Still large room for further expansion

Still large room for further expansion

Rikza Abdullah
Contributor
Jakarta

Strong promotion by commercial banks has boosted the growth of
the credit card industry, which still offers large room for
further expansion in Indonesia.

"The potential of the Indonesian market is immense and, with
our share of personal consumption expenditure standing at only
1.1 percent compared with a global average of 7 percent, we have
really only begun to scratch the surface," Visa International's
country manager for Indonesia, Ellyana C. Fuad, said here
Thursday.

Sylvia Marie Challita, country manager for American Express
Bank Ltd., told The Jakarta Post here on Friday the prospects for
the credit card business in Indonesia were very bright as at
present just one percent of the population held credit cards.

"Because the majority of consumer spending continues to be
cash-based, the card market in Indonesia offers immense
potential," she said.

Ellyana said the credit card business in Indonesia had grown
steadily in the past years. As of March, the number of credit
cards circulating in the country was estimated to exceed 3.44
million, indicating a 16.7 percent increase over the last 12
months.

However, according to Sylvia, the actual number of cardholders
was lower, given that some cardholders had more than one card.

According to a study, about 10 million out of Indonesia's
population of 210 million are potential credit card holders. The
industry, therefore, has the potential to grow by over 30 percent
per annum.

Sylvia said that since 2000, the development of the credit
card industry had entered a phase of growth after a slowdown due
to the economic crisis in 1997. Foreign banks had made heavy
investments for their card franchises, while card issuers spent a
lot for promotions to increase card usage.

Visa credit cards, which were first introduced in Indonesia by
Bank Duta in 1983, currently dominate the payment industry in the
country. Visa credit cards in the country are now issued by 17
banks and financial institutions, and are accepted by 56,000
merchants.

"Visa's share in the credit card market is about 65 percent,"
Ellyana said, adding that the number of Visa credit cards
circulating in the country reached almost 2.34 million, with
expenditures reaching $485 per card per annum. The figure for the
credit cards reflected a 27.8 percent increase over the previous
12 months.

The other 35 percent share of the credit card market is
divided among MasterCard, American Express, Diners Club and bank
cards issued by domestic banks.

Rupert G. Keeley, president and chief executive officer of
Visa International Asia Pacific, said the potential growth of the
credit card industry in Indonesia was enormous, given the fact
that Visa'a personal consumption expenditure penetration of 1.1
percent was still too low compared to 3.1 percent in Latin
America, 7.3 percent in the European Union, 8.9 percent in the
United States and 13.6 percent in Canada.

Sylvia said the credit card business was attractive due to its
inherent profitability and the tremendous potential for growth.

"It builds a card member database, giving the bank ability to
offer other retail banking products," she said. "It also provides
card issuers the database to understand the consumer's needs and
develop card products to meet specific needs."

Credit cards are very profitable to their issuers. The biggest
profit maker is the high rate of interest -- interest on credit
cards alone generally accounts for three quarters of the profits
earned by banks that issue credit cards. Also, many companies
charge an annual fee for issuing a credit card, and most
companies charge late fees, automated teller machine (ATM) fees,
over-the-limit fees and other miscellaneous charges. Credit card
companies also profit by charging merchants and service providers
a fee each time a customer uses the company's credit card in the
merchant's establishment.

Furthermore, the level of credit card-based loans that go sour
is relatively low. "We are careful in issuing credit cards,
therefore, minimizing the credit risk," said Sylvia.

However, Keeley expressed concern that credit card fraud had
grown rapidly in Indonesia, at a rate of 60 percent per annum,
even though the amount of money involved in the fraud cases was
still very small, less than 1 percent of the sales volume.

To strengthen the credit card industry, Ellyana said, local
banks needed to make concerted efforts to expand credit card
acceptance by increasing the number of retail outlets and opening
up new sectors that could accept cards.

For Visa International, it plans to expand its merchant
acceptance into everyday expenditure segments, including
supermarkets, airlines and insurance, she said.