Plastic money, an alternative mode of payment

In a financial landscape where the concept of “cash is king” remains to be the predominantly and the most preferred mode of settlement, it is no wonder that the credit card penetration in the Philippines continues to be relatively low.

Yes, Virginia, amidst the growing economy and our growing population as well, a World Bank study showed that credit cards penetration in the country’s working population is merely 8.1 percent with 80 percent of retail transactions still paid with cash notes.

This is simply because the concept of “cash is king” is synonymous to the belief that hard cash is more valuable than any other forms of payment and having credit card or plastic money is considered a financial liability.

To a certain extent, there is truth to this because cardholders have to pay an annual fee, a lump sum charged by banks and financial institutions, every year for signing up.

Although in order to attract clients, some issuers would waive the annual fee at the onset of the subscription. This incentive remains, anchored on the client’s usage.  Here, credit card issuers – 16 banks and a lending institution – charge an annual fee ranging from a low of P300.00 to as high as P3,000.00

But with revenge travel and heightened spending, TransUnion Philippines is optimistic on credit card availments. Based on the latest assessment, credit card penetration in the country is forecasted to improve to 9.42 percent for this year and 31.26 percent for debit card penetration.

And this is where the TransUnion comes into play. This Chicago based consumer credit reporting agency that collects aggregated information on over a billion individual consumers in over 30 economies, has a presence in the country.

As opposed to the Credit Information Corp., TransUnion is a privately owned credit-reporting firm. For me, the birth of TransUnion in the country is among the legacies of seasoned banker-turned educator Aurelio “Gigi” Montinola III.

It was during his presidency both of the influential Bankers Association of the Philippines and Bank of the Philippine Islands (BPI) that TransUnion was formed.  Established in 2011, the firm is an alliance of five major banks –Bank of the Philippine Islands, Metropolitan Bank and Trust Co., HSBC, BDO Universal Bank and Citi Ph, which is now Union Bank following acquisition of Citi’s retail-consumer banking arm.

Its mandate is to collect both traditional and alternative data to facilitate member banks’ customers process loans and other financial facilities. Aside from its five stakeholders, TransUnion works with more than 100 banks and financial institutions as well telecommunications companies, Globe and Smart.

From where they’re seated, TransUnion officials believe the growth potential of the credit card industry is immense along with the dawning of virtual currencies such as the bitcoin and e-money with Gcash as the most common.

But, this comes with the challenging task of financial literacy. Global study indicated that the country is in the low end out of 144 economies in terms of financial literacy.

Angela Chan, TransUnion senior director for marketing communications for Asia-Pacific, believes that financial education is an essential tool in maximizing the growth potential of credit cards as an alternative mode of settlement.

With the dynamic and ever-changing financial landscape that gave birth to virtual currencies such as bitcoin and e-money, increase in credit card usage is, likewise, expected.

This is not to replace cash notes but rather institutionalize plastic money as an option that gives credit card holders financial flexibility for as long as 45 days.

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