By Rea Cu
THE credit-card industry in the Philippines is seen to grow over the coming years, as more consumers rely on using financial cards for their transactions and payments, according to a report from the Euromonitor International.
According to the 2016 Euromonitor report “Financial Cards and Payments in the Philippines,” the use of financial cards has been further driven by the issuance of credit cards or fleet cards that are tailored to a specific need.
“As more consumers rely on financial cards for their purchases and transactions, the use of financial cards has been further driven by the launch of cards that address a specific need and by the expansion of card networks,” the report said.
It pointed out that due to the efficiency and convenience brought about by the use of financial cards, Filipino consumers are now steering more toward using credit cards rather than cash. The efforts of industry players in marketing credit cards and fleet cards to provide better financial services also contribute to the increase in the number of users of financial cards.
“This is largely due to combined efforts from industry players to provide better financial services and payment experiences. As a result, when new financial cards that target a specific need are launched, consumers are more receptive and this contributes to the continued growth of the respective card issuers,” the report added.
The increase in access points, or where consumers can use their financial cards, has also contributed to the shift in using credit cards.
“Expanded acceptance points, as pursued by card operators, have provided more opportunities for cardholders to use their cards,” the report said.
The report explained that personal credit cards continue to dominate in the financial-card industry, with businesses being expected to be more open to using commercial credit cards as the general appreciation of the cards continues to increase.
Based on a Consumer Payment Attitudes study conducted by Visa in the Philippines in 2015, more Filipinos are becoming more attuned to using contactless payments due to their security and ease of use. Contactless payment systems are financial cards that use radio-frequency identification or near-field communication for making secure payments.
With the increase in preference, credit-card issuers responded by releasing new cards equipped with contactless technology. Among other new contactless cards are prepaid cards and credit cards from banks and nonbanks, the report said.
PRIOR to the administration of President Duterte, Congress approved a bill seeking to regulate the country’s credit-card industry under the authority of the Bangko Sentral ng Pilipinas (BSP).
House Bill (HB) 5417, or the Philippine Credit Card Industry Regulation Act, issues rules of conduct or standards of operation for the local credit-card industry and prohibits issuers and collection agents from unfair practices against cardholders.
Under the Act, the BSP shall supervise the issuance of rules of conduct for uniform application among all institutions covered and the imposition of penalties for noncompliance, the conduct of examination as determined by the Monetary Board (MB) to determine compliance, and the oversight to ascertain that laws and regulations are complied with.
While card issuers are mandated to exercise transparency in all transactions and are required to disclose finance charges for unpaid amounts after a payment’s due date, the percentage that the interest bears to the total amount to be financed expressed as a simple monthly or annual rate, penalty fees or similar delinquency-related charges payable in the event of late payments.
Violation of any of the rules stipulated under the Act will face a fine of P50,000 to P200,000 or imprisonment of two to 10 years. HB 5417 was approved by Congress in May of this year.
HB 5417 also mandates credit-card issuers, including their officers and employees, to strictly keep confidential the data presented by the cardholder, except under when disclosure of information is with the consent of the cardholder.
Banks are also mandated to keep client data private, except when the customer information is released, submitted or exchanged with credit information bureaus, industry association, or card association, as well as upon the order of court of competent jurisdiction or any government office authorized by law.
AS per the establishment of a Positive Credit Bureau that will help banks organize and maintain their credit portfolios, the country has tasked the Credit Information Corp. (CIC) to handle the bureau.
In 2011 reports, the first private credit bureau in the Philippines was established through the partnership of Banco de Oro (BDO) Unibank, Bank of the Philippine Islands (BPI), Citibank Philippines, HSBC and the Metropolitan Bank and Trust Co. (Metrobank) and Chicago-based credit-information management TransUnion, which centralizes credit information in the country.
With the establishment of the credit bureau, banks are now able to know whether clients have negative or positive credit, which helps manage the client’s ability to pay, among others.
According to a 2015 report, the CIC issued accreditation guidelines for credit bureaus in the country, as well as special accessing entities (SAEs). Under Republic Act 9510, or the Credit Information System Act (Cisa), SAEs are accredited private corporations engaged in the business of providing credit reports, ratings and other similar credit-information products and services.
As per the CIC, the enrollment of SAEs will further help the government bureau to become fully operational. Under Cisa, lending institutions are required to forward both positive and negative credit information of their borrowers to CIC.
A centralized credit registry allows individuals to monitor and manage their respective credit exposures among institutions. This will also protect the individuals’ deposits in line with managing the risks of lending the deposits to borrowers.
IN 2015 reports, the Credit Card Association of the Philippines (CCAP), which is made up of the 14 largest banks in the country, expressed confidence that the growth in credit-card holders is expected to grow by double digits in the next few years.
The CCAP said 6.9 million credit cards have been issued to over 3 million cardholders in the Philippines, and pointed out that it is ready to increase penetration in the market by lowering the wage requirement for credit-card applications. The CCAP pointed out that 65 percent of point of sales in malls is still being transacted with the use of cash, while 35 percent is done with credit cards.
The group also calls for the issuance of a national identification system in the Philippines for easy access to information, which will determine the client’s capacity for repayment, the lack of which poses a challenge for credit-card issuance.
According to the CCAP, credit-card holders will be equipped with contactless technology, with the challenge only being the lack of infrastructure and terminals to support the advancement.
CHINA Banking Corp. (China Bank) has seen a steady growth over the years in terms of number of cards issued and the issuers of financial cards, according to Consumer Finance Group Head Renato K. de Borja.
“The credit-card industry has grown steadily in the past few years in terms of receivables, billings, number of cards issued, as well as the number of credit-card issuers with new players, including China Bank,” de Borja told the BusinessMirror.
But to adapt with the changes that are being presented by the credit-card industry, the bank has adopted the use of the Europay-MasterCard-Visa (EMV) technology in its financial cards to deliver added security for its clients and to provide convenience among customers. EMV technology allows financial cards to have boosted security features, including stronger encryption locks and keys to authenticate the card along with the owners’ transaction.
“Credit-card issuing banks and institutions have invested heavily in customer-service convenience, as well as protection with the adoption of EMV chip technology for added security,” de Borja said in reply to questions sent through electronic mail.
In November 2014, in line with the BSP’s efforts to strengthen the electronic retail payment network in the Philippines, the Monetary Board (MB) approved the EMV implementation guidelines governing the EMV implementation for automated teller machine (ATM) debit and prepaid cards in card-accepting devices and terminals. This was issued so that customer information will be safeguarded, to reduce card fraud and maintain interoperability of payment networks.
“The guidelines entail the adoption of a Philippine domestic EMV specification for proprietary debit cards. However, it does not preclude the issuers of cobranded cards from adopting established international schemes for said cards,” a statement by the BSP said. “The guidelines also highlight BSP’s expectations in terms of managing the risks, while the banking industry migrates the magnetic-stripe payment environment to chip-enabled technology based on the EMV standards.”
According to China Bank, its move to shift to EMV technology-enabled cards is a means to further protect the consumers as the added security minimizes the chances of risk, including fraud and the like. Regulatory requirements underlining consumer protection and interests were explained to argue well in terms of the banking industry’s growth.
“The credit-card industry is already heavily regulated anchored on the consumer-protection mandate of industry regulators,” de Borja said. “Regulatory requirements are meant to protect the interests of consumers or cardholders, which augurs well for the industry as it continues to grow and expand.”
De Borja also said the banking industry is looking forward to the development of a positive credit bureau, which will be beneficial to the industry in terms of managing its credit portfolio, with it both protecting the cardholder and the issuer.
“The credit-card industry works very closely with the regulators to ensure that requirements are carried out accordingly,” he added. “One of the industry developments that we are looking forward to is the establishment of a positive credit bureau, which will help the industry to manage the credit quality of the credit-card portfolio, which, again, is meant to protect the interests of consumers or cardholders, as well as the issuing banks.”
De Borja added that for 2017, a growth of 1 percent to 2 percent can be seen in terms of credit-card users.
“Credit-card users may increase by about 1 percent to 2 percent, while billings and receivables may grow by around 10 percent in 2017,” he added.
In earlier reports, BDO Unibank Inc. eyed the second quarter of this year to roll out its EMV-enabled financial cards, with it being the first universal bank to release EMV-enabled cards. Its BDO MasterCard ATM debit card was explained to complement its EMV-ready ATM, which was deployed earlier in the country.
The rollout of the EMV-enabled cards was explained to support BDO’s three-year migration plan for its EMV-embedded ATM debit card and is in line with the BSP’s mandate to shift to the use of EMV technology.
THE Euromonitor report further pointed out that because of the shift to using financial cards, including credit and fleet cards, non-financial companies and agencies started to offer financial products that go hand in hand with financial card programs.
“Nonfinancial entities have taken advantage of their existing customer bases and have aggressively developed and marketed financial products and services in recognition of the numerous benefits of card programs,” the report said. “The companies have targeted their existing pool of customers and have developed card products and services that address customers’ needs.”
Among the sectors in the Philippines that have started to increase their presence within the financial-card market include telecommunication companies and transportation agencies, to name a few. While some companies in the country forge partnerships with financial institutions to offer co-branded prepaid cards that also target the interests of a specific group of customers.
“Telecommunications companies, the food-service industry and transportation agencies, among others, have continued to improve their card-related offerings in order to establish a stronger presence within prepaid cards,” the report said.
The government has also made available the use of financial cards among government agencies to facilitate faster transactions when taxpayers pay their duties and taxes, among them the Bureau of Internal Revenue (BIR) and the Land Transportation Office (LTO), according to the Euromonitor report.
THE Euromonitor report explained that, “with the goal of increasing convenience when paying for public obligations, government agencies have begun to accept financial cards, such as debit, credit and pre-paid cards.”
“The BIR announced early [this year] that it will start accepting Philippine-issued cards for payment of taxes, interest and other fees,” the report said. “Other agencies, such as the Home Development Mutual Fund, the LTO and Valenzuela City have gone ahead and launched their card-payment facilities.”
But not all entities have turned toward the use of financial cards to conduct their transactions. Euromonitor pointed out that some banks within the country have yet to fully embrace the change as issues in the profitability of their use remain to be unanswered. The Land Bank of the Philippines (Land Bank) was noted to be a financial institution that has already undergone the changes.
“However, apart from LandBank, issuing banks remain hesitant to participate, as there remains a question on profitability and operations,” the report added. “Issues aside, the development is expected to contribute to financial inclusion and to increase overall card transactions.”
According to de Borja, changes are very much happening within the credit-card industry at present, focusing on how to better consumer protection and financial literacy among clients and future clients.
“I think the change is happening now. There will be more emphasis on consumer protection and financial literacy,” he said.
DE Borja said adding to the wave of change in the industry is technological advancements that are currently happening and will further happen that will also help the industry grow and which will enable banks to provide more programs and rewards to consumers.
“The industry also enjoys the benefit of technological advances, which adds to the convenience and improvement in card products and services,” de Borja said. “The industry is very competitive. Hence, we see plenty of promotions and rewards programs, which again will benefit the consumers and cardholders.”
He further points out that it may be advisable to own a credit card, since it provides security and convenience to the cardholder. But clients should determine if they are financially responsible to own and maintain one first before getting it.
“It is advisable to get a credit card. However, owning a credit card also carries with it the responsibility of managing oneself in terms of finances,” de Borja said.
Since the use of credit cards entails monthly or annual dues, cardholders must be ready to manage their own spending and budget to continue to benefit from the use of financial cards.
“Credit-card holders should use their credit cards to enjoy the benefits and privileges that go with their credit cards but should also ensure that they spend within their means or budget, and also ensure that they pay at least their minimum amount due on a monthly basis, so they can continue to enjoy using their credit cards,” de Borja added.