Credit card users set to rise 20% as banks ease procedures

The Jakarta Post, Jakarta

For Turmini, a staff member at the finance ministry, having more than one credit card is no longer a luxury nowadays, it is a necessity, and many people seem to share her sentiments.

With the market is still largely untapped, credit card issuers -- mostly banks and hypermarkets -- are now seemingly racing to net ordinary workers like Turmini to apply for "plastic money", by providing incentives such as lower minimum income requirements, as well as easing the application procedures.

Turmini would only need to provide an identity card for her credit card application to be processed.

Due to the easier procedures in applying for a credit card amid robust growth in consumer spending and an expected improvement in income, the number of credit card users may increase by 20 percent this year.

"We have estimated that credit card issuances will likely grow by 20 percent this year. Based on our latest report, there were about 7.5 million users last year," said Country Manager for Visa International (Asia Pacific) Ltd. Ellyana C. Fuad recently.

Ellyana said the market for the expansion of credit card users remained huge as there were at least 15 million potential users that remained untapped. Indonesia, Southeast Asia's largest economy, has a population of about 220 million people.

According to the Indonesian Association of Credit Card Issuers, credit cards are currently used for 10 million to 12 million transactions a year, worth as much as Rp 30 trillion (US$3.3 billion).

In terms of spending, Citibank has estimated that the industry will grow by between 5 percent and 10 percent.

The economy is projected to grow by at least 5.4 percent this year from an estimated 5 percent last year, with domestic consumption one of the key drivers of the economy, contributing about 70 percent of gross domestic product (GDP).

Due to strong consumer spending, the credit card business has become a gold mine for issuing banks in Indonesia, with the number of cardholders rapidly rising each year. There are currently about 16 local and international banks here that take part in the business.

Bank Mandiri president director E.C.W. Neloe said that to tap the large market in the credit card business, banks were now racing to provide easier application procedures for new users and offering new value-added facilities with their cards.

"Credit cards, as part of the consumer business, are a lucrative industry. We are now trying to simplify the application procedures to get more users, but at the same time increasing the supervision of the users to avoid bad debts," he said.

Neloe said many banks were now focusing their marketing efforts on the card business, from advertising and promotions to gifts and low interest rates on payments, as well as enhancing the physical appearance of the cards.

U.S.-based Citibank is the largest issuer of credit cards in Indonesia, with a 35 percent market share. In terms of spending, the bank's cards account for about 50 percent of the total value of all credit card transactions here.

Currently, many of the world's more famous brands in the industry are available in Indonesia, such as Visa, Mastercard, and American Express.

Visa is currently the market leader in credit cards in Indonesia with about 70 percent of the market share.

However, despite the positive prospects in the industry, Ellyana warned that the growth in the number of credit card users could cause bad loan problems for issuing banks in the future -- especially as more and more people are now seemingly unsatisfied by having one credit card despite their limited incomes.

The role of the central bank as the regulator, in terms of tightening the supervisory mechanism and providing clear-cut regulations for the industry, will be the key for credit card development, Ellyana said.

"This is important to help develop the market and increase transactions without causing harm to both the credit card holders and the banks."