Debit cards making gains in Asia

Debit cards making gains in Asia

By Wachyudi Soeriaatmadja

BANGKOK (JP): As credit cards have become a relatively
expensive payment option, people have begun to choose
alternative methods of payment for their purchases, including
debit cards and electronic cash.

"In many markets throughout Asia, the debit card is a very
popular payment option," MasterCard International chief executive
officer Robert W. Selander said.

During the company's South and Southeast Asia Annual Meeting
held here last week, Selander said MasterCard's payment card
business had grown by 13 percent in the Asia Pacific in 1998,
thanks in large part to the debit card.

"A significant contributor to the good growth is the success
of MasterCard's debit card program, the Maestro card, which has
gained strength in the region's markets," Selander said.

Debit cards enable cardholders to charge purchases by
deducting money directly from their bank account. There are no
extra charges when using the debit card to make a purchase.

Unlike credit cards, debit cards are easily obtained by anyone
who has a bank account. The default risk is zero because
customers cannot use the card if there is no money in their
account.

There has been a migration from credit cards to debit cards,
according to MasterCard country manager for Indonesia Bambang
Gunawan.

Bambang said MasterCard's debit card transaction volume in
1998 increased by 20 percent to US$1.1 billion in Indonesia,
compared to its credit card transaction value, which decreased by
11 percent to $246 million.

Banks operating in Indonesia which currently offer Maestro
cards are ABN Amro Bank, ANZ Panin Bank, Bank Bali, Bank Negara
Indonesia, Bank Danamon, Bank Duta, Bank Internasional Indonesia,
Bank Lippo, Bank Tamara and Bank Universal.

"Since the crisis broke out in mid-1997 the number of
MasterCard debit cardholders in Indonesia has tripled to over 4
million cardholders," Bambang said on the sidelines of the
company's annual meeting here.

Bambang said Maestro cardholders used a personal
identification number rather than a signature when making
purchases.

Bambang said with signature-based cards it was easy for
unauthorized people to abuse the card. He also said some people
preferred not to sign their name when making purchases.

According to official data from Bank Indonesia on the overall
use of payment cards in Indonesia, the debit card transaction
volume jumped from 934,000 transactions in 1997 to 21.5 million
in 1998. Over the same period, the transaction volume for credit
cards fell from 25 million transactions to 20.5 million.

The total transaction value for debit cards rose by 2,217
percent to Rp 6.9 trillion (about $884 million) in 1998 from Rp
300 billion in 1997, while the value of credit card transactions
fell from Rp 8.4 trillion to Rp 6.6 trillion.

Debt-averse

Bambang said the credit crunch adopted by most Asian countries
to curb the regional economic crisis caused a sharp increase in
interest rates.

These high interest rates prevented many people from borrowing
from banks because of the fear they would not be able to repay
the money.

"Many people are becoming debt-averse because of the crisis,
so they tend to prefer using debit cards rather than credit
cards," Bambang said.

The regional economic crisis began in mid-1997 in Thailand,
before spreading throughout the region and becoming an Asian
economic crisis.

Thailand is now nearing economic recovery following the
country's economic restructuring program, according to a Thai
participant at the meeting.

"We allegedly started the Asian crisis, now we hope Thailand
will inspire the region's recovery as well," he said at the
three-day meeting.

Attending the meeting were more than 400 executives from
financial institutions operating in 16 countries in the region.

During the meeting, MasterCard also discussed trends in
payment methods for the next millennium.

Chip technology has been used in the payment card industry
since 1991, with the introduction of the so-called "smart card".

A smart card carries a chip which can store large amounts of
information as well as customers' personal information. This chip
allows easy access to the information stored on the card.

"It's like having a personal computer on your card," a
MasterCard executive said.

A new product from MasterCard, electronic cash, or Mondex,
makes use of such technology.

Mondex cash can be transferred between cardholders via hand-
held devices, a Mondex telephone or through the Internet, without
banks or other third parties.

"Electronic cash is the future of money," a MasterCard
executive said.

He said that in Asia, Mondex was only available in three
countries, Hong Kong, Japan and South Korea, but predicted the
product would show strong growth.