Wednesday, August 24, 2005
Do we really need more credit cards? Standard Bank and Edgars Consolidated Stores (Edcon) clearly believe we do. Their new joint venture will offer credit cards to Edcon’s store card holders with good credit records.
More than two-thirds of the 3.8-million customers with Edgars, Jet and other Edcon store cards do not have credit cards — probably because they don’t believe they will qualify. Standard, the leading player in South Africa’s credit card market, sees a new market there.
This is a potentially significant venture because it is a further move in the direction of banking the unbanked. Many of Edcon’s customers are in the low to middle-income brackets. They have access to basic bank accounts and to retail credit, but not necessarily to bank credit in the form of credit cards or overdrafts. What helps to make them bankable is that they do have credit records. Edcon has a long history of granting credit in this market, as well as a highly developed collections system. Whether Standard can leverage this successfully to broaden its credit card customer base remains to be seen. [Editor’s note: italics added]
However, one cannot avoid raising questions about any efforts by SA’s banks and retailers to pump yet more consumer credit into the market. At this stage in the credit boom, the risk of bad loans to borrowers who have already taken on too much debt (or for that matter, those who had previously been denied it for good reason) is surely increasing. Not that one would expect Standard to be anything other than its usual cautious self. But all those who lend to the consumer market should be keeping an eye out for danger signs.
What makes this market interesting and exciting, though, is that SA is in uncharted territory. Household debt as a percentage of disposable income rose to almost 60% in the first quarter, from a low of just under 50% in 2002. This still puts SA well below the 120%-plus ratios in countries such as the UK, Japan and Australia. But the current ratio is above that of some other comparable emerging markets and above SA’s own long-term average. What has changed is that SA now has much lower interest rates, which have made debt a lot more affordable. It also has a middle class that is getting broader, and better off, all the time, as the economy grows and society changes. That means far more households that have the capacity, and the confidence, to take on debt.
There is therefore still scope for new ventures designed to take banking and credit into new territory, as long as caution prevails.