Wahyudi Soeriaatmadja – An aggressive drive by Indonesia's banks has succeeded in putting more plastic in their customers' hands, but it seems to be giving rise to a generation mired in credit card debt.
Card transactions have more than tripled in value over the past five years while the country's economy boomed, but about 70 per cent of those who use the cards pay their bills in installments despite the high interest rates.
Local banks have taken out big advertisements in newspapers and offered special discounts to entice new customers. In Indonesia, 20 million people qualify for a card but fewer than 10 million have one card or more. A monthly income of Rp 3 million ($336) is required to get one.
These marketing moves have paid off for the banks, which see strong potential in the credit card business. The Indonesian economy, which grew 6.1 per cent last year, is forecast to expand 6.3 per cent this year.
"A credit card is the most attractive type of loan to offer," said a senior officer in charge of credit card business at Bank Mega.
Indeed, for those who pay their card bills in installments, the annual interest rate is typically around 40 per cent – about three times the bank lending rate.
Even so, about 70 per cent of Indonesia's credit card holders choose to pay in installments rather than in full each month, according to data from the Indonesian Credit Card Association.
As a result, many – like Wahyu Ananta, 40, are now in a bind. The IT officer had to sell one of his two cars after he ran up debts on his card that exceeded his monthly salary.
"You feel you have money all the time when you have credit cards," he said. "You gradually realize the truth when you see your bills in the months that follow. And you can't seem to stop them from growing bigger."
Indeed, the latest figures available reveal that in the first six months of last year, the proportion of Indonesian credit card holders who defaulted soared to between 8 per cent and 9 per cent, industry officials said. The figure was 6 per cent for the full year in 2009 and 2.5 per cent in 2008.
However, some users do make the most of their cards without suffering any ill effects.
Iis Amien, 32, a bank officer, said: "I use plastic money just to get various discounts. I make a full payment each time the bill comes." These users say most of their card transactions are for groceries and dining out. More and more people are also buying plane tickets and other products on the Internet with plastic.
The number of card holders in Indonesia has risen around 13 per cent in the past year to about seven million.
The value of card transactions jumped to 161.4 trillion rupiah last year, more than three times the 45.7 trillion rupiah seen in 2005, according to central bank data.
In a common tactic, Bank Mandiri, the country's largest credit card issuer with more than two million card holders, ran a half-page ad last week that showcased an offer many found hard to refuse. Half-price discounts were handed out at around 30 restaurant outlets to customers who paid with their cards.
The bank's senior media relations manager, Iskandar Tumbuan, said: "Banks are now flocking to popular food outlets and cafes as they want to get there ahead of everybody else."
Other promotions range from free airport lounge services and factory outlet discounts to reward points that can be redeemed for everything from mobile phones to plane tickets.
Foreign banks operating in Indonesia are also keen to increase the number of locals holding their credit cards.
For instance, Singapore's Bank UOB Buana wants to triple the number of its Indonesian card holders to 800,000 within three years. To achieve this aim, it is offering Singapore-related incentives.
"If our card holders make transactions in Singapore, they get double reward points," said Iwan Notowidigdo, who oversees the bank's credit card business. "We also give the lowest Singdollar- rupiah exchange rate, free Changi Airport lounge services and various merchant discounts by Singapore shops."
Iwan said that according to the bank's estimates, half of the overseas transactions made by its Indonesian card holders had been conducted in Singapore.