Thailand’s card issuers have good reason to have
a guarded outlook. Economic and political uncertainty have hit
consumer confidence hard and that, coupled with toughening
regulation, means issuers are facing rising non-performing loan
rates and declining profits. Titien Ahmad reports.

The mood in Thailand is generally cautious as a
new government takes power following the recent elections. Local
card issuers that spoke to CI are paying close attention to
consumer sentiment, especially as the last year has seen consumers
hit by a gloomy worldwide economy, high oil prices, weak exports
due to a strong Thai baht and a regulatory clampdown on borrowing

Sukdee Chongmankhong, managing director at GE
Capital (Thailand), said: “The mood is important. With the oil
prices at the level that they are now, I can notice that the
traffic on Bangkok roads is a bit light. We can manage other
aspects of the economic environment but in the current political
climate there are uncertainties that are beyond our control – how
can you predict and prepare for that? We have to follow closely
what happens.”

Sukdee is a cards veteran in Thailand. He is
currently responsible of heading GE Money’s cards alliance with
Bank of Ayudhya, which was formed in February 2001. “Last year was
a tough year with the minimum payment regulations. The key
challenge for card issuers was to manage the loss line,” he

Shoke Na Ranong, senior vice-president, cards
division for the largest local bank, Bangkok Bank, agreed: “Last
year wasn’t a good year for Thais – the economy was sluggish and
consumer confidence was going down. Although banks see their
non-performing loans [NPLs] rising, it is not at the alarming rate
that they did ten years ago.”

New regulations introduced by the Bank of
Thailand, the central bank, have raised the minimum payment per
month from 5 percent to 10 percent. The increase saw the NPL levels
of card issuers increase across the board, although market watchers
say that this is a natural initial reaction that will normalise in
the next 12 months.

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Local banks dedicate a sizeable chunk of their
resources to their credit card division, given the Thai love of
credit. The use of cards started more than 20 years ago with card
acceptance for travellers into Thailand. A few years later, credit
card usage among local Thais was still limited to travelling and
occasional usage such as in travel agencies, hotels and large
restaurants. Now the market is mature; as of July 2007, there were
11.3 million credit cards accounts in Thailand, with 7 percent of
the population holding four or more cards. Due to the contribution
of tourism to the economy, approximately 15 percent of transactions
are made with foreign-issued cards. Revolve rates are relatively
high at between 60 and 80 percent for most issuers.

The largest players in the credit card market are
Krungthai Card, Siam Commercial Cards and GE Money (through its
joint ventures). The largest bank issuers are Bangkok Bank, Siam
Commercial and Kasikornbank

With the card networks, Visa International that
has a stronghold on cards issued in Thailand, actively developing
consumer awareness and merchant acceptance. The top merchant
categories for card usage currently are in transactions at petrol
stations, supermarkets and restaurants.

An estimated 4 million Thais, or about 6 percent
of the population of 70 million, are eligible for credit cards. The
number would be higher if the card issuers could influence matters.
Regulations that favour consumer protection over free market forces
in the credit card industry have always held back issuers in their
drive to expand the market.

Rules issued by the Bank of Thailand dictate that
issuers must cancel the cards of people who have failed to pay the
required amount three months in a row. In addition, card issuers
can make their sales pitch only between 8am and 8pm on weekdays and
8am and 6pm on weekends and holidays.

Sukdee said: “There are some steps taken which
might not be favourable to the operator and public at large, but is
necessary to curb the credit crunch. For example, the increase in
minimum payment will affect NPLs and level of write-offs, but
regulators want to reduce the credit exposure of consumers. We have
gone beyond the local regulations on responsible lending with
online training, transparent rates and we look at the debt-income
ratio to make sure that people do not get into

The Bank of Thailand has nevertheless made some
concessions. “The Bank of Thailand has understood the constraints
of the credit card industry in the past year,” said Shoke. “They
have been good at managing consumer debt holdings in the past and
listening more to the credit card industry regarding our concerns.
For example, the cap on the interest rates in the past was 18
percent but is now 20 percent after we convinced them that the
previous rate wasn’t working.”

Sukdee believes issuers can breathe more easily
with the recent rise in rate cap: “The minimum income requirement
or credit line is not as important as the rate cap. With a rate
cap, you cannot do risk-based pricing. Even if there is no minimum
income, is it worthwhile with the current cap? The risk will not
justify going to a lower-income segment.”

Credit card differentiation

Some card issuers have taken to issuing different types of credit
cards in a bid to increase consumer spending from the finite pool
potential cardholders.

The competition in the Thai market centres around
product launches, according to Shoke. “A number of our initiatives
are focused on providing payment products based on technologies
that are secure and convenient to the customer,” he said. “We’re
positioning ourselves to be the leader in terms of technology,
security and convenience to cardmembers. Three years ago, we were
the first to issue chip cards in Thailand. Last year, we worked
with the mass transit provider, BTS, to issue a two-in-one
contactless card. We had very good customer reception for that with
more than 150,000 cards issued so far.”

Anchalee Charasyosvuthichai, head of credit card
product management and marketing for third-largest issuer,
Kasikornbank, refers to “simplicity and few limitations in our card
products”. She said: “The direction for retail banking in
Kasikornbank is ‘simplify my life’. In the last two years, we have
been doing a lot of research on customer expectations, needs and
wants for credit cards and most of them feel that products in the
market have too many hidden conditions, especially when it comes to
offers and promotions. Most customers prefer products that are easy
to understand and easy to get.

“Our cashback card, the Everyday Card, which
offers a straightforward cashback for every dollar spent, has been
well accepted, with 30,000 cards issued for the first six months.
For the three main segments of spending – restaurants, supermarkets
and petrol stations – the cardholder gets a 1 percent rebate. For
all other segments it is a 0.5 percent rebate. We are targeting
those customers who do not believe in points or reward redemptions.
The cashback is debited at the end of every month from the
customer’s account. With other banks, the cashback is converted
from loyalty points, or cashback is limited only to certain

No clear benefit in prepaid or debit

Some banks and non-banks have ventured further into other forms of
card payment such as debit and prepaid. However, both debit and
prepaid have limited success and issuers are looking at a small
pool of customers with limited profitability.

“There are other products available in the market
but the credit card is still the most favoured means of payment,”
said Sukdee.

The local issuers are generally in consensus that
Thais favour credit over debit. According to market data from the
central bank, more than 90 percent of debit volume is around cash
transactions such as withdrawal and funds transfer as opposed to
merchant transactions at the point of sale. The debit card is
considered instant payment, while credit offers the benefits of

One main constraint for debit card marketing
activity is that financial institutions do not normally use the
same staff resources between credit cards and debit cards. The
debit card sits in the retail banking department which means that
marketing will have fewer resources.

At the moment, the products in debit and prepaid
are primarily targeted at the lower-income segments. Prepaid
products are limited to specific applications such as gift cards
and special purpose coupon cards.

The limitation to adoption of prepaid in Thailand
is access to money-loading channels. In the small-value item area,
volume and ease of access of access is critical – two factors which
might account for low penetration of prepaid in the market. There
is yet no clear benefit for the Thai consumer to make use of
prepaid and money loading becomes a negative factor. Most would
prefer debit card as funding is direct from the bank account.

“Prepaid acceptance has a lot of barriers. Thai
customers usually do not like to add value into the cards first and
prefer utilising credit. Prepaid cards will work better with
small-value transactions,” said Shoke. “People who are eligible
have on average 2.5 cards already and banks have to stimulate
spending through merchant offers, discounts and rebates. If you
look at the users of debit cards, they tend to be those who do not
already have a credit card such as students or those with incomes
of less than THB15,000 [$480]. A credit cardholder will use that
card first because of the enticements offered for card

Thailand Number of credit cards in issue

Jury still out on new

Shoke believes that new technology is more important in Thai
consumer payments: “Mobile payment is around the corner and
internet trading as well. We will not be introducing mobile
payments yet as I believe it will take at least two years to
establish in this market. There is still the outstanding issue of
customer ownership – should it be the bank or the
telecommunications provider?”

“Thai customers are similar to other regional
customers in terms of being receptive to new technologies. It boils
down to whether the programme is good, customer education is
effective and the launch has the impact needed.”

Sukdee, however, is sceptical as to whether
mobile payments will take off as it has in other Asian markets such
as Japan and South Korea. “We are not South Korea. We need the
infrastructure but who is going to invest?” he said.

“We have just invested a lot in the terminals to
accept chip and we had another round to encode the line encryption
to protect against fraud. These are two major investments for a
Thai card issuer. As a market, we have invested about $3 million
which is not small and that took a year to implement. If we are
going mobile, who will pay?”

“I do not see the big advantage in contactless.
It is only good for fast, small-value transactions such as fast
food. The most applicable is mass transit because you need the

Outlook still tentative

The card issuers are still guarded about the outlook for growth in
the next 12 months. Discounts and promotions have affected their
profitability. According to Shoke: “Thai banks have spoilt the
customers with discounts more than in other markets. It has made
the card business less profitable as we need to spend more to keep
customers. The cards business will see growth this year but it be
somewhat limited due to the economy. The banks will have to work to
control their delinquency and NPL.

“This year will be a bit better than last year
though it’s not all rosy. The political situation is still not
stable and I do not see consumer confidence changing so much. We
will have to promote consumer spending in a more cautious way, by
cross-selling to existing bank customers instead of aggressively
issuing more cards to new customers with whom the bank does not
have a relationship.”

Sukdee concurs: “This year we will have to carry
out more marketing initiatives. We should still be careful about
the losses because the world economy is not in a favourable shape.
On top of that, the Thai economy is not that solid compared to two
years back. There is a lot of uncertainty.

“We are trying to get more than 1 million
cardholders in three years. But our policy is not giving duplicate
cards – I personally don’t believe in giving people multiple cards.
Why should they hold two cards from the same company?

“Card issuers spoil the customer by investing too
much money to pay for discounts and promotions – you can continue
doing that but it’s not going to be cost-effective. The loyalty
programme is costly but no one dares to withdraw it – that’s the
problem. We need some new ammunition otherwise we can’t sustain