Opportunities aplenty in NE:

Sharp increase in Credit Card usage anticipated

Anuradha Kodagoda

The credit card industry anticipates significant growth in credit card usage in the country following the reduction in credit card interest rates.

“Some banking institutes have already taken the lead of reducing the interest rates of credit cards and hence there would be competitive industrial pressure for other banks as well. Therefore, we can expect an overall reduction in credit card interest rates in the next two to three months in the market,” said Chairman, Payment Card Industry Association of Sri Lanka (PCIASL) Gihan Dias.

“At present the average credit card interest rate in the country is around 36 to 40 percent which is very high and there is enough room for industry players to reduce the interest rates to compete with other similar products in the market.

However, it depends on a few important factors such as the high increase on Non Performing Loans (NPLs) in the credit card industry for the past six to eight months. Therefore, it is a balancing act between the loss and income ratios of the bank,”

“There are better managed card centres which are performing really well despite the reduction in interest rates of 10 to 15 percent. Therefore, if this trend could be maintained within other banks too we can predict a 10 to 15 percent reduction on interest rates,” he added.

“As at today, the usage has increased up to one million credit cards in the country whose active usage is 80 to 85 percent. There are two segments of credit card usages - those who use the credit card and settle the total amount and those who settle only the minimum amount or the small component of the balance,”

“There can be a growth in credit card usage this year too when considering the outstanding amounts of the non performing loans of credit cards. According to Central Bank statistics over the last few months, we actually saw a reduction on the issue of credit cards compared to the past five years.

Even though there was a 20 to 25 percent growth rate on issue of cards for the past five years continuously, due to the current economic downturn we hardly see a growth rate on the issue of credit cards ,” he said.

“There is a consolidated deck on multiple card users since they also moving in to use only one card to reduce the expenditure levels to overcome the current economic crisis.

There are very few market players who operate in the rural areas of the country and therefore, the market penetration in rural areas is very low.

The main reason for that is the limited network facilities in banks and the products have not been categorized or even developed according to the requirements of selected market segments,”he said.

“There are plenty of opportunities in the Northern and Eastern provinces for the credit card industry. In these areas credit cards can be used for multiple purposes such as an identity card, as a food collection card and as a payment option.

However, at present no one has looked at these opportunities which are available in these areas and I believe it is essential to evaluate and get the initiative to provide the tailor-made solutions for these needs,” he said.

“The PCIASL’s main objectives are to educate the masses on the need of credit cards, and to educate them on how to manage its risks and also to work with the regulators to reduce credit card frauds and to improve the credit card procedure.

We are not working on product developments and competitive elements of the industry,” he said.