The Culture of Credit Cards Worldwide
A credit card can be your best friend when you need to buy a shiny new object that you really can’t afford, or your worst enemy when you’ve surpassed your credit limit and your bank is trying to rip you off as punishment.
Love them or hate them, credit cards have become a permanent fixture on the financial landscape of most developed countries. Yet we often take them for granted and rarely consider how we feel about them and why.
This article looks at countries from both the developed and developing world, and the differences in how credit cards are used and viewed. We discover why Americans love their flexible friends, why the Japanese are really not interested in paying with plastic, and why India has witnessed such a backlash against the spread of credit.
Despite Japan’s status as the world’s most technologically advanced nation, it remains a strongly cash-based society. Its use of credit cards lags way behind most developed countries and many developing nations too.
It’s common for smaller shops and restaurants not to accept credit cards and there are few 24-hour ATMs, even in large cities. On average, only four credit card transactions are undertaken per person per year!
Banks have tried every trick in the book to convert the Japanese to credit cards, but to no avail.
Significant barriers to such a conversion include the high costs charged to Japanese merchants that accept cards and high telecommunication costs, which impede responses to fraudulent transactions.
The traditional role of women in Japanese society has also been cited as a cause for the country’s low credit card penetration figures. Men and women think differently about crime, technology and other factors that influence a preference for cash or card.
Perhaps if women played the same role in Japanese society as they do in the USA or Australia, carrying a credit card would prove more popular than having a huge wad of cash in your pocket.
The use of credit cards in China is growing rapidly, in line with the country’s economy, income levels and middle-class population. In 2008, China had 104.73 million credit cards in circulation, a 92.9% increase on the previous year. 15 to 20 million more cards will be issued in 2009.
The Chinese were once famous for their frugality, with saving rates of around 40%, but not any more. Saving rates among today’s young, urban Chinese population – those driving the economy – are effectively zero. This demographic is finance-savvy and hungry for credit cards.
Credit card use has grown steadily over the past 5 years in an increasingly consumerist India. Economic reforms and growth have made foreign and domestic goods more affordable for the upper and middle-classes, while improvements to the country’s payment infrastructure (more ATMs and POS terminals) have made credit cards easier to use.
Nevertheless, only 4% of Indians own a credit card, one of the lowest rates in the world. It seems that traditional values of thrift and prudence have endured here.
In addition to this cultural bias, high interest rates (typically 24% per year), high fees, hidden charges and poor customer service have all acted to dissuade Indians from using credit cards.
Lenders maintain that high rates and fees are necessary in a country without a robust credit checking system, where account holders can disappear without a trace.
One reason for the high charges that banks don’t give so readily, however, is that a large proportion of prudent Indians pay their full credit balance monthly, thus depriving card issuers of interest earnings from revolving credit.
The UK has had a long love affair with the credit card, ever since the Barclaycard was launched in 1966, becoming the first credit card available outside of the US. Today, cards are more popular in the UK than ever, with the average UK consumer owning 2.4 credit cards (to go with their 2.4 children!).
Credit card fraud has become an increasing concern for UK residents and has received a high level of media coverage in recent years. In 2004, the cost of credit card fraud was particularly high: estimated at 500 million. In response, the UK and Ireland implemented the EMV standard (known as Chip and PIN) for credit and debit card payments.
This means that all credit cards now come with a built-in microchip and a cardholder must supply a PIN number rather than a signature during a transaction.
United States of America
The USA is the credit card’s ancestral home. It was here that the first merchant credit scheme was used in the 1920s and where the concept of different merchants using the same card was founded by the managers of Diners Club, in 1950.
The USA is the most credit-card-intensive country in the world, with an average of 5 cards per person. US consumers use credit cards to pay for one quarter of all their retail purchases.
The disjointed nature of the US banking system has helped promote credit cards there. Historically, Americans found it easier to use credit rather than direct banking facilities when travelling interstate. The use of credit cards has now become completely entrenched in the US’s ultra consumerist society.
In the recent past, Brazil’s unstable economy has acted against the widespread introduction of credit cards. Corruption made it difficult to enforce contracts, so debtors didn’t pay and creditors didn’t lend. Banks found it very hard to check potential customers’ credit ratings because of the lack of skilled labour and the high cost of technology.
The potential credit card market was small anyway, due to low and unevenly distributed incomes. Brazilians had nothing against credit cards, but risks were high and so, in turn, were interest and default rates.
In 2009, Brazil is a very different country. It now has the eighth largest economy in the world, thanks to many years of protectionist economics and a highly skilled IT workforce. The nation’s top three credit card issuers (Banco Itau, Banco Bradesco and Banco de Brasil) are furnishing credit cards in ever-increasing numbers: in 2008, there were 261 million credit cards and a further 210 million debit cards in circulation in Brazil.
Despite Canada’s proximity to the USA, its attitudes to credit cards are very different. Here, debit cards (which Canadians often refer to as ‘Interac’ after the Interac Direct Payment system) are far more popular.
In fact, Canadians use debit cards in more transactions than credit cards or even cash, making them world leaders in debit card use, with an average of 71.7 debit card transactions made per person, per year.
The many Canadians that do opt for a credit card will find that charges are far less hidden than they are in most other countries. The Government of Canada maintains its own list of fees, features, interest rates and reward programmes associated with the vast majority of credit cards available. Its database is published quarterly on the Financial Consumer Agency of Canada website. There’s even an interactive tool that will find the best credit card for you.
There are 13 million credit cards and a further 28 million debit cards circulating among Australia’s 21 million strong population. The popularity of credit cards is considered to be a central cause of many Australians’ debt. In May 2008, credit card debt in the country reached a record high: the average balance on each individual credit card account was a staggering $3,299.
Identity theft, inextricably linked to credit card use, is common in Australia, a country with one of the highest incidences of cyber crime in the world. 1.1 million Australians have experienced identity theft and it costs the economy $1 billion each year.
Perhaps the stereotype of the laid back Australian is true: research shows that 70% have still not taken any steps to protect their identity.
How do you use / abuse credit cards? Please share your comments below.