Feb 23 - 29, 2004





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 Union Bank.

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 rate.

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 cards.


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 avoid default.