Card issuers go into market share overdrive

Good news - people are spending once again.....on credit! Haha!

Business Times - 25 Oct 2010

Card issuers go into market share overdrive

They ramp up offerings to tap economy's strong rebound

By SIOW LI SEN

(SINGAPORE) The cards business is booming as consumers readily reach for their plastic to reward themselves for working hard amid Singapore's fastest economic expansion in history.

Banks are in overdrive - offering rebates on supermarket purchases and adopting guerilla tactics of 25 per cent savings on petrol - all in an effort to make sure their credit and increasingly debit cards get an airing from the bulging confines of consumers' wallets.

Total card billing in August was up 10.4 per cent year to date and 18 per cent year on year at $2.6 billion, according to the Monetary Authority of Singapore.

With full employment and expected economic growth of 13-15 per cent for the year, credit card bad debts written off has fallen to $14.1 million from $16.9 million a year ago.

In their efforts to outdo one another, besides offering more rebates, discounts and freebies, some card issuers have resorted to relaunches while others continue to launch new cards.

Standard Chartered recently launched a 'Preferred' card aimed at the middle segment - those earning between $6,000 and $16,000 - by doling out services similar to those offered to the affluent crowd.

Not to be outdone, DBS relaunched its Black Card - targeted at the emerging affluent and threw in a black Aston Martin lucky draw.

At the other end of the affluent, Citi Singapore launched its Ultima card for private bank clients, by invitation only to customers with minimum assets of $5 million. Last month, OCBC Bank came out with its Elite card for those who earn at least $250,000 a year.

The enthusiasm of the card industry even prompted questions in last Monday's Parliament session.

The government's response was that banks have to comply with rules governing the card business and that there are measures in place to ensure that consumers do not spend beyond their means.

In spite of the concerns, card usage is well established and bankers say that they are giving consumers what they want.

'Credit card is a convenient mode of payment that allows users to enjoy certain benefits that they will not be entitled to if paying via other means,' says Ooi Huey Tyng, DBS Bank head of cards and unsecured loans.

Consumers will be happy to know that there will be no let-up from their banks in finding ever more creative ways to reward them for using their credit and charge cards.

Says Gan Ai Im, United Overseas Bank regional & Singapore head of cards & payment products: 'In line with our philosophy of staying on top of consumer demands and consumer trends, we will always be looking at new products, bundling or repackaging.'

UOB is Singapore's top card issuer, accounting for one in four cards here. It has made the most gains among the local banks.

For first-half 2010, UOB posted credit card income of $94 million, up 27 per cent. DBS and OCBC posted credit card income of $69 million and $22 million respectively for the same period.

With a healthy economy fuelling spending, every bank is determined to increase its market share. Rivalry, already at fever pitch, will intensify.

Says Ms Gan: 'A successful card business is fuelled by know-how, imagination and volume. Volume is the reason that competition is intensifying as all card issuers are trying to gain market share.'

This month, HSBC upped the ante on petrol by giving 25 per cent savings for a limited period of 10 days, ending yesterday.

HSBC has also been aggressive in increasing the amount of rebates given at certain supermarkets to up to 10 per cent.

The typical petrol discount is 15 per cent and supermarket rebates are 1-5 per cent, as supermarket margins are generally low.

Says Greg Zeeman, HSBC Singapore head of personal financial services: 'Our credit card business is growing at a healthy and sustainable rate, in line with our expectations and market growth.

'We anticipate that credit card spending will stay strong on the back of growing consumer confidence and the recovery of the economy.'

Not to be outdone, Citi Singapore, with over one million cards in circulation as at last week, launched a new Everyday card which gives rebates anywhere, anytime for absolutely anything.

'As the economy improves and salaries rise, consumers have greater disposable income to pay down their purchases on credit cards,' says Han Kwee Juan, Citi managing director and head of credit payment products.

'At the same time, we believe that consumers are prudent about the way they spend their money and they see spending on credit cards as a means to offer them the most value in terms of privileges, discounts, rewards or cash back.'

Not surprising why the banks are getting aggressive into credit cards. Read this.

More than a quarter of credit card holders in Singapore are "frequent revolvers". At legalized loan-shark interest rates of around 20%, who wouldn't want to do more of such business?

A very simple way to reduce the number of such people is to have schools use credit card payments as examples to teach compound interest.

Compound interest is a vital concept to understand. Those who fail to understand compound interest are doomed to pay it while those who understand well are blessed to earn it.

I do not have "frequent revolvers" among my friends. If I did, I would advise them to pay off the credit card debt immediately. It is equivalent to making a guaranteed sure-win investment of around 20% on the debt amount. Even Warren Buffet cannot promise that.

What a scam.
Someone claiming to be from Citibank called to offer me zero percent interest on my credit card for 6 mths. Wow, i could not believe my ears that they are so desperate, and was right! They want an initial processing fee of 2.5% up front over the amount. Waste of time as usual; and bordering on misrepresentation, again no surprise.

(25-10-2010, 05:40 AM)Musicwhiz Wrote: Standard Chartered recently launched a 'Preferred' card aimed at the middle segment - those earning between $6,000 and $16,000 - by doling out services similar to those offered to the affluent crowd.

Wow! Earning $6,000 to $16,000 belong to middle segment. Like that I think by the time I retire, I am still stuck at the middle segment.

Median income in Singapore is just S$2,750 per month, which is less than 50% of the lower band of this "middle income segment". I suspect most will not be able to even dream of hitting this band.....

(25-10-2010, 11:29 PM)hyom Wrote: I do not have "frequent revolvers" among my friends. If I did, I would advise them to pay off the credit card debt immediately. It is equivalent to making a guaranteed sure-win investment of around 20% on the debt amount. Even Warren Buffet cannot promise that.

I have a few. And I even assisted them to pay off the credit cards bills by extending a loan for them. To make sure that the 'friendship' element doesn't come into the picture, I charged them a nominal 2.5% interest and positioned it as a win-win for both parties. They saved on the interest from the bank and I got a higher return compared to the bank deposit rates.

I won't recommend you do that for all your friends though. There is a chance things can get ugly as it can when money is involved. So you need to weigh the pros and cons of assisting your friends in this manner. So far I haven't have any issues and they have paid me back in full.

Thanks MW, it makes me feel better.

I wonder how can so many people splurge on expensive cars and property if median income is only $2,750? It goes to show that the income inequality in Singapore is really bad and/or many people are living on credit.

(16-12-2010, 04:53 PM)Ben Wrote: Thanks MW, it makes me feel better.

I wonder how can so many people splurge on expensive cars and property if median income is only $2,750? It goes to show that the income inequality in Singapore is really bad and/or many people are living on credit.

Because the skewing is really bad in terms of income equality (check the Gini Coefficient). The rich and super rich can easily afford cars and property, while the rest can just dream on. And those who are wannabes will juice up on credit to get their dream possessions. The nouveau rich will also be keen to splurge to show that they have "made it". So in the end you get these 3 main groups of people purchasing the over-priced crap.

Although we always lament that the rich are inflating the prices but.....

Beer Joke...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

* The first four men (the poorest) would pay nothing.
* The fifth would pay $1.
* The sixth would pay $3.
* The seventh would pay $7.
* The eighth would pay $12.
* The ninth would pay $18.
* The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."
Drinks for the ten now cost just $80

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay! And so...

* The fifth man, like the first four, now paid nothing (100% savings).
* The sixth now paid $2 instead of $3 (33%savings).
* The seventh now paid $5 instead of $7 (28%savings).
* The eighth now paid $9 instead of $12 (25% savings).
* The ninth now paid $14 instead of $18 (22% savings).
* The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man, "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discoveredsomething important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia