Our credit cards were once used on rare and specific occasions; either to make purchases abroad or to pay for the more expensive items that we couldn’t afford to pay in one lump sum. Now they’ve become a more integral part of our day-to-day spending as we pay for groceries, gas and dining on our credit cards. How did credit cards become such a frequent presence in our daily lives?
1. We’ve become more relaxed about debt and the idea of debt
As consumers we have become more comfortable with the idea of debt and different types of debt. Our parents and those of a certain generation would wince at the idea of owing money to a bank unless it was for a big purchase like a house. In turn this really influenced their approach to credit and borrowing. This has changed significantly. We’ve become more relaxed about carrying debt, particularly credit card debt (for good or ill). We also now know that having a credit card and repaying it on time helps us develop a good payment record with banks.
2. More people have become credit-worthy
Banks used to be nervous and wary about lending money to anyone under a certain age or in a particular profession. This was mostly because credit assessment was often quite crude and unsophisticated. With the advent of central credit bureau databases (where banks can cross-check what you owe to other banks also) and more refined credit analytics, banks have been able to assess more people for credit than before. Additionally, Hong Kong has become more prosperous particularly from 1988-1996 and again from 2001-2008. During this time we saw low unemployment and good wage growth – the more people that are earning a wage, the more people that can carry a credit card.
3. Convenience and security
Paying with a credit card has become so ubiquitous that it has become easy to forget how things were done before. You would have to carry cash on your person and plan ahead depending on what you were going to buy. And as anyone who has ever had to carry a large quantity of cash on them will tell you, it doesn’t feel very safe. The present day swiping of a credit card has changed all that and what’s more, you can track your spending better. Every transaction can be reviewed and accounted for on your statement so you can keep in control of your spending.
4. The banks got better at product development
Here’s the biggest change of all. We now have cash back credit cards through to loyalty point cards, green cards all the way up to platinum cards… the variety is staggering. To get a flavor of what’s in the market right now check our comparison tables on http://www.bestmoney.hk/en/credit-card
Back in the 1980’s the big banks in Hong Kong wouldn’t have had a marketing department or if they did, they would be concerned with above the line advertising (essentially TV adverts, billboards and print). Anyone responsible for managing a credit card portfolio might come from an accounting background or may even have worked his way up through the bank’s sales department. The modern day marketing manager will be looking at customer segments, spend patterns and behavior and test and learn pricing comparisons. They will normally have a background in retail marketing and/or customer analytics and will be expected to have a strong focus on new product development. This sounds relatively straightforward now but in the late 1980’s and early 1990’s this was a revolution in the way banks saw customers. The pioneers of this type of thinking were Citigroup who under the leadership of John Reed launched the modern consumer bank, as we know it. The Citibank credit card division and its multiple segment offerings was one of the key drivers for the company’s return to profitability in that time period.
This may sound like an irrelevance but consider this: around 30% of consumers in Hong Kong now use their credit card for everyday purchases and of those, 53% of those admit to having paid for goods with credit card to benefit from a rewards program or to get cash back.