In my opinion, this new Citibank initiative is at least partly due to the recent decision by NETS to approximately triple its administrative fees for retailers.
ST July 29, 2007
Have card, no income, know the risks
Be aware of legal issues facing those under 21 such as the penalty for missing payments
By Lorna Tan
EASY credit has long been a fact of life for many Singaporeans. But now the floodgates are being opened to vast numbers of people who would normally never manage to get their hands on plastic.
Eighteen-year-old youth and those with no or low income can now apply for a ground-breaking card that does away with the standard $30,000 minimum annual income requirement.
Regulatory changes have allowed Citibank to launch the card, which offers a maximum credit of $500, a fraction of the typical limit of two months' pay.
In order to allow their customers to make payment by NETS or credit card, retailers have to pay fees to NETS and credit card issuers. Traditionally, credit card issuers charge higher fees than NETS. That's why lower-end retailers accept payment by NETS, not credit card.
Now, by raising its fees, NETS has made it possible for the likes of Citibank to compete in the space of facilitating low-cost cashless transactions. If NETS facilities are not any cheaper than credit card facilities, your average HDB shop owner who allows you to pay by NETS might as well also allow you to pay by Visa or Mastercard.
The first step by Citibank, of course, is to ensure that the average customer of the average HDB shop can have a credit card, and not merely a NETS card. Since the MAS regulations have changed such that there is zero income requirement to get a credit card, your average HDB customer WILL be able to get a credit card.
Applicants under 21 need the consent of their parents, but the bank will not require parental income information. However, the bank is playing it safe: If the minimum monthly payment is not made, the card will be blocked.
The Citibank move - which could admit more than 900,000 people to the ranks of new credit card users - has sparked debate over whether Singaporeans, particularly teenagers, can be trained to use credit responsibly.
It is a pressing issue as more of such products are in the pipeline, with OCBC Bank and United Overseas Bank saying they will introduce similar cards soon.
Some people are concerned about the danger of raising a generation of young adults who chalk up debts even before they leave school.
I think the attention got a bit misdirected. They forgot about the adult uncles and aunties in the heartland - the ones who queue up at the 4D and Toto outlets, and/or who are genuinely struggling to make ends meet.
Maybe can use credit card to buy 4D."
How much will one be able to borrow via credit card, if one has no income? According to the ST article, it's $500. Of course, this is on a per bank basis, and we also learn from the article that apart from Citibank, two other banks - OCBC and UOB - will be introducing similar cards.
If you have zero income, but apply simultaneously and successfully to all three banks, you'll be able to borrow $1,500. If you wait and see if HSBC, Maybank, ABN AMRO and Standard Chartered come up with similar cards, who knows, you may be able to get 7 cards x $500 = $3,500.
Not bad for someone with zero income. A pretty good recipe for financial disaster too.
One interesting thing to watch is how the nature of credit card advertising will change as a result of the new rules. In the past, credit cards were often marketed as a symbol of the customer having "arrived", being successful etc. In fact, a credit card is one of the five C's that commonly represent material achievement in the Singapore lifestyle. But now that kids and poor people can also get credit cards, I think that the usual advertising/marketing themes will have to change.
Into what? That's the interesting question.