The credit card industry, like many other sectors, is no stranger to the adverse effects of the country’s widespread lockdown. As different types of businesses were forced to stop operations, credit card usage also slumped this year.
As economic challenges continue to pile up, unemployment rates also soared to an all-time high, making card holders hesitant to apply for new credit cards and giving those with existing credit card difficulty in settling their debt.
“The high unemployment rate, as well as the loss of livelihood for self-employed individuals and small business owners took its toll on the credit card industry,” says Credit Card Association of the Philippines (CCAP) Executive Director Alex Ilagan.
“We saw an unprecedented rise of credit card holders being unable to pay their balance, which resulted in the credit card past due level growing by as much as thrice by September 2020 as compared to the pre-ECQ level,” Ilagan explains.
This high percentage of unpaid debt has forced banks to allocate a significant amount for credit loss provision, pushing credit cost to unprecedented levels.
But despite the immense changes, Ilagan assures that the industry continues to do its best to survive, and this includes credit prudence and leveraging opportunities to save cost through the digitization of customer service.
Maintaining good credit standing during the pandemic
Ilagan puts emphasis on being on top of one’s expenses and maintaining a good credit standing, even during this pandemic.
Credit cards are powerful tools, and card holders should use them responsibly, Ilagan declares. This is because situations such as a pandemic are temporary, and it may not be the only time that credit card holders must utilize their cards.
He adds they may also need to depend on their cards to rebuild their lives after the pandemic, or for unforeseeable emergencies in the future.
“The best steps that credit card holders can take to maintain a good credit standing during the pandemic is to ensure that credit card bills are paid on time. They should also avoid maxing out their credit limits because it will reduce their credit score,” Ilagan shares.
“Financial discipline is important, and credit cards should be viewed as a tool for convenience in making payments and a readily available standby line of credit for emergency or big purchases,” he says.
For credit card customers whose financial condition may have been impacted by the economic slowdown as a result of the pandemic, in addition to extending the mandated 60-day grace period under the Bayanihan Act to Recover as One (BARO), credit card issuers have implemented various forbearance programs.
“Credit card customers can avail of these forbearance programs to help them repay their credit card debts through easy and flexible repayment schemes,” Ilagan shares.
Digitization of customer service
Aside from navigating the new normal, banks and financial institutions have to pivot into the digital world.
Credit card issuers have continuously pushed for the shift from paper-based statements to electronic billing statements among its customers, now reaching more than 75 percent enrollment for this industry-wide.
Ilagan said e-billing helps ensure the timely delivery of credit card bills amid the pandemic.
Banks are also strengthening their online interactions with card holders, be it through emails, social media platforms, or chatbots.
“The credit card industry is intertwined with the state of the national economy. Most economists expect recovery to start by early next year, so the same expectation can be applied to the credit card industry,” Ilagan says.
“Hopefully, the efforts of our stakeholders, alongside the efforts of the government, will be enough for the industry to get back on its feet,” the CCAP official concludes.