Credit card companies turn focus on fee income

Credit-card issuers are focusing on chasing fee income ahead of interest income, given the current tendency for cardholders to pay off their balances in full to avoid unnecessary debt on their accounts.

The trend has had a negative effect on the interest income of credit-card operators.

Thakorn Piyapan, managing director of Krungsri Consumer, said full repayment by cardholders was in line with the growing eco-nomy, and credit-card operators needed to adjust accordingly to meet income targets.

Krungsri Consumer, which has outstanding loans of Bt50 billion and a revolving rate of 65-70 per cent, next year will seek to increase instalment purchases by offering lower interest rates for merchants and original-equipment manufacturers to attract cardholders. 

Merchants and OEMs will subsidise sales by paying the interest instead of credit-card holders, he said.

The upcoming widespread introduction of third-generation wireless broadband networks will spur demand for smart phones and tablets, both of which are products ideally suited to payment via instalment at the lower rate, he said, adding, “The rate of 0.6-0.8 per cent for instalment payment is not that much, and most merchants will be willing to pay the interest instead of customers to boost their sales.”

Kasikornbank executive vice president Chatchai Payuhanavee-chai said 45 per cent of the bank’s credit-card holders currently clear their balances every month, which lowers its interest income. 

KBank and other credit-card operators therefore need to generate more revenue to offset lower interest income, as well as the annual expenses from campaigns.

KBank has additional costs from promotions, but does not want to see an increase in the 

number of debtors in the country. With intense competition and higher expenses, interest income is important to the bank, and a 50:50 ratio of interest income to fee income would be acceptable, he said.

At present, however, interest income from credit-card business stands at 45 per cent and the bank might take two to three years to get the ratio to 50:50. 

To generate more interest income, KBank has developed the Smart Pay programme by join-

ing with merchants to offer an attractive package, including zero interest on instalment payments.

The Smart Pay programme is seen as a win-win system, as merchants can sell their products even though they might have pay interest instead of buyers, said Chatchai.

Credit-card operators should not only get fee income from issuing cards, but also from leasing the Electronic Data Capture (EDC) system to merchants, he added. 

KBank does not charge an annual fee to credit-card holders, therefore having a strong relationship with merchants means more fee income. The bank currently has about 100,000 merchants using its EDC.

Meanwhile, Tearavath Trirutdilokkul, head of credit payment products at Citibank Thailand, said fee income was now the bank’s focus after interest income had slowed.

The bank continues to charge an annual fee to holders of its credit cards. 

However, clients are willing to pay because Citibank is a global brand and cardholders are more comfortable about spending thanks to the larger network of merchants that accept Citibank credit cards, Tearavath said.

“We can secure mid-to high-spending cardholders even though they have to pay an annual fee 

of Bt10,000 to Bt30,000, because the special privileges that we are offering is value enough for them,” he said.

Citibank will create instalment-payment campaigns with operators and merchants for smart phones and tablets to cash in on 3G network roll-outs, he added.