THE rising payroll costs are forcing banks to introduce new products that provide convenience and safety to depositors while attracting more of their money to their vaults.
The banking system calls an old system debit card. It is all over the world and threatening credit cards.
It is really relatively new in the Philippines, according to Allan Tumbaga, head of corporate communications of East-West Bank of the Gotianun family.
He said in an exclusive interview with Malaya Business Insight that debit cards are the "in thing" in the United States and steadily growing in the European Union, in fact all over the world.
Debit cards were available in the Philippine market since 1999 but, Tumbaga said only East West, Rizal Commercial Banking and Metrobank are actively pursuing it. East West is authorized to issue Visa Debit cards, said Tumbaga.
Debit cards have distinct advantages for both the banks and their depositors.
Holders of debit cards learn to save money in the banks and acquire financial discipline. Debit cards work in such a way that the value of the holders' purchases are automatically deducted from their deposits.
Tumbaga said the holders of the card thus limit their purchases to the amount of their deposits in the banks. Before one is issued a debit card, he must first make a deposit in the bank.
In that sense, debit cards are a deposit campaign. In another sense, the cards prevent the holders from going on a splurge where they spend more than they earn. A good number of them end up being sued by the issuing bank for non-payment.
Credit card holders who pay the minimum amount in the bill are charged an average of 3 percent on the balance. That is not money being saved. It is money unwisely spent because the credit card holder does not learn the value or virtue of financial discipline.
This embarrassing situation does not happen to a holder of debit card because the amount of his purchases is limited to the size of his deposits in the bank that issues the debit card.
RCBC earlier estimated that a branch costs at least P10 million and 10 new people are hired.
The objective of attracting more deposits can be accomplished with debit cards, according to Tumbaga.
A deposit must be made with the issuing bank as a precondition to having a debit card, Tumbaga said.
The debit card system works in such a way that the depositor gets the opportunity to plan his or her finances on a weekly or monthly basis.
The debit cardholder buys a merchandise or service from an establishment. His debit card is swiped on a machine. If the cardholder does not have sufficient funds to cover the purchase, the machines come up with the dreaded word, "declined."
The transaction is actually cash but the cardholder does not have to carry money. In that sense, the debit card has the safety feature of preventing picket pockets from filching the depositors' money, misplacing it, or forgetting where he might have left it.
East West also issues the Master and Visa credit cards.
According to Tumbaga, the cash transaction made possible without carrying cash prevents defaults and penalties otherwise charged against credit cardholders who do not pay their dues on time.
Installment payment on credit cards becomes expensive because after the minimum payment requirement is made, the balance is charged a heavy interest cost of 3 percent a month.
Tumbaga explains it this way: "Visa Debit cards are actually a great way to keep track of your spending habits. By consistently noting your purchases and keeping track of your balance, you become more mindful of your spending."
He added "this teaches you to never spend more than what you can afford." That means a card holder's purchases are necessarily limited to the amount of deposits in the bank.
Tumbaga gave what he believes to be a learning lesson in handling money. "When you figure out your monthly income and expenses, subtract the total expense from the total income. A positive balance means the depositor or the debit card holder is spending less than what he earns.
If the balance is negative, the cardholder is prevented from making a purchase using the debit card."
Tumbaga said when this situation happens, the depositor is invariably forced to cut his spending in the next purchase trips.
In this sense, debit cards encourage savings in banks instead of keeping cash at home.
Behind all these benefits or advantages, the issuing bank is able to attract more deposits without having to set up a new expensive branch.
The new product is a result of intensive competition for funds among banks. It is also a flight to safety in the sense that funds are best kept as deposits in banks which do not have to be withdrawn when making purchases or shopping in thousands of establishments that accept the debit card, Tumbaga said.
Tumbaga said the card is acceptable around the world.
Apart from the issuing bank getting the opportunity to attract more deposits, debit cards also instill financial discipline among holders. They are no allowed to splurge beyond the amount of their deposits as the machine on which the card is swiped will tell the cardholder the word he never wanted to see or read "declined."
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