From paper to plastic

So far, for 2003, the outstanding payments on credit cards totalled $809 million. This is a drop from $723 million in 2000, analysts say, but this is nothing to scoff at Credits cards, it seems, are the way to pay. People no longer walk around with cheque-books or huge wads of cash hidden about their body. While the use of plastic is surging, banks, some say, may be the only ones benefiting. Economist and Independent Senator, Mary King, says this increased usage is as a result of the expectation of increased income in the upcoming year. “People expect to be earning more, so they are in turn spending more,” said King.

But this increase in credit card comes with a high price. Its usage is also paralleled by an increase in outstanding loan payments, according to an economic analyst at Republic Bank. While this is nothing to scoff at, according to King, banks have insurance to cover this loss, easing the pain of people not wanting to pay their installments. “Each bank has an international insurance scheme to cover bad debts,” said King. There are currently 22 available types of credit cards on the local market, according to a survey done by the Ministry of Consumer Affairs. But even with this myriad of options available to customers, not everyone knows what they should be looking for in a credit card. King advised that customers look at three things when trying to find a credit card, taking into account the fact that many people worry about maintaining their payments. “You should look at the annual percentage rate of repayment or the APR, the length of time you are allowed to repay and the cash refund or cash incentives that are offered along with the card,” said King.

The APR at which you can access credit currently stands between 20.9 percent and 24 percent per annum, which translates into 1.74 percent to 2 percent per month. King said interest in credit cards are too high given that the Central Bank repo rate has been coming down. The current repo stands at 5.25 percent. She said it is an issue that needs to be re-evaluated. But until then, her advice is to ensure you pay off your bill before the time allotted for repayment. The length of time for repayment determines how long a person has to access his credit without interest. Most banks offer 50 days for repayment, with Scotia Bank offering 51 days. A major concern has been increased awareness of credit card frauds, especially with purchasing goods over the Internet. According to King, all banks have a monitoring system that allows them to track their customers purchasing habits, signature changes and and card encoding.

There is a charge of about $20 for the replacement of a lost or stolen card. Since the inception of the Electronic Transfer of Funds Crime Act 2000, this charge is allowed up to a maximum of $500. Since most banks have stopped taking cheques most people have limited options. As a result, King said, this has increased credit card usage dramatically. “People don’t want to walk around with a wad of cash. It is easier to carry a credit card. But it is very important to check them monthly, make your payments and not accrue debts because of them,” said King. According to King consumers need to do more research into choosing a credit card. She said the only way to use the service to your benefit is to understand what you are using. The survey done by the Ministry of Consumer Affairs was a first step to inform the public, but King said not everyone knows it is available for them to look at.

Also, she added that banks need to take time to inform their customers about using credit cards. “A responsible bank would inform their customers since it is their responsibility. It is very bad if they are not doing this, they must and should,” said King. As for the future of credit cards, King said we are slowly but surely moving toward Internet banking. She said further down the road local banks will have to look at digital cash as a means to alleviate fraud and speed up transactions. “In 15 to 20 years, this is where we will be. The industry will become more intra-net,” said King. As far as plastic usage goes, there is a total of 22 cards offered in TT. Republic Bank offers nine, RBTT seven, FCB four, and Scotiabank two. American Express also has three cards on the local market. Incentives play a major role in capturing customers and usually take the form of vouchers, dividends or miles.

According to the survey, any purchase other than a cash advance will allow a customer to claim incentives. But there is a catch. Tansactions, such as paying utilitiy bills, are considered cash advances, therefore customers cannot claim for them. “This is tantamount to banking charges not being transparent,” said King. The customers should be so informed upfront so that they can make an educated decision on how best to pay their utility bills,” stated the survey. According to the survey the most economic local visa card is that offered by Republic Bank. But the least cost international card is offered by Scotiabank. According to the survey the only major constraint to using a credit card in TT is the limited number of merchants that accept them.