Number of credit card users drops due to high interest rates, emergence of alternate products

KARACHI: The number of credit card users is on decline in the country due to the higher interest rate and emergence of alternative financial products being offered by fintech operators, mainly the product of advanced salary to provide affordable cushion to consumers for meeting the essential and urgent financial needs.

According to the Payment Review released by the State Bank of Pakistan (SBP), the number of credit cards issued by banks decreased to 2.004 million by the end of second quarter of this fiscal year (FY24) down from 2.069 million the first quarter. This decline occurred despite attractive incentives, discounts, and aggressive marketing.

Out of 59.2 million payment cards, the share of credit cards stood at merely 3.4 percent, down from the 4 percent share reported in the previous quarter.

While number of debt card users rose to 39 million in December 2023 compared to 35 million in September 2023.

It has been observed that the emergence of innovative and affordable products like advanced salary has redirected customers particularly a specific income group away from using credit cards to avoid paying high-interest rates. Currently Policy rate is stood at 22 percent due to high inflation rate.

Conversely, the adoption of advanced salary or Earned Wage Access (EWA) facility and has been increasing in major cities.

In the country, a few fintech operators provide financial products like advanced salary through innovative and swift mobile applications or SMS. These operators charge a flat fee for the service and provide half of the salary to an employee through an arrangement with the employer.

On the other hand, a few fintech operators also offer advanced salary loans against minimal interest rates directly to customers but they are less popular than the EWA provider.

Analysts said that high inflation in the country has adversely affected the purchasing power of the middle and lower-income groups, particularly the salaried class. Consequently, people are turning to innovative EWA services to address their financial requirements within limits without incurring high-interest rates.

They further said a number of customers applying for EWA services are increasing, with renowned conglomerates and multinational companies coming on board across the country.

Not only employees, but many employers also manage their payroll through EWA services, which stabilizes the salary payment cycle of these employers to their employees, thereby ensuring effective employee retention.

The option of advanced salary is not just a financial solution, it also serves as an incentive and motivation for workers, positively impacting the personal and professional well-being of the workforce.

According to an estimate, thousands of employees from medium to large-sized corporations are regular customers of different fintech operators for availing of this financial service every month to meet their financial needs.

These services provide them great relief in paying utility bills, fees to educational institutions and the purchasing of essential items such as medicines and edible commodities.

Copyright Business Recorder, 2024