In golf, a follow through is crucial in driving the ball to the target. Golfing buddies, especially Chupsi and Roger, often remind me not to forget to follow through to help control trajectory and distance.
In this case, however, it’s not about golf. It’s a follow through of my last week’s piece regarding the increase in the interest rates of outstanding credit card debt recently approved by the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP).
I had a running debate with my nephew Coco about the rate hike as he used cold cash to settle for an item he gifted me instead of using his credit card. Coco could be likened to an average American with two to three cards tacked in his wallet, either gold or platinum. It is not that he reneges on his bills but he argued that the policy of setting a cap on interest rates could lead to minimal or even non-usage.
This got me riled up. Assuming that his argument is true, credit card business could be hard pressed to flourish from its current penetration rate to two percent. Even present plastic card holders could stop using credit cards if they think banks are fleecing them off.
And come to think of it, the hike could be equated to going against the core goal of promoting financial inclusion to Filipinos because it’s limiting. It makes it a bit challenging for a start-up individual to apply for a credit card.
For those without plastic money and even those cardholders, there’s a possibility that they may, instead, opt for other lending products available in the market like Atome, a buy now, pay later mobile app.
Atome is now one of the trending apps here in the country, which tops as the highest internet users, spending an average of 10 hours and 27 minutes each day, nearly half of our waking hours.
According to its briefer, Atome app is free to download and provides the user the flexibility of stretching his bill into three equal payments over a three-month period at zero interest, no service fees and more importantly no hidden charges.
Then, there’s GCredit by GCash, the usage of which is widespread from Mamang Magtataho to your friendly neighborhood sari-sari store and even some restaurants.
A revolving mobile credit line on the GCash app, one can use GCredit to pay for goods and services in GCash QR-accepting merchants, shop online in selected e-commerce merchants, or pay bills in the “pay bills” feature on the GCash app. QR-code acceptance as settlement is one of the programs being pushed by the BSP as part of financial inclusion.
Considering that interest rates remain volatile, from where I stand, I believe there’ll be increased access as well as usage of these two mobile apps simply because credit cards become less accessible to the general public.
Also, gray-market lenders like our old-reliable “5-6” can step in to be the alternative for consumers even if they provide less-than-ideal terms such as short payment periods and exorbitant interest rates.
On the other side of the equation, BSP’s decision to raise the cap may be a step forward in the right direction – as a safeguard, prudential measure for banks to avoid incurring additional capitalization for loan loss provision.
Which brings me to my next question: Instead of pegging the interest rates on credit card debts, is it possible for the monetary authorities to let credit-card issuers freely set interest rates?
This could spark competition – credit card firms compete among each other on who can provide the best interest rates for people who are looking to get plastic money.
On a penetration perspective, such can create an opportunity for a wider market, which after all is what financial inclusion is all about: the availability and equality of opportunities to access financial services.
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