Every corner of the business sector has been affected by the global economic downturn. Credit cards, directly involved with spending and loans, are especially vulnerable to the lower growth rate and higher risk of non-performing loans (NPL). At the first anniversary party of Elite+ on August 26, Shoke Na Ranong, senior vice-president of the credit card division of Bangkok Bank PCL (BBL), gave an exclusive speech to guests regarding the company’s strategies for navigating the current situation.
What is the current state of the credit card business?
The credit card business basically combines two financial factors: payments and loans. Credit cards are a substitute for the traditional payment format when a trade occurs. Likewise, they create loans without any personal guarantees. When the economy is unstable, this form of credit is likely to increase the NPL rate and create other business instabilities. A well organised bank, therefore, needs to take this into account. We have to know how to manage debt in order to decrease the NPL rate. Credit card applicants will find stricter criteria.
A credit card business requires an effective debt collection department. Thailand’s newly launched Debt Collection Act hinders bankers’ procedures when debtors default. We have to be much more considerate because the regulations from the new act restrict specific types of debt collection, such as particular times to call debtors. Fortunately, even though the credit assessment conducted by the Bank of Thailand reveals a decreasing rate of credit overall, the spending growth rate of BBL card holders is still accelerating while our bad debt rate is less than overall. It proves that BBL customers are high quality and there are opportunities for our business to expand.
How many categories of BBL credit card are there?
We offer a wide range of credit cards. Previously we provided only the classic or standard type and later we provided more types for specific groups of customers, such as the platinum card and the most recent one, Visa Infinite, meant for Bualuang Exclusive members who deposit at least 1 million baht in their accounts. Visa Infinite holders acquire plenty of privileges, including award points for payments made by card as well as a 10% cash rebate in partner petrol stations and access to exclusive airport lounges in several countries.
Visa Infinite members are also offered a limousine service when they use the card to purchase a flight ticket. An E-class Mercedes Benz will pick you up in front of your home and send you off at the airport.
How does the bank judge the financial security of credit card applicants?
It might sound irrational that a number of business owners get rejected when applying for a credit card while an employee from the same company qualifies. This is due to the fact that the criteria for the approval process deals with how steady an applicant’s source of income is. Salaried workers who receive a certain income every month usually qualify. For business entrepreneurs, however, no matter how strong their business, there is a possibility they can fail.
How competitive is credit card marketing?
As I have been in the credit card business for more than 10 years, I would say that marketing in this industry has been rather uncreative. Pricing is the only strategy banks are using to increase sales and market share. Most banks look over initiatives and alternative methods to attract consumers and focus only on underpricing. It results in an inaccurate growth rate, since although a bank is able to seize more market share it does not mean company profit will increase accordingly.
To give you an example, originally credit card members had to be responsible for the application fee. But when a bank launched a campaign omitting this charge, it forced other banks to follow the same policy. Consequently all banks are losing a third of the revenue from credit cards that had previously been gained from application fees.
The situation grew even worse when sales promotions started giving away premiums to persuade customers to apply. As a bank, we have to adjust. Superficially the credit card growth rate might seem positive, but pricing strategies are interrupting the system.
What alternative strategies is BBL applying?
New employees are the emerging customer base that BBL is focusing on at the moment. The majority of original customers were based in the corporate sector and had been working for a few years. It is the right time to target young spenders. We have found that the most challenging part of the plan is not how to design a product to respond to their needs but how we can create an effective model to analyse credit risk. We need to be assured that the NPL rate will still be controllable when we penetrate the new market. Presently the bank owns a very slight amount of NPL from credit cards and it will definitely increase if we expand our services to a younger customer base. Therefore we need to figure out measures to restrict NPL.
Most regular BBL customers now have high potential to disburse debt; most will settle credit debts at one time and only a third of them prefer to pay by instalments. Because of this BBL has gained less profit from credit card interest compared to competitors. We expect the emerging proportion of young customers to generate more profit from interest.