Cash, cars up for grabs

Cash, cars up for grabs

By Hendarsyah Tarmizi

JAKARTA (JP): Credit cards are becoming more popular in
Indonesia now days with more and more people pulling out a
plastic card from their wallet instead of cash.

The promising market potential has encouraged many banks to
further expand their card business. Many foreign and local banks
are even focusing most of their energies on card services rather
than on providing loans to corporate buyers.

In such a situation, head-to-head competition cannot be
avoided. Banks have made many attempts to expand (or at least to
maintain) their market shares amid the growing competition.

Besides offering lower interest rates and membership fees,
many banks also offer big cash prizes or expensive cars as bait
to attract new customers and, at the same time, to maintain their
existing customers.

HSBC Indonesia, for example, has launched a lucky draw,
offering a cash prize of up to Rp 1 billion (US$117,500) to its
new credit-card customers.

HSBC's vice president for public affairs Agung Laksamana said
that through its "One billion rupiah is not a dream" sales
promotion, the bank has attracted thousands of new customers
since it was launched two months ago,

HSBC has about 150,000 credit-card holders at present, making
it the third-largest card issuer among foreign banks here and the
10th-largest among all banks in the country.

Agung said the lucky draw, the first offering a cash prize of
Rp 1 billion to a single winner, had been quite successful.

"The number of new credit-card holders has more than doubled
since the launch of the cash prize," he told The Jakarta Post.
Due to the success, the Indonesian unit of London-based Hongkong
Shanghai Banking Corporation Limited plans to extend the
promotion to the middle of next month.

A number of local banks have made similar approaches in
attracting customers. LipoBank is offering a prize it calls a
"mountain" of cash, while Bank Internasional Indonesia is
promising a Honda sedan to winning customers. State-owned Bank
Negara Indonesia is offering a life insurance facility valued up
to Rp 200 million.

Too aggressive

Luring customers with promises of big cash prizes and
expensive cars, or low interest rates and fee-free memberships
are often considered as being too aggressive.

But many banks do not have much choice but to take such
aggressive approaches; if not, they could be "eaten" by their
competitors.

In the era before the crisis hit the country in late 1997, the
banking sector provided a larger part of its funds as loans to
corporate borrowers. But times have changed. The big corporate
borrowers, if they have not collapsed, are no longer bankable due
to their continuing debt problems.

Of course, not all of them went under. Many companies have
managed to recover quite well. But banks are generally still
reluctant to extend their credit to them for fear that past
experiences of incurring massive bad loans would be repeated.

The situation has left banks with consumer financing as the
best (if not the only) alternative available for the banks.

As a result, competition in the credit-card business is
getting so fierce that a "soft" promotion campaign is no longer
effective to win the market. It might be for this reason that
many credit-card issuers have been forced to launch a "direct
attack" to lure other banks' customers.

Standard Chartered Bank (SCB) has launched an aggressive
marketing strategy to boost the sale of its Visa and Mastercard.
In a promotion drive launched several months ago, SCB offers a
new customer fee-free membership for a six-month period.

SCB also offers its new customers a facility which enables
them to transfer their credit card bills at other banks to their
new account. For the transferred bills, SCB only charges an
interest rate of 1.99 percent per annum, only half of the average
interest rate charged on credit cards in the country.

SCB's general manager for credit cards and personal loans,
Reza V. Maspaitella, said that the impact of the "balance
transfer" was very encouraging in attracting new credit-card
holders.

He said that the facility, which had been stopped for a while,
had been resumed to give more benefits to customers. "We have
more than 155,000 cards and we expect to have 200,000 cards by
the end of this year," he said.

Using the "direct attack" on customers of other banks is
certainly not a new phenomena and, of course, it is still within
the business norm. Such a marketing strategy could annoy the
bank's rivals but to customers, it is quite positive. It, at
least, gives them more options to choose.

Is it fair ?

The big question may be on the fairness of the banks in their
promotion. It could just an empty promise as we know most of the
banks are still not transparent, especially with their lucky
draws.

Commenting on the transparency, Agung said that the draw to
select HSBC's winning number was held in the presence of a public
notary, officials from the Ministry of Social Affairs and the
Jakarta administration, the cardholders as well as the bank's
management.

He said the first and second draws were won by Moh. Arief, a
corporate lawyer based in Jakarta, and Adinata Z. of Medan,
respectively.

"The third draw will be held on November 1," he said.

Although the sharp competition seems to be attractive to
customers, many bank experts have called on authorities to look
into the matter. When the competition is no longer healthy, it is
the customers who will suffer most.

In a recent interview recently with Infobank magazine, Reza
defended SCB's balance-transfer facility, saying that the
facility was offered to give customers more alternatives.

With such a facility, credit-card holders will have the
opportunity to maintain their cards at other banks or to become
SCB customers, he said.

"So the impression is not that SCB is taking other banks'
customers. It is the customers themselves who decide to stay at
their old banks or to become SCB cardholders," he said.

Market leader

Citibank, as the leader in the Indonesian credit-card market,
seems to be unaffected by the cutthroat competition, albeit it is
not easy for the bank to stay at the top.

In maintaining its leadership, Citibank has introduced a
number of promotion drives. This year alone, the bank has
launched four types of incentives in attempts to attract new
customers, and at the same time to protect its existing
cardholders from being lured away by other banks.

The most outstanding move was made several months ago when the
bank launched its VW Beetle Sweeptakers campaign, which offers a
new VW Beetle as first prize for the winning customers.

The latest campaign is the launch of Citibank Y card, a new
credit card especially designed to cater to young people.

Citibank Indonesia's card business director, Paul Asveen, told
the Post,"The impact on sales has been right on target. We have
started since September 1, continuing the program of Beetlemania
Part 2."

He said that the number of Citibank cardholders has reached
1.3 million. "Last year we booked one million cards," he added.

Visa, the number one payment brand worldwide, particularly in
Indonesia, sees a continued increase in demand in the Indonesian
market.

Visa's country manager for Indonesia, Ellyana Fuad, said that
the number of Visa cards in the country at the end of June 2001
stood at 4.3 million, a 90 percent increase over the period ended
June 2000.

For the 12 months to June 2001, Visa's card sales volume rose
to $3 billion, a 387 percent increase over last year's
performance.

To encourage the use of cards in place of cash, Visa launched
a series of marketing campaigns throughout the year. "The
campaigns lived up to our expectation and turned in excellent
results," she told the Post, adding that the volume of Visa card
sales jumped by 372 percent in the second quarter ended in June,
2001, over the same period, last year.

Currently, 15 financial institutions issue Visa cards in
Indonesia, with Citibank as the largest issuer of Visa credit
cards.