Plastic Money Proliferation

SURESH KUMAR

Some might even regard all plastic proliferation as polluting; whether in the financial domain or not and strictly in the environmental sense; especially those that find offensive, the more recent aggressive promotional stance of financial institutions in the region. Others will shrug this off as something that would have been invented, if it had not existed and would point that the cash society is a primitive phase in the evolution of an economy. Of course this is a classic chiaroscuro context where both points of view have a light and a shade validity. At one point of time, in the last Millennium, when credit and charge cards were first introduced and ATM cards had just been in vogue, most affluent individuals took particular delight in opening their wallet and waving their wad of plastic cards, especially the Gold and Platinum variety as prized possessions that denoted wealth and exclusivity and raised their profile in public perception. We have indeed come a long way since, in terms of card-ubiquitousness and plastic one-upmanship. Many global banks left the wholesale financial segment in recent years after taking a bath by way of corporate loan mishaps. They have since, en masse moved into the retail and personal space; plastic money being in the vanguard of it all.

The plastic takes hold of the minds and encourages a mild form of spend-thrift habit that is almost subliminal; if you ask the advertising agencies to describe this syndrome. It is almost like a wilful suspension of disbelief as is said of the cinema. Whichever way you see it, you end up using this card money, running up bills and in some instances, buying up things and on credit; when perhaps you needed neither! The hidden exchange rates, small-print swept charges and the cost of credit metre running up can all in fact, be quite small in absolute terms but nevertheless, they all add up to pinch a bit and build a nice little profit for the bank; much higher than what the risk might have warranted. On a large portfolio basis, the spreads are generous enough to justify committing large overheads (staff, technology and advertising) to this line of business.

Is plastic money, therefore, a larger than monster created unwittingly? Or more akin to riding on a tiger or a genie that cannot now be put back into the bottle? Any such characterisation would be making an ogre of it. It continues to be the most relevant and the best applied form of financial technology tossed up by the financial institutions (who are otherwise known for their mediocrity and not for innovation!) in a long time. It is also one that lubricates the travel and the hospitality sector and has become inseparable. Besides it has helped establish three or four world-class institutions in Amex, Diners, Mastercard and Visa; who have welded the financial institutions together in a manner never seen before. The state of the art innovations that they have individually introduced in the financial sector, in terms of chip cards, is remarkable as indeed the gamut of services that use plastic for identification and financial transfers; following the runaway success of credit cards. Going forward, those that believe that there are too many cards floating around for anybody's good and that there is too little transparency, need to temper their views. For one, the regional market does operate on the principle of 'charge what the traffic bears'; and fiercely so. Of late, some institutions have declared that periodically, they will waive front-end fees or on the credit extension, charge the lowest interest rates.

The other novel idea, which may not be in the interest of the banks, is to introduce a single plastic card; with a chip that can do all the things that currently are represented by many plastic cards. For instance, it should be possible to load up on a chip, multiple credit limits from different credit card providers. The chip can then enable it to be used as an ATM card, represent your health or life insurance card, act as your personal identification for municipality or 'e gate' (immigration etc.), or as your e-money or Internet card. All these various applications / uses, should be possible with some modifications and juxtaposed on a single card. Of course, if you lose it, you might end up having to inform all of them or their collective / nominated BPO or process agent(s), so that the card can be rendered 'hot' across the platforms of the various service providers. All these may sound a little outlandish and would not, certainly, be in the interests of those that provide the host of specific branded cards. You will need to be transparent and not sweep fees and costs in the manner being currently done. But it will make life much simpler for the individual, especially when he or she is travelling and even otherwise.

Conceivably, at some point in time, it might be possible to drop the plastic altogether and do all these activities, out of say a chip in your wrist-watch or in your PDA / mobile phone. With a transferable revolutionary multi-purpose chip that would transform into the cutting edge of innovation, where you will literally carry nothing more than an 'e' wallet strapped to you, arguably, there would be little risk of a pick-pocketeer or theft.

All these may not eliminate the cost-structure that some regard as being usurious. But in a free market, eventually, these things will find their own level albeit in the long run! But as Lord Keynes, the delightful English economist said, "in the long run, we are all dead!". Things may not necessarily work that way if financial institutions that provide you with loans and some credit, retain a stranglehold over you, greater than customers in turn are able to influence their cost structure with their collective custom. Besides any one financial requirement be it getting an ATM or a charge or a credit card or an internet payment card, is unlikely to cause a customer to make a decision that involves his entire banking relationship based on loyalty, service, friendly manager etc. He might well elect to stay with a bank even if he has a grouse on one issue.

Is Plastic money proliferation a cause of pollution, just because customers have many plastic bits and pieces made up of non-renewable chemicals that are not bio-degradable? They may not go up in smoke but burn your pockets, in terms of their financial flows. "Card spend" is one of the fastest growing segments of the financial institutional sector. Because of its particularly global nature and with the 'chip' chipping in, it is not going to remain an inside job for long; as a wag once put it!

The author is a CMO (EFS) and General Manager in Emirates Bank. The views expressed in this article are not necessarily shared by the Bank].

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