Mon, Apr 05, 2004 page11

• Visa sees a bright future for Taiwan

  SELLING PLASTIC Christopher Clark, Visa International country manager for the greater China region, says that the credit card woes of South Korea won't happen here

  • By Amber Chung / STAFF REPORTER
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  With abundant and easily availabile credit cards in Taiwan, is it possible that a default loan crisis -- as occurred in South Korea last year -- could happen here?

  For Christopher Clark, Visa International's country manager for the Greater China Region, Taiwan, the answer is no, because Taiwan has thorough regulations and mechanisms in place to prevent such an occurrence.

  

  Visa International's regional manager Christopher Clark displays several of his company's products.

  PHOTO: AMBER CHUNG, TAIPEI TIMES

  "I'm optimistic about Taiwan's credit card sector for a number of reasons," Australia-born Clark, 40, who speaks fluent Mandarin, told the Taipei Times last week in Taipei.

  Clark took his current position in April, 2002. Prior to joining Visa International, he worked at the National Australia Bank for 14 years, and was responsible for strategic management and market development of the consumer banking sector.

  He said Taiwan's revolving credit system has helped the nation achieve a low cash-advance ratio of less than 5 percent, indicating good self-control by consumers on their spending.

  South Korea has no revolving credit mechanism, so cardholders need to repay the entire loan when payment is due, Clark said. Insolvent cardholders therefore had to apply for other credit cards, and use cash advances to clear their debts. This snowballed into the default loan problem, he said.

  In addition, Clark said, South Korea also lacked an institution like Taiwan's Joint Credit Information Center (金融聯合徵信中心), which provides card issuers with detailed information on an applicant's credit history and ability to repay loans, in order to avoid making bad loans.

  Late last year, Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's, warned that the increasing availability of and reliance on credit cards and cash-advance cards could raise the risk of bad loans for Taiwan's banking sector over the next two years.

  Taiwan Ratings said growing credit-card usage in Taiwan has been consistently outstripping the growth of the nation's GDP. Credit-card transactions as a percentage of GDP have grown sharply since 1995 -- from around 3 percent in 1995 to nearly 10 percent in 2002.

  The default rate on all credit cards was less than 4 percent, but this number may be low, because government statistics do not include information on loans overdue by 30 days or the amount of restructured loans, Taiwan Ratings said.

  But Clark disagreed with this assessment, saying that the authorities have paid a great deal of attention to the credit card crunch South Korea encountered, and also asks for the industry's opinion on a regular basis.

  The number of credit cards in South Korea swelled after the government encouraged the use of credit cards to boost domestic consumption following the Asian financial crisis in 1997.

  Excessive credit expansion, however, generated a serious bad loan problem. South Korean banks set aside 11 trillion won (US$9.46 billion) last year to cover bad loans, including 5.3 trillion won against bad credit card assets, the Financial Supervisory Service said last month in a report. The country's largest credit card issuer, LG Card Co, faced bankruptcy and required around 3 trillion won to tackle the problem.

  To ensure the health of Taiwan's credit card sector, the Ministry of Finance last October amended the Regulations Governing Institutions Engaging In Credit Card Business (信用卡業務機構管理辦法), which requires local financial institutions to separate their credit-card business units financially.

  Essentially, banks are required to have a separate financial sheet for their credit-card business from their other banking businesses.

  The amended regulations also stipulated that banks should establish reserves to write off overdue debts of more than six months, and requires institutions that have accumulated losses of more than one third of their capital to cease business if they fail to make up the deficits within a specified period.

  "As the economic and social situations are different in the two countries, I personally do not think Taiwan would face such a thorny problem," Clark said.

  But Taiwanese still prefer to pay in cash.

  Last year, cash payments accounted for 78.6 percent of all forms of payments, or about NT$6.2 trillion in annual personal consumption expenditures (PCE). As credit card payments make up only a 16.1 percent share, according to statistics provided by the Visa International.

  Visa said that the annual growth of card numbers dropped to about 17 percent currently from the swift increase of around 30 percent three years ago since the market became increasingly crowded.

  Taiwan's credit card penetration ratio was 16.1 percent last year. The organization expected the ratio to reach 17.7 percent this year and 19.7 next year.

  But according to Visa's overseas experience, there exists a credit card market penetration ceiling, estimated at 27 percent of a country's annual PCE. The rest of the PCE is made up of checks and a large proportion of cash, the organization said.

  Making inroads into the nation's huge cash payment segment has therefore become one of Visa Taiwan's most important missions this year.

  "The vast segment of cash and ATM users is a target of great potential ... and we can have a big slice of it," Clark said.

  Visa is now banking on the issuance of debit cards to eat into the huge cash usage sector, Clark said, adding that the product is convenient for consumers to use for small expenditures in venues such as supermarkets.

  Debit cards allows users to withdraw money at automatic teller machines (ATMs) as well as buy things anywhere credit cards are accepted, with the purchase amount automatically deducted from a user's bank account.

  Globally, 31 billion card transactions were conducted last year, but the number of debit transactions was about 51 percent and that of credit payments the remaining 49 percent, according to Visa's statistics.

  The number of debit transactions were only about 4 percent of overall card transaction last year in Taiwan. But nearly 70 percent of Taiwanese found this form of payment appealing, which indicated great opportunities for development, Clark said, citing an AC Nielsen survey from last year.

  Taiwan now has over 1 million debit cards in circulation -- which accounts for less than 5 percent of Visa's 22 million cards in circulation as of last year -- since Chinatrust Commercial Bank (中國信託), Taiwan's largest credit card issuer, first issued the new payment tool in 2002.

  Five member banks will join the market this year after the IC chip card upgrade demanded by authorities is in effect, and Visa will also aggressively advertise the product in midyear, Clark said.

  Visa International also wants to work together with its member banks to boost credit card spending this year. As of January, Taiwan had over 71 million credit cards issued, whereas only 38 million cards were actually used, according to statistics by the ministry's Bureau of Monetary Affairs.

  "As much as 95 percent of the 9 million people in Taiwan qualified to apply for credit cards have the product already ... and each person has 4.1 cards at hand on average," the industry veteran said, adding that this has reduced the spending per card.

  In a bid to boost card spending, the organization will endeavor to expand new card-acceptance points this year, and the vast network of the nation's convenience stores has become their target.

  Convenience store chains would start accepting consumers to pay for bills or mail orders by cards in the first half of this year at the soonest, Clark said.

  He declined, however, to elaborate on which convenience stores would provide such services.

  The company started aggressively promoting everyday usage earlier this year, urging cardholders to use credit cards at their target merchants including gas stations, hospitals and transportation services.

  Visa has also been cooperating closely with the Ministry of Finance and the National Credit Card Center (聯合信用卡中心) in government payments, Clark said, adding that Taiwan is a leading country in the Asian Pacific region -- ahead of Hong Kong and Australia -- in opening up the sector for card users.

  Government payments consists of vehicle license taxes, house taxes, land taxes, personal income taxes, etc. The market size amounted to around NT$228 billion last year, according to Visa's figures.

  For example, card payments for personal income tax penetration -- a NT$80 billion sector -- rose to 20.4 percent last year from 9.7 percent in 2002. Visa hopes to boost the ratio to nearly 30 percent this year.

  Another way to raise card spending is to explore new customer segments, the industry veteran said.

  Against this backdrop, upscale card users became a target segment to boost card spending.

  The average annual spending of the nation's platinum card users amounted to over NT$85,000 last year, whereas the overall average spending totaled about NT$32,000, Visa's figures showed.

  "Platinum cards are indeed our most important product in Taiwan," Clark said, adding that the card number reached 3.3 million last year from over 900,000 in 2002, because of the annual fee-free promotion by member banks.

  Taiwan became the largest platinum card market in the Asia-Pacific region last year, making up 76 percent of about 4.5 million platinum cards issued in the region, up from 16 percent in 2001.
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