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.