credit could then be availed of. Now, consumers may choose to pay cash looking into the discount that is available. From the viewpoint of containing too much demand, offering discounts to consumers who pay cash makes eminent sense. Not only that, the size of derivatives market will also shrink as credit card receivables were themselves forming the base for issuance of mortgage-backed securities.
