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)