April 6, 2011

Credit card use still limited


Credit Card use is growing in the Kingdom, but the country is still some way off from widespread adoption, a number of bankers said.

While the rise of a middle class in Phnom Penh and other urban centres has helped the growth, bankers said the absence of consumer credit histories and a central credit bureau, as well as cultural barriers, has kept the number of cards in circulation very low.

According to figures from the National Bank of Cambodia, credit-card loans accounted for only US$6.5 million – just 0.2 percent – of the $3.1 billion in total loans in November 2010, the most recent month for which data is available.

Even when looking at only what the NBC defines as loans for “personal essentials”, which include personal lending, credit cards and home mortgages, the number is 2 percent of the $297,437,750 total in lending for the month.

“We have to explain to [people] what it is,” said Dieter Billmeier, vice president and advisor to Canadia Bank, when talking about the general lack of understanding of credit cards.

Billmeier and other bankers said Cambodians as a whole are still getting used to dealing with and using banks, and that education about credit cards will be needed before their use takes off.

Canadia Bank presently has about 5,000 credit-card holders, mostly among middle-class white-collar workers, Billmeier said. He hopes for another 1,500 by the end of 2011.

ANZ Royal CEO Stephen Higgins quoted a similar number, saying his bank has only “a few thousand credit cards” in circulation despite a heavy marketing campaign to promote them.

Higgins pointed to Cambodians’ willingness to take on personal debt, “which is still fairly low here,” he said.

At the same time, services that are essential to a stable credit-card market do not exist in Cambodia, namely a database of credit histories and a centralised credit bureau to help banks decide which consumers are credit-worthy. This makes some banks less likely to issue cards to people who want them unless they maintain a deposit of come kind at the bank as collateral.

The National Bank of Cambodia is working on the formation of a central credit bureau. Officials could not be reached for comment.

Other problems exist as well beyond those found with consumers.

Bankers said they make little money on the transactions themselves because, among other reasons, competition in Cambodia has pushed the fees charged to merchants for the ability to accept credit cards down significantly. Instead, banks rely on the interest charged on overdue balances to bring in higher profits, a common practice across the globe. This has led to some banks using credit cards largely as a means of attracting customers.

ANZ’s Higgins said his high-net-worth clients want credit cards, so he offers them as part of a larger portfolio of banking services.

“It’s more about offering a service to your clients,” he said. “If we can’t provide that service, they may go elsewhere.”

Still, despite the obstacles others claim their credit-card businesses are profitable.

“The volume of our cards transactions in Cambodia and overseas and also transactions in our ATM and [point of sale] terminals is growing substantially every month,” said ABA Bank Head of Card Department Sanzhar Abdullayev.

The success has led to ABA initiating loyalty and discount programmes for cardholders, he said, as well as a 24/7 call centre.

In the end, though, the idea of credit-card adoption may be moot, ANZ’s Higgins said. The Kingdom could jump this phase of its financial history entirely and move on to something much more modern.

“In the next few years, there’s a good chance Cambodia will skip widespread accept of cards to using mobile phones with near field frequency chips,” he said, “given how quickly Cambodians adopt new technology.”

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