July 19, 2007
No minimum pay needed for new credit card
Citibank's new offering aimed at young adults; credit limit set at
$500
By Bryan Lee
A RADICALLY new type of credit card with no minimum income
requirement and just $500 in credit has arrived in Singapore.
Global banking giant Citibank yesterday launched Singapore's
first-ever credit card that does away with the standard $30,000
minimum annual income requirement.
The American bank is taking advantage of a recent regulatory change
and will start taking applications for its new Citi Clear Card from
today. The card, mainly aimed at students and other young adults,
will have higher 28 per cent interest on rollover balances.
Citibank says the new plastic is unlikely to be instantly
profitable. But it says the card will give it a head start in
building relationships with young adults aged 18 to 35, so that it
can later sell them other financial services when their careers are
under way.
Parental consent is needed for applicants under 21 but the bank
will not require their parents' income information. Citibank will
also accept applications from older Singaporeans.
Still, industry insiders said university students will be the prime
targets as they are more likely to embark on well-paying careers on
graduation, becoming potentially lucrative clients.
Indeed, tertiary students were highlighted as a target group by the
three local banks which are looking to launch similar credit cards
soon.
Citibank's latest salvo in the local credit card market comes hot
on the heels of a change in March by the Monetary Authority of
Singapore to rules for unsecured loans. In line with a worldwide
shift towards allowing banks to manage their own risks, banks in
Singapore are now exempt from a long-standing salary criterion that
has put credit cards out of the reach of 900,000 Singaporeans aged
18 to 54. The only catch is that the maximum credit they can extend
to these customers is $500, a fraction of the typical limit of two
months' pay.
This is not uncommon elsewhere. Students in the United States have
long had access to credit cards with US$2,000 (S$3,030)
limits.
'The opening of this segment has given us the opportunity to extend
our reach to a new group of consumers,' said Citibank Singapore
marketing director Ong Lay Choo.
The bank is focusing on the 500,000 young adults aged 18 to 35, who
earn less than $30,000 a year. It is using its Clear Card brand, a
standard card aimed at young professionals.
But it is not without cost. Virgin cardholders, some with no job or
credit history, face a higher risk of default. So they will be
monitored closely.
For instance, cards will be blocked instantly if the minimum
monthly payment is not made on time. This differs from the standard
practice where late-paying customers are slapped with a penalty but
are able to keep using their cards without disruption.
The low credit limit also caps the amount of fees and interest that
can be reaped from these customers.
Junior college student Sng Ren Zheng, son of a businessman, is keen
to apply for a card after he turns 18 next month. 'I don't always
have much cash on hand. A credit card will come in handy when I
want to buy that $399 Hugo Boss shirt. If I wait for my $150 weekly
allowance, the shirt might be gone.'
But university student Gabriel Tan, 23, said he is happy with the
Visa debit card that he already holds, as it functions almost like
a credit card.
DBS Bank consumer banking head Edmund Koh said the local bank
stands to benefit most when it launches its own $500-limit credit
card.
'Through POSB, we are already serving a base of mass-market
customers. We know their savings behaviour which will reduce our
credit risk. This allows us to offer this product at a lower cost,'
he said.
OCBC credit cards head Wong Ting Mei said the bank will be
launching a similar card aimed at tertiary students. University
students offer an added bonus. Said an industry expert: 'Surely
their parents will make sure they don't start off with a bad credit
history, wouldn't they?'
