Credit card users will grow 20% next year

Rendi A. Witular, Jakarta

The number of credit card users here is expected to grow by at least 20 percent next year, driven by a more robust growth in consumer spending and an expected improvement in people's income.

Citibank Indonesia card business director Sanjay Kao told The Jakarta Post consumer spending would be stronger next year on the back of higher economic growth and a stable political situation.

"For the industry as a whole, we estimate growth in terms of new users will reach at least between 15 percent and 20 percent. In terms of spending, we project that it will grow by at least between 5 percent and 10 percent," said Kao recently.

According to the Indonesian Association of Credit Card Issuers, there are currently about five million credit card users from a potential base of about 28 million. Indonesia, Southeast Asia's largest economy, has a population of about 220 million people.

Kao said credit cards were currently used for 10 million to 12 million transactions a year, worth as much as Rp 30 trillion (US$3.3 billion).

The 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.

"The Indonesian market is so huge for credit card players. Our competitors are actually cash users, not banks. Transactions using cash are still huge compared of those using credit cards. That is what we are now trying to tap," said Kao.

Kao said that in the country's Rp 12 trillion travel industry, only 4 percent of the money was derived from credit cards, with the remaining coming from bank transfers and cash payments.

The Indonesian economy is projected to grow by 5.4 percent next year from an estimated 4.8 percent this year, with domestic consumption the backbone of the economy at about 70 percent of gross domestic product.

Due to strong consumer spending, the credit card business has become a gold mine for issuing banks in Indonesia, as each year the number of cardholders increases. All major cards are now available in Indonesia, including Visa, MasterCard, American Express and JBC.

Many banks have focused 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.

Analyst Ryan Kiryanto of Bank BNI warned that the growth in the number of credit card users could cause bad loan problems for issuing banks, unless the central bank tightened its supervision of the industry and provided clear-cut regulations.

"Bank Indonesia should immediately set up regulations or guidelines for the industry to anticipate and prevent massive default and fraud that could occur in the near future. We have to learn from the industry's mistakes in South Korea," said Ryan.

Several South Korean card issuers are currently facing bankruptcy lawsuits as a result of bad loans resulting from the uncontrolled issue of credit cards.

However, Kao dismissed concerns that this type of problem could occur in Indonesia.

"The South Korean government gave a number of incentives to credit card users, expecting that they would spend more money, which is needed to support the country's economic growth. None of these things apply to Indonesia, thus we should not be worried," said Kao.