More incentives for cardholders as competition grows

I. Christianto Contributor Jakarta

The collapse of many business groups following the economic crisis in 1997 dramatically changed the country's banking business.

Local banks that had, in the past, focused on major corporate borrowers in channeling their funds have now turned to small and medium companies and, of course, individual clients as the main targets of their loans.

Besides the decline in the number of solvent big companies as a result of the crisis, many banks also see big corporate clients as more risky than smaller clients.

Subsequently, consumer financing -- which continues to show rapid growth due a continued increase in personal consumption expenditures -- remains the most attractive for banks.

In turn, this has resulted in tighter competition in the credit card business, one of the most effective tools for banks to channel their idle funds to the consumer financing sector.

The sharp competition can been seen from a wide range of incentives offered by issuing banks to lure new credit card holders.

Local banks generally issue both Visa and MasterCard brands in order to take advantage of the growing credit card market.

Incentives such as reward points that can be exchanged for gifts or shopping vouchers and discounts at select stores, or free life insurance premiums, low interest rates or low membership fees -- in addition to big cash prizes -- are quite common nowadays.

Some banks also offer a lower interest rate, and sometimes a free interest rate for the first six months, if their clients have switched their membership from another credit card issuer and transfer their balance to the new one. Certain banks have also opened counters in the city's major shopping malls to "catch" new clients on the spot.

Amex, for example, offers an interest rate as low as 1.65 percent for those who want to transfer their balance (outstanding charge) from other credit card issuers.

Amex, which is currently holding a sales promotion at Blok M Plaza, South Jakarta, says that the balance transfer facility could save cardholders' interest payments by up to 50 percent. The interest rate offered by the bank is quite low when compared to the 2.7 percent to 3.5 percent rates charged by other banks.

HSBC's credit card holders are also offered a number of benefits, including a privilege program offering attractive discounts at more than 2,500 retail outlets in the world. The cardholders also get a reward point for every Rp 1,000 charged, which can be redeemed for gifts or annual fees.

Meanwhile, BCA offers a wide range of incentives, including a free lifetime membership fee if the average transaction made by cardholders reaches 30 percent of their credit limit. The bank also offers an interest rate of two percent per annum for the first six months and a free membership fee for the first year for those who transfer their balances from other card issuers.

Bank Internasional Indonesia (BII) also offers something special to its cardholders. Those who are members of its Platinum credit card, for example, are given a reward program in rupiah currency, preferential treatment at selected merchants and accident insurance worth up to Rp 5 billion.

Country Manager for Indonesia Ellyana Fuad at Visa International said the credit card business in Indonesia remained promising, despite the growing competition.

She said that the number of Visa cardholders continued to increase from year to year, despite tough competition from its main rivals MasterCard and American Express (Amex). Ellyana said the compound annual growth of Visa's membership during the past eight years had reached 28 percent, exceeding that of Asia and the Pacific as a whole.

Visa, the world's leading payment brand, began its business in Indonesia in 1983. In Indonesia, there are now 16 banks that issue Visa cards, including Visa credit cards, Visa Electron debit cards and Visa Travel Money.

Visa cardholders in Indonesia reached 2.35 million by the end of last year, an increase of 23 percent from 2001. "In total, there are over 5 million Visa cardholders in Indonesia, including Visa Electron and other Visa co-branded cards," she said.

In terms of the total number of credit-card holders in Indonesia in 2002, Visa had a market share of about 65 percent, while in terms of transactions, its market shares reached 75 percent.

"By September last year, total Visa transactions increased by 54.6 percent compared to the same period in 2001," she said, adding that her company planned to increase the number of merchants in Indonesia, in particular supermarkets, airlines, insurance companies and government- related offices.

Vice president and country manager Vadyo Munaan at MasterCard International for Indonesia shared Ellyana's view on the potential for the credit card market here.

He said last year was a fantastic year for MasterCard, during which it experienced a significant 46.88 percent increase in transaction value to US$0.86 billion in Gross Dollar Volume (GDV), or GDV, and a 24.33 percent increase to 1.82 million in the number of issued cards.

"We have continued our success into the first three months of 2003, with a 42.69 percent increase in GDV and 18.52 percent increase in the number of issued cards," he said.