The bank plans to launch credit cards for it clients by next month, which will mark the evolution of card services in Bhutan
Ordering a pair of shoes from your favorite international brand online, shopping without any cash or debit cards, paying your utilities without cash transactions and above all using a bank’s money without taking loans over the counter will all be possible as Bank of Bhutan Limited (BoBL) is all set to launch credit cards for its clients sometimes next month.
With that BoBL, will be the first to introduce credit cards in Bhutan through the bank’s primary membership with MasterCard.
Senior Card Officer with BoBL Tshering Choejur said the Bank will be issuing as many credit cards as possible to its clients based on demand.
BoBL is currently the first and only Bhutanese bank to obtain primary membership of MasterCard, widening its range of services in the area of cards circulation.
Tshering Choejur said it was possible with assistance from the central bank, the Governor, Prime Minister and the government. “Otherwise it would have been impossible for a small market like ours,” he added.
VISA and MasterCard’s organizations both issue credit cards through member banks and set and maintain the rules for processing. They are both run by board members who are mostly high-level executives from their member banking organizations.
MasterCard is a multinational corporation, whose principal business is to process payments between the banks that use its “MasterCard” brand debit and credit card to make purchases. Through this membership BoBL can sponsor any bank to be its associate member. For instance T-Bank could affiliate with BoBL to issue T-Bank credit cards without a MasterCard membership.
“We can offer them a subsidiary membership through us”, he said.
In 1966, a national credit card system was formed when a group of credit-issuing banks joined together and created the Interbank Card Association. The ICA is now known as MasterCard Worldwide, though it was temporarily known as MasterCharge. This organization competes directly with a similar Visa program.
The introduction of BoBL’s new service comes at a time when the government and central bank is in the process to encourage the public and organizations to use cards for transactions.
The central bank in its move to create a cashless economy further enhanced the Point of Sale (PoS) system on July 12. This has now made it possible for any bank’s debit or credit cards to be used for processing transactions through any bank’s PoS terminals
Interoperability of PoS terminals is the second phase of the overall Bhutan Financial Switch project. During the first phase, RMA has connected all ATMs wherein customers can visit the nearest ATM machine for transactions.
In many countries, the PoS system has not only helped reduce cash transactions, but also contributed in minimizing the expenses and risks involved with cash. PoS in Bhutan is also expected to reduce a lot of expenses related with paper currency, such as printing banknotes, transportation, insurance and distribution costs, among others.
While debit transactions use the ATM network, credit cards use the VISA, MasterCard and American Express among others.
Credit cards are basically cards issued by a financial company giving the holder an option to borrow funds, usually at a PoS terminal. Credit cards charge interest and are primarily used for short-term financing.
It has higher interest rates (around 19% per year) than most consumer loans or lines of credit. Almost every store overseas allows for payment of goods and services through credit cards. Because of their widespread acceptance, credit cards are one of the most popular forms of payment for consumer goods and services in the United States and Canada among other countries.
Tshering Choejur said there will be some annual fees and interest fees applicable to acquire the credit cards. Though not confirmed, the BoBL plans to issue two types of cards; a Gold Card and a Silver Card.
A consumer who pays cash or with debit cards is using his/her own money but a consumer who pays through credit card is using the card company’s money by effectively borrowing it to make their purchase. Each card comes with a credit limit which states how much can be spent on the account. The card holder can spend any amount of it but once they reach the limit they cannot continue to spend until it is reimbursed. Customers will receive monthly statements from their respective banks.
The main benefit to customers is convenience. Compared to debit cards and cheques, a credit card allows small short-term loans to a customer who need not calculate a remaining-balance before every transaction, provided the total charges do not exceed the maximum credit line for the card.
Different countries offer different levels of protection. In the UK, for example, the bank is jointly liable with the merchant for purchases of defective products over a hundred pounds.
If all the BoBL customers apply for credit cards, there will be some 0.3mn people who use credit cards in the country.