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.