Living without credit card

In the advanced world, credit card offers people financial respite. In Nigeria, this all-important facility is almost non-existent despite the massive poverty level, writes CHINAKA OKORO.

Jude Emeka Idimogu, a chartered accountant and member representing Oshodi/Isolo State Constituency 11 in the Lagos State House of Assembly, believes Nigeria deserves a robust credit card scheme. This scheme comes with a card loaded with funds for customers’ use and is issued by financial institutions as soft loan.

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He said: “The card bears the name and other particulars of the customer and those of the issuing institution. It, he further said, is a financial instrument from which the cardholder can draw from periodically for exchange purposes and can be used locally and internationally.

“The cardholder should not withdraw cash from an ATM as the issuing financial institution would ‘punish’ such action. One will only buy things with a credit card.”

Though a few individuals have this facility, most Nigerians bear debit card, which is a payment card that enables the holder to withdraw money or to have the cost of purchases charged directly to the holder’s bank account.

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How did credit card originate?

Records have shown that the use of credit cards began in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers for purchases made at company outlets. The first universal credit card, they say, was introduced by the Diners’ Club, Inc., in 1950. Another major card of this type, known as a travel and entertainment card, was established by the American Express Company in 1958.

How credit card works

Idimogu said: “When a customer purchases a product via credit card, the credit card’s issuing bank pays on behalf of the customer and the customer has a certain amount of time to pay the credit card bill. If the customer didn’t pay within the time limit (usually a month), he will have to pay an amount of money called interest which is additional money he pays as a penalty for default,” he said.

He said the customer may also be provided with what he called “line of credit” which he said is a grant by the issuing institution to enable cardholders to borrow money in the form of cash advances.

Who qualifies to use a credit card?

Is the credit card made available to whoever requested? To this, Idimogu stated that card issuers usually determine who they will issue the credit card, adding that it is usually based on an individual’s credit rating or financial status before a borrowing limit is set.

A source said: “When one buys goods using a credit card, one is borrowing money to buy something that one will pay for later. At the end of each month, the card issuer sends to the customer a statement that indicates purchases made; the total amount owed and the minimum amount to be paid.”

The source also added that “should the customer pay the entire amount due, he or she won’t pay any interest. However, if the customer only makes the minimum payment, an interest charge will be applied to the remaining balance on the account.”

Benefits of credit card

On the benefits of the credit card, Idimogu noted that there are several advantages the credit card can offer to the holder, even as he warned that any prospective cardholder should first understand the details before signing up.

He said: “Just as other financial instruments function, credit cards come with many advantages and disadvantages. But the prospective cardholder must understand the details before he or she signs up for any credit card because one may end up with a card that heaps extra financial burden on one instead of bringing succour to the holder.

“Another benefit of the credit card, he said, is that it reduces the risk of theft by not allowing one to carry cash about.”

The electronic record-keeping that comes with credit cards makes it easy to track one’s spending and identify fraud.

“It allows one to have more money even in an emergency. If one lacks cash and there is the need to make expenses, credit cards can be the quick and easy solution one needs.

“Responsible use of a credit card over time builds one’s credit history, qualifying one for better interest rates and other financial benefits.

“Payments with a credit card make it easier to avoid losses of fraud. When one’s debit card is used by a thief, the money is missing from one’s account instantly. It can take some time before the fraudulent transactions are reversed and the money restored to one’s account while the bank investigates.

“However, when one’s credit card is used fraudulently, one does not lose any money. What is needed is for one to notify one’s credit card issuer of the fraud and does not pay for the transactions one didn’t make while the credit card company resolves the matter.”

Idimogu, who is Chairman, House Committee on Wealth Creation and Employment also said the use of credit card has its disadvantages some of which are: “Overspending: Even though the use of credit card makes life stress-free, it can also make overspending easier as well, especially if one is a heavy spender.

“With a credit card, one spends money one doesn’t have yet. If one is not careful, this can quickly lead to an unexpected accumulation of debt.

“Another disadvantage in the use of credit card is that the cardholder borrows which is not for free. A badly managed credit card can lead to debt in the form of interest and fees. Credit cards can be stolen, their numbers can be copied, and they can be used to steal one’s money and identity.

“If one carries a balance on one’s credit card from month to month, it can be very easy for charges and interest to accumulate.”

“Again, the use of a credit card can boost one’s credit history. This means that a credit card helps in establishing and increasing one’s credit score. One’s credit score can affect a wide range of payments and the better one’s score; the less one pays. Establishing a good credit rating by showing responsible use of a credit card will mean significant savings during one’s lifetime.”

Disadvantages of credit card

Although it has been said that the credit card has countless advantages, a prospective cardholder should not lose sight of the harm its use can engender.

Idimogu opined that “those who use credit card risk the likelihood of accumulating too much debt if they are not conscientious in managing their accounts. Those who purchase with cash are less likely to spend cash that they don’t have on them. However, with credit cards, it becomes easier to make purchases that may become difficult to repay.

“Using the card to get cash from an ATM platform, the cardholder will incur a cash advance fee that is higher than what one might pay when using an ATM card to access cash. Apart from that, the cardholder will also be charged interest.

“If a cardholder fails to effect payments on time every month, he will be charged a late fee. Credit cards can hurt the cardholder’s credit in the event of incurring too much debt or making late payments. But with cash or debit card, this risk is avoided.”

How popular is the credit card in Nigeria?

Unlike in civilised climes with a robust economy and where the credit card is majorly a means of transaction and mode of payment, the credit card platform in economic transactions is relatively obscure in Nigeria. Only a few use it. One wonders what resulted in this uncomplimentary situation.

Pastor Thaddeus Onyejiuwa, a former senior member of staff of Union Bank plc, attributed the near-to- the-ground popularity of the credit card in Nigeria’s transactional system to the absence or near-absence of the practice of cashless economy, which he described as “one in which less cash is involved in exchange of goods and services and one that involves less movement of cash as transactions are carried out more through transfers, credit and use of POS.”

According to the street.com, credit cards are not as common in Nigeria as the debit cards. Only a few people know the difference between a credit card and a debit card.

Despite the similarity in outward appearance between the credit and the debit cards, and despite that both are referred to as payment card, certain things differentiate them.

It notes that “while a customer has to fund his bank account to make use of a debit card, the customer pays for transactions made with credit cards at the end of the month. In other words, one doesn’t need to fund one’s account to make use of one’s credit card. What the customer’s bank does is to credit his or her bank account with a certain amount that has been agreed upon by both parties.

“At the end of the month, the customer is expected to pay before a new amount is credited into his or her bank account. The assumption, of course, is that you pay off your credit card balance every month. If you fail to pay off the credit card balance every month, the amount you pay in interest will quickly negate many of these advantages.”

Examining “The Payments Landscape in Nigeria: Opportunities and Risks to 2022” in ResearchandMarkets.com, Senior Press Manager Laura Wood noted that “the use of cash for consumer payments remains highly prevalent among Nigerians, especially among the rural population.”

She attributed this to limited public awareness of other instruments and limited access to banking infrastructure.

“Central Bank of Nigeria (CBN) Governor Godwin Emefiele has taken several steps to improve the situation. As part of its Financial System Strategy 2020, the CBN is focusing on bringing unbanked consumers under the purview of the banking system as well as promoting electronic payments in the country.

“To complement the CBN’s efforts, commercial banks have also begun the launch of basic and low-cost banking accounts, expanding payment infrastructure and making efforts to change Nigerian consumers’ payment habits.”

As elixir to electronic payments in Nigeria, Wood said: “A rise in the economically active population, the advent of digital-only banks, the growing popularity of online shopping, the gradual acceptance of credit and debit cards among retailers and the proliferation of new payment solutions will help to drive electronic payments in Nigeria,” she said.

But how will CBN’s financial inclusion programme become realistic since a major segment of Nigeria’s population is antipathetic or antithetical to the modern banking system? What roles should commercial banks play to sensitise uninformed and rural dwellers to the dangers of carrying cash about as well as the benefits of electronic banking?

Financial experts have maintained that commercial banks should strive to provide this category of Nigerians with access to formal financial services by expanding the banking agent network in the regions, in addition to launching self-service terminals to augment the CBN’s financial inclusion programme.

Cashless economy without credit card

Soyemi, Babajide-Soyemi and Hammed writing on Open Issues of the Present Cashless Culture in Nigeria published in International Journal of Engineering Sciences Vol (4), No (4), maintain that Nigeria has made its transit to the cashless culture; the transition has not been impacting on the economy. Aside from the ATM that is so widely used, other cashless means has not been well patronised.

A major financial instrument such as the credit card which would have made the issue of cashless policy worthwhile is relatively unknown to the majority of Nigerians; hence they don’t draw from its immense benefits.

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