Is Credit Card Usage in Singapore Getting out of Hand?

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2015 saw a lot of Singaporeans face credit card debt. The Credit Bureau Singapore recorded over 100,000 delinquent debtors on the island for the year.

According to a press release by CBS, many Singaporean credit card consumers did not make payments on their unsecured debt during the first half of 2015. And by June, this number increased by 10%. Unsecured debt exposure has been constantly rising since 2011 on the island. These are credit card consumers who either do not repay any outstanding balance or pay less than the minimum payment due.

A study conducted by Worldpay for their Global Payments Report for the year 2016 concluded that by 2020, the credit card use in Singapore is likely to fall by 24%. This conclusion was based on an analysis of 30 e-commerce global markets including Singapore, India, China, South Korea, Hong Kong, Taiwan, Australia and Malaysia in Asia.

Currently, in the Singaporean market, credit cards are the most preferred method of payment. However, in the next 4 years the landscape of the payment system island-wide is said to change.

The beginnings of an unmanageable debt situation

The debt situation in Singapore has been a topic of discussion for the past few years with more consumers not being able to manage their overall debt. In lieu of the rising consumer debt on the island, the government introduced TDSR rules (Total Debt Servicing Ratio) which prevented Singaporeans whose monthly payments equated to about 60% of their income from taking out any further loans.

But the recent times have seen these rules loosened, so people have a better chance of refinancing their existing loans. This move will help reduce the amount of debt consumers have. Refinancing is a great way of helping consumers reduce their interest payments on their line of credit.

Additional read: HDB loan refinancing: Is it a good idea? / Car Loan Refinancing: Is It A Good Idea?

Nonetheless, having multiple open lines of credit will increase the TDSR ratio, thus making consumers think twice before applying for another credit line, especially credit cards. This is because credit cards have one of the highest interest rates when compared to any other credit line and can increase the overall debt exponentially when outstanding payments are not made in full.

Additional read: 6 Tips to Get out of Credit Card Debt Quickly

Growing concern about debt and shifting preference to non-credit payment methods

According to the study by Worldpay, there is growing awareness among consumers regarding the rise in household debt in the last few years and Singaporeans are now concerned about their debt management. They want non-credit payment options to be more accessible to them so they can better manage their household debt.

Presently, payment methods including COD (Cash on Delivery), debit cards and bank transfers each contribute to 9% of the total payments in the market according to the Global Payments Report. These non-credit payment methods are said to double in the next 4 years.

So, how will these changes in payment methods affect the use of credit cards in Singapore?

The best replacement for a credit card with a non-credit payment option would be a debit card. According to the Worldpay research, the use of debit cards in Singapore may rise by 9%. Therefore, by 2020, debit card payments will cover 18% of all payments in the market. This trajectory will invariably decrease the use of credit cards.

The payments market in Singapore by 2020 will see debit card and COD usage rise to 18% each and bank transfers to 17%. The growth of E-wallets, however, may remain more or less flat with an increase from 9% to 10%, according to the research.

Online merchants will be forced to offer traditional payment methods on their websites including debit card payments, COD and bank transfers if they wish to generate more business.

Is there a silver lining?

Although the focus of this study was on estimating of the future use of payment methods, in the current market, however, credit cards continue to remain the most popular method of payment, constituting a 60% share in the Singaporean payments market as of today.

The government is constantly introducing programs to raise awareness regarding consumer debt in the country. As many people get better educated with techniques of debt management and reducing their TDSR ratio, it may encourage consumers to use their credit cards more wisely and carefully.

Cardholders may start making timely payments on their outstanding balances and the overall credit card debt may start to decline in the country.

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