The credit card honeymoon is over
The credit card honeymoon is over
Plastic money is an inherent part of Indonesia's urban lifestyle. More than a symbol of modernity, it offers convenience and benefits for cardholders. Those who are not disciplined, however, can be easily trapped in consumerism. The Jakarta Post writes about various aspects of the cards. More stories on page 6.
JAKARTA (JP): Charging it has become a symbol of modernity in Indonesia, with plastic money being used by a growing number of people.
Fifteen years ago, Meiling might have been the only one of 25 sophomore students to have a charge card. It was only a supplement card provided by her father, but it was enough to confirm her status.
Today, a credit card wouldn't get her a second look. Now the growing Indonesian middle class is discovering the privileges of membership and is seen as a potential market by credit card companies.
The Indonesian Credit Card Association reported that as of the end of last year, the number of plastic cards, including charge and credit cards, circulating in Indonesia reached 1.44 million with the billing hitting Rp 4.1 trillion (US$1.8 billion). The figures will keep increasing with the number of potential card holders. Citibank, the biggest issuer of Visa and MasterCard, has 500,000 members in Indonesia which increases by an average of 100,000 members a year, said Enny Hardjanto, the marketing and service director of Citibank Card Products. The two cards are popular because, unlike American express or Diners, they don't require holders to pay off their accounts every month.
Alex Tan, MasterCard International's director of operations for Southeast Asia, said there are currently 315,000 MasterCard holders in Indonesia, slightly fewer than the number of Visa holders.
MasterCard International also issues Maestro and Cirrus debit cards for those who don't meet the credit card income limit.
In its latest move to net clients, MasterCard International recently launched its Golf Card, the world's first golf-oriented credit card. It offers holders access to 19 overseas and local golf and country clubs and up to a 50 percent discount on golfing equipment in Indonesia, Singapore, Malaysia and Thailand.
Ida Laksmi Shanty, director of PT Diners Club Indonesia which is the sole franchisee for Diners Club International's charge and credit cards, confirms Enny's estimate of the potential market. She said that only 800,000 people have been tapped, adding that about two million potential members have yet to be approached.
Not only big issuers like Visa, MasterCard, Diners and Amex are trying to enter the market. Local department stores and supermarkets like Matahari, Pasaraya, Gramedia and Hero have also started issuing charge cards.
Matahari department store, in cooperation with Bank Bali, offers customers Matahari cards which entitle them to up to Rp 1 million (US$440.52) in credit and a 10 percent discount for every purchase made in the store.
Handy
People use credit or charge cards mainly because they are convenient. Going cashless feels safer.
"It prevents us from being robbed," insists Agus Pambagio, the secretary of the Indonesian Consumers Organization.
"The cards make trade transactions more efficient," said economist Laksamana Sukardi.
"Cards are very useful. Once my son was hospitalized, I didn't bring enough cash. The hospital wouldn't give him any medical care if I didn't pay a down payment. Fortunately, I have credit cards," said Rita, a housewife who carries three different credit cards in her purse.
Having a charge card in place of cash does have its problems. As Roy puts it: "A charge card is only a substitute for cash. If you can't afford something, don't buy it."
A charge card isn't a key to an endless treasury.
A credit card, though, is seen as a magic lamp. Having it means "you can spend before you earn anything," said Laksamana Sukardi, who is also the executive director of the Econit Advisory group.
Macro economically, credit cards can increase the volume of domestic trade for consumer goods because people can buy everything on credit.
Credit cards can turn the owners into big spenders, argued Zoemrotin, the consumers foundation chairwoman. Having more than one card allows people to draw money from one card to pay off another.
Laksamana said if an owner cannot control his or her shopping lust, he will find he has overspent at the end of the month. Consequently, if all credit card owners face the same problem, it will finally lead to a debt trap.
"If it happens, people will loose their spending power which can decrease the domestic trade volume," said Laksamana.
Roy, who shares Laksamana's view on bad debts, said that Indonesian banks which issue credit cards often push people to buy things beyond their means instead of educating people to be more responsible for their spending. He added that banks that indiscriminately grant credit will suffer masses of bad debts in the future, especially because the legal framework is not yet fully set up in Indonesia.
"In Singapore, the government has implemented a law which limits the number of credit cards one can have. It also rules that advertisements for credit cards should not encourage spending," said Ida Laksmi.
Understanding such a risk, Diners Club Indonesia allocates 1 to 2 percent of its monthly profit to cover any bad debt. But, to encourage members to manage their spending is more important, said Ida.
"We just don't want to encourage people to spend only to find out later that they cannot pay us back," she said.
Enny Hardjanto also mentioned the existence of such an emergency fund to protect Citibank from bad debts, but refused to reveal the amount.
"What is important is not the risk itself, but how to control it so that the amount can be limited," she said.
Ida pointed out that issuing the cards selectively may reduce the risk. Diners cooperates with an investigation company to check all applicants' financial statements and also visit or interview them before issuing them the cards.
The status Meiling enjoyed at college has been replaced by responsibility. (swa/jsk/als/sim)