Credit cardholders with lower income bracket are not being charged to pay for the bigger spending habit of their wealthier counterparts, according to an official of the Credit Card Association of the Philippines (CCAP).
CCAP Chairman Maria Magdalena V. Surtida also clarified on Friday, Oct 27, that banks and credit card-issuing companies do not have unclear methods of computing fees and charges and that the industry is making sure that transactions are transparent.
During CCAP’s 43rd Anniversary Forum, in the question and answer portion with the media, the group was asked to comment about what Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said previously that when it comes to payments, the BSP wants to ensure that the low-income earners are not subsidizing the rich and he cited credit cards specifically.
Remolona has observed that a big spender credit cardholder will get rewards but it is “the small guys who only charge a small amount on their credit cards” who pays for these rewards.
Surtida, a senior vice president at Asia United Bank, explained that “it’s not really the poor ones who are subsidizing the rich because what the credit card issuers do is for every spend that each cardholder make, we allocate a certain portion or income for the rewards program.”
“(This) means we accrue the expense on it so that when they redeem … both are actually earning reward points and both the rich and low-income cardholders can actually redeem points so they have basically the same rewards program,” she said.
She further explained that there will be likely more rewards points earned when the transactions are made abroad – “but that is made for by the high income earner.”
Surtida, former CCAP president, assured that all credit cardholders are treated equally. “All of them has the same customer service. All of them have the same credit card monitoring system provided for by the credit card issuer. All of them have the same mobile app so that we provide for all of their convenience,” she said.
And as for transparency, she said, “all of the credit card issuers are regulated by the central bank and we are able to not just put all of our terms and conditions in the inserts of our credit card kits that we deliver to our new credit cardholders and our renewal cards, but we also post our terms and conditions and fees and charges in our website.”
“And, if they also go to the CCAP website, they will see all of the links of our existing website where the fees and charges are posted. We do have customer service agents who can still explain this when they actually call to compute for their credit card charges assuming it’s still not clear. So, most of our statement of accounts will reflect how the interests are computed,” she added.
Surtida further clarified that credit card issuers “really try as hard as possible to be transparent.”
Last month, BSP chief Remolona, who at the time was talking about BSP’s efforts to expand financial inclusion, said they wanted more transparency in how banks and other financial institutions with credit card products are disclosing charges and fees.
This is not the first time the BSP issued a directive, or even memos when warranted, for banks and other lending institutions as a reminder to comply with rules or to clarify bank borrowings, fees and interest charges.
Remolona also referred to the entire payment system, not just credit cards. “If you’re going to be charged for something, you want to know what you’re getting charged,” he said, adding that the low-income earners “don’t really know what they’re being charged for.”
At the moment, the BSP continues to limit how credit card issuers are charging cardholders in terms of monthly interest rate and fees on transactions in recognition of financial consumers’ struggle to meet payments on time amid higher interest rates and the increase in banks’ minimum payment dues.
Meanwhile, Surtida said the credit card industry continues to grow. Year-to-date, she said the industry posted a 39 percent increase in card spend to P853 billion.
“Cards-in-force grew modestly at 14% to 12.2 million cardholders as credit card issuers want to maintain a healthy industry past due of 4% which is at the same level as YTD June 2022,” she said.
CCAP said they expect the credit card sector will make more use of artificial intelligence (AI) and other digital technologies in the years to come to “enable issuers to make data analysis on consumer spending habits and demographics, as well as detect and prevent fraud.”
AI and new technologies will also help credit card issuers detect fraudulent activities better.
CCAP, which has 17 credit card-issuing members, said the increasing use of mobile applications for doing credit card transactions and credit card account management to promote self-service will enable cardholders “to have more control over one’s credit card account.”
The industry also sees more “tokenization” to take place which is the conversion of sensitive data into tokens, to “deter fraud as well as to deliver a more seamless credit card payment journey with merchants while enjoying personalized services.”
“With these, cardholders can expect more value for money, more flexibility, and more options to enjoy rewards points for use here and abroad,” said Surtida.
The CCAP forum, which had the theme “The Future of Payments: Credit Cards and Beyond,” included officials from global payment industry leaders American Express, Mastercard, UnionPay, and Visa as guest speakers.