Looking at the population of Pakistan the number of
credit cards issued so far, the number may look too small. However, if
one looks at the growth in number of credit cards during the last
couple of years, it is phenomenal. Along with this, the number of ATM
cards and debit cards has also increased tremendously. What could be
the driving force, extensive marketing by the issuers or the
convenience being offered to the card holders?
Credit cards are not new for Pakistanis. These were
available in the country even in the sixties but issue was restricted
to a few or elites. The recent history of cards back to 1984 with
Diners and American Express cards entered the market. Citibank
launched its credit cards in Pakistan around 1994 with a rather
ambitious plan. It may still claim be the largest issuer but others
are trying to exceed the number. At present bulk of the cards issued
pertains to five issuers. These are Citibank, Standard Chartered Bank,
Bank Alfalah, Union Bank and Askari Commercial Bank. In generic terms
three brands are extensively used in Pakistan. These are Visa, Master
and American Express. While Visa and Master cards are being issued by
a number of banks, American Express card is issued exclusively by
The number of total cards issued in Pakistan is
estimated around 450,000. However, the number of customers is around
250,000 as people have acquired more than one card. In terms of
geographical distribution, over 90% cards have been issued to people
living in three large cities, Karachi, Lahore and Islamabad. The cards
population in Sialkot is growing at a very fast rate. The other cities
in focus are Hyderabad, Multan and Peshawar.
One may wonder why the number of credit card
holders is the largest in big cities. One of the key reasons may be
the population of these cities. But the other reasons attributed to
are literacy, affluence, attitude of vendors and above all the focus
of issuers and acquirers on these cities. Issuing cards may not be a
problem but establishing an infrastructure is the key issue.
Establishing the infrastructure involves huge cost and unless the
potential number of clients meets a minimum trash hold number, non of
the issuers would be keen in entering a particular area.
It may be true that businessmen prefer to use cards
for a number of reasons but interestingly fairly large number of
cardholders belong to salaried class, employees of corporate sector.
They enjoy an advantage over rest of the population because their
income is documented as well as predictable. A large percentage of
population has not been able to obtain credit cards because it cannot
substantiate its source or quantum of income. However, some analysts
say that 'cash culture prevailing in the country' is also a reason for
the smaller number of total card holders in the country. It is true
for both the clients as well as the vendors. It is evident that some
of the vendors offer discounts if customer makes cash payment rather
than paying by a credit card. The other reasons mentioned for not
using a credit card include annual fees, retail charges and acceptance
of cards by a limited number of vendors even in the large cities.
Some of the issuers have lately redefined their
strategy. While some of the issuers are still charging annual fee, one
of the latest entrants charges one time fee only. The number of free
supplementary cards being issued is also increasing. The various other
incentives are also being offered. These include cash withdrawal,
Balance Transfer Facility, easy credit and transfer of outstanding
balance to easy installment schemes. The objective seems to be
reducing the interest rate burden of card holders.
According to an analysts one of the reasons for
obtaining credit cards is 'short-term financing facility'. For those
who have a regular and predictable income, use of credit card allows
them to retain cash with themselves. Depending on their cash flow they
can either settle the outstanding amount in full or take the advantage
of minimum payment requirement. Therefore, the rate of interest
charged by the issuer plays a key role in selecting a card to be used
most and keeping the others for use only in case of distress.
Most of the issuers charge around 1.5% per month
interest rate on balance transferred from any other card. The interest
rate charged on rollover of credit ranges from 27% to 36% per annum. A
point worth mentioning is that the rates are still very high when
compared to the average lending rates in the country. However, it is
evident that there has been decline in the rate, though, marginal
only. The issuers say that card holders should hope further decline in
It is also worth mentioning that credit cards are
being used for paying fuel bills. Initially, most of the petrol pumps
were charging 2% service charge. However, now there is no service
charge applicable. Some of the vendors are still demanding service
charges on the sale of a number of products. The issuers are trying
hard to convince the vendors to discontinue this policy. The vendors
say that the margin on these products is very low and if these
products are sold on credit they usually incur loss. However, no
service charges are collected when payment is made through debit
cards, offering instant transfer of funds.
One of the reasons for higher interest rates has
been the massive default in the initial period. A large number of
people were given cards, by some banks rather carelessly, and then
they have to face the massive default. Those issuers who have been
careful in issuing cards have experience lesser defaults. However, a
lot of blame also goes to card holders who spent lavishly without
realizing that one day they have to settle the outstanding balance.
Since payments are being paid round the clock and
365 days a year an elaborate support infrastructure has to be created.
On top of this measures have to be taken to avoid frauds/misuse. Yet
another important service is handling complaints, particularly in case
of loss of the card. A number of banks prefer to confine themselves to
the status of issuer, whereas some of the banks act as issuer as well
as acquirer. Acquirer also get a percentage for providing payment
infrastructure. Till recently Citibank was the largest acquirer.
However, its infrastructure is gradually being taken over by Orix. The
second largest acquirer is Union Bank, the issuer of American Express
In order to overcome the problem of limited number
of branches and also to contain traffic at branches, some of the banks
have either installed their own ATM or joined an already existing
network. Initially the response from account holders was lukewarm.
However, gradually the use of ATM cards has got popular. Another
impetus has provided when some of the banks made arrangements for
payment of utility bills through ATMs. However, the facility is not
being used extensively for a number of reasons. This include lack of
awareness, only a few banks offering the facility, cost per
transaction and following the banking hours norm.
According to some of the card holders, now most of
the banks offer online banking facility and 24-hour cash withdrawal
facility. Therefore, the utility companies/banks should not insist on
treating the payment received after the stipulated banking hours in
next date. They also say that most of the card holders are still not
sure about the cost per transaction being charged by the banks.
Therefore, all the banks must inform their clients, through print
media, about the cost per transaction. They also say that the charges
must be fixed at a realistic level.
Receiving utility bills is still confined to a few
banks and their limited number branches. The results in long queues
outside the branches. Most of banks authorized to collect utility
bills have been declining the demand to increase number of branches on
the pretext that charges are inadequate, due to human resource cost.
One may wonder, why all the banks are not authorized to receive
utility bills payment through ATM. The central bank must make it
mandatory for all the banks to accept bills payment through ATMs.
Comparing the number of credit cards holders with
total population of the country it may not be wrong to say that the
most of the beneficiaries are concentrated in a few large cities. One
of the constraints in growth of number is said to be poor literacy
rates that does not allow a large segment of population to benefit
from the technology.
Another major reason for the small size of card
holders is also said to be the limited number of outlets accepting
payment through cards. This can be attributed to two factors,
inadequate infrastructure and unwillingness of a large number of
outlets to join the network.
The reason for fast growth of Debit/ATM cards is
the facility that allows the card holders to pay their utility bills
though ATMs. The problem seems to be that most of people are still not
fully aware of the facility. However, it is also true that only a few
banks have entered into agreement with major utility companies like
KESC, SSGC, SNGPL and PTCL. It is understood that banks are already
charging a cost per transaction from card holders and also wish to get
payment from utility companies for each bill collected.
It may look a little strange that banks on the one
hand take pride in introducing technology to improve quality of
service, but on the other hand also collect fabulous charges. It is
true that there is cost for convenience but the changes must be
reduced to facilitate extensive use of technology. The greater use of
technology can help in reducing cost per transaction.
The issuers now know reasonably well about the good
and bad habits of card holders in Pakistan. Therefore, they have
started marketing the cards more aggressively. Though, the general
complaint is that issuers are still very selective in issuing cards.
There is a piece of advice for the card holders that they must develop
the habit of paying their due in time. In case they are not able to
settle the bills in full they must always make minimum payment to