Lucky Fiakpa
29 December 2008
Lucky Fiakpa reports that Ecobank Nigeria, the initiator of naira credit card in Nigeria, has reviewed its scheme in the face of reported payment default by cardholders across the country.
With reported cases of massive payment default by cardholders across the country, the naira credit card scheme introduced some two years ago by Ecobank Nigeria may well be said to be experiencing some bad period at the moment.
Lucky Fiakpa reports that Ecobank Nigeria, the initiator of naira credit card in Nigeria, has reviewed its scheme in the face of reported payment default by cardholders across the country.
With reported cases of massive payment default by cardholders across the country, the naira credit card scheme introduced some two years ago by Ecobank Nigeria may well be said to be experiencing some bad period at the moment.
When the bank introduced the scheme on November 14, 2006, the managing director and chief executive officer, Mr. Offong Ambah, did not rule out the risky element of credit cards the world over. "The process of consumer lending is clearly identified anywhere in the world as a high-risk kind of lending. First of all the administrative aspect of it makes it more expensive than the normal lending.
"The fact that you do not have audited financial statement to rely upon, you do not have securities in form of debentures or mortgages to rely upon, make it extremely risky. I guess when you get into these sets of schemes you have to make certain allowances. Those allowances we have made. But we have also put in place a structure or structures that would make it difficult or act as a disincentive to people who might want to take advantage of the system," Ambah said.
The risky element, perhaps, were more potent in Nigeria considering the fact that there are no credit checks, credit bureau and things like that as at the time the scheme was introduced. Even at that, Ecobank still went ahead to launch the scheme. "It is usually a need that brings about an invention. An invention does not happen on its own.
"There are a lot of agencies talking about credit checks, credit bureau and things like that in today's market as we speak. But remember, we started lending money to people without a credit bureau. Remember too that it was much later that the Central Bank set up a credit bureau, which requires that before you lend to a customer you have to call the credit bureau or check in with the credit bureau and get reference on that customer before you lend," the managing director said.
However, with the reported payment default by cardholders of late, the bank may have seen the need to review some aspects of its naira credit card, which it said would "enhance customers' convenience and easy usage".
A statement from the bank last week said the financial performance of the card had exceeded initial projections on a number of key measures that included number of customers, frequency of card usage and contributions to the bank's bottom-line.
According to Ecobank Nigeria Head of Transaction, Mr. Olumide Bajomo, the bank during a recent review, noted a number of initiatives, which would further enhance the product performance in the coming year, while improving customer convenience and satisfaction.
He further said that "in response to the global financial crisis, we have also reviewed the product to ensure that it remains consistent with the current risk assessment criteria of the bank in order to attain the target performance level for the coming years."
He reiterated that the bank had adopted measures to protect as well as ensure the safety of cardholders, especially from card related robbery attacks during the yuletide season. According to him, this would be done by encouraging cardholders to perform purchase transactions using Point of Sale terminals deployed at shops, hotels and other business locations across the country, adding that the acquisition use of PoS terminals by businesses also protected them from risks and attendant losses associated with cash pilfering and robberies.
As a result of the development, the maximum daily automated teller machine cash withdrawal limit has been reduced to N100,000 per day. This is aimed at de-emphasising large cash transactions.
The statement, however, said for PoS transactions, cardholders might pay fully for goods and services up to any amount, limited only by each cardholder's credit limits, which could be up to N5 million, adding that the bank had also put in place an insurance policy to protect any cardholder in the event of unforeseen eventualities such as loss of job or income, permanent disability or death.
According to the statement, Ecobank, in the last four years, has maintained its track record of product innovation, market leadership and customer focus in the area of payment cards.
The statement said, "The inauguration of Nigeria's first naira-denominated electronic credit card, the Ecobank Naira Credit Card, on November 15, 2006, marked a milestone achievement for the bank following the success earlier recorded with the inauguration of Nigeria's first foreign currency-denominated credit card, the Ecobank MasterCards two years earlier.
"More recently, in 2007, Ecobank inaugurated the first multi-currency debit card denominated in naira, the Ecobank Multi-Currency Debit Card, now accepted on ATMs and PoS across Africa.
The Naira credit card scheme operated by four banks seems to have been crippled with massive payment default by cardholders. Some two years ago in response to yearnings for improved access to consumer loans, Ecobank pioneered the Naira credit card, and was later followed by UBA, Skye Bank and later Bank PHB.
Like other credit card elsewhere in the world, the Naira credit card is a non-collaterised revolving loan with different lending limit for the various categories of the cards.
Financial Vanguard investigations however revealed that the four banks are experiencing massive default rate by naira credit card holders and some of them have actually suspended their scheme or restricted access to few high net worth customers.
Investigations revealed that the increasing default rate might not be unconnected with the slide in the stock exchange as many card holders actually use the borrowed funds to buy shares which sharply declined in value.
Other card holders, it was gathered, borrowed against specific share investment which they hope to liquidate to repay the loan. It was furthered gathered that majority of the cardholders borrowed money through the card without thinking through how they will repay.
This situation has compelled the banks to either suspend operations of the card or restrict access to high networth customers. Two of the banks namely, Ecobank and Bank PHB however denied suspending their naira card operations.
A staff of Bank PHB who spoke on condition of anonymity told Financial Vanguard that the bank did not suspend its naira card scheme. Some problems, according to him occured because the bank was changing its software and this affected its naira credit card operations and a result, cardholders were unable to have access to cash through the card.
Similarly, a staff with Ecobank said that the capacity of the software for the naira credit card scheme has been exhausted, and it is in the process of upgrading the capacity hence it has stopped issuing new naira credit card but existing customers can still use their cards.
An official of Skye Bank also said that the bank's naira credit card scheme is still operating. He however added that if any of the cardholder is having difficulty accessing funds with his/her card it might be due to the year end review which was conducted last week.
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