Credit cards

The Central Bank’s selected weekly economic indicators, widely published in the press since Governor A. S. Jayawardena ensured some years ago that this data was made available on a timely basis, includes some revealing data on the use of credit cards in this country. The so-called "plastic money" is a relatively new entrant to this Third World backwater but, judging by the published figures, there is today significant use of this convenience in our island nation. Consider the numbers. There were 321,145 active credit cards at the end of December last year, up from 314,988 at end November and from 255,584 a year earlier.

For a country as small and as poor as we are, with a population of 19 million plus, these numbers are significant. And so also the rate of growth of credit card users who, the Central Bank tells us, owed the banking system a shade below Rs. 6.4 billion at the end of last year. That was up from a little over Rs. 6.1 billion at the end of November last year and Rs. 5.1 billion a year earlier. The rich, of course, were the first in Sri Lanka like in other parts of the world to use credit cards. And just like elsewhere in the globe, where the rich go the poor (and certainly the middle class) follow. While Sri Lanka’s middle class is not growing at the speed of India’s, economic indicators including growth of the number of credit card users, provide clear evidence that ours too is expanding at a goodish rate.

Credit cards are a profitable business for the commercial banks which are aggressively pushing them in the market. Despite the very searching questions on income, assets, property, bank accounts including overdrafts and a host of others that an applicant for a credit card must answer, people are quite happy to reveal their intimate financial details to an issuer who is also authorized to get otherwise classified information from the applicant’s own bank. These worthies today offer gifts to their existing customers for introducing new credit card business. Other devices like "affinity cards" under which your old school will benefit by your acquisition of and spending on a credit card are all used as marketing innovations to attract new custom. Once a card user is hooked, he or she is bombarded with offers of all kinds of merchandise ranging from restaurants to resort hotels fuelling a consumption culture.

The danger in credit cards is that they can be self-destructive dynamite in the hands of the improvident spender. Unlike the man who depends on the cash in his pay packet to make ends meet and can spend no more than what is in his pocket and his modest bank account, credit cards enable splurges on the never never. All the card user has to do at the end of the month is to pay a small fraction of what he owes and he can keep on rolling his debt over. The catch, of course, is that he begins to pay a very high interest rate, perhaps a monthly two percent which translates to an annual 24 percent which is very high in the current falling interest rate scenario. The customer who clears his credit card account no sooner he gets his monthly statement is not a profitable proposition for the bank. The people they are after are those who will allow the interest to build up on their accounts.

Having said all this, it must also be freely conceded that credit cards can not only be a convenience but also most useful at times of emergency. Take a sudden illness or accident for example. No private hospital will admit a patient without a sizable deposit and that entails laying down the kind of money that the average citizen is unlikely to have in his pocket or his almirah. A credit card will enable such demands to be conveniently met. Even where there is no emergency, a credit card is often safer and preferable to carrying cash. Given the growing number of supermarkets and other shops that today accept these instruments, it is almost possible to get about everyday life with little or no cash in your pocket or handbag. And if you function by credit card, at the end of the month you will have a detailed account of your expenditure.

Given the way the banks are pushing them, credit cards are obviously good business — for them. That means a lot of users are allowing themselves to become interest payers on their uncleared balances. While this undoubtedly reflects benevolently on the bottom line of the issuer, it also implies that far too many people are spending money they don’t have, unwisely ensnaring themselves in a consumption culture which will enrich the banks but do little for their own financial health.

Following the economic liberalization of 1977, expanded in subsequent years, having rupees today is as good as having dollars. The vast majority of the active credit cards in Sri Lanka are accepted globally and although a single dollar will cost you almost a hundred rupees, or a pound sterling over Rs. 150, our countrymen (and women) travelling overseas can spend now and pay later. While those on fat per diems or expense accounts either from the government (by grace of the taxpayer) or their companies may not shoot themselves in the foot but the less fortunate, armed with plastic money, are more vulnerable.

Just as credit cards have arrived and proliferated in our country, so also will credit card fraud and related crime. Judging from the published news, these do not seem to be prolific as yet. But that also must follow and will surely will. Hopefully the concerned authorities are erecting the necessary fences ensuring safety rather than sorrow.

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