Banks’ credit-card model disrupted

NAMIBIAN commercial banks up to the end of April this year earned over N$26 million through credit cards – a market which has now attracted financial technology companies seeking to disrupt that space.

The said earnings were generated on an average loan balance of over N$705 million.

Although still not a reality in the country, a global wave of fintech companies chucking banks out of the lucrative debt market by offering similar, yet different products, has emerged and is on the rise.

Since credit cards are issued to clients with a credible track record, who are then allowed to spend funds they do not have and repay them later, start-ups have applied this concept to lay-bys.

In Australia, a company was established to allow buyers of the latest trends to keep up with life in the fast lane.

By lay-bying and only getting the products at the end of the lay-by period, customers are allowed to take the product home and pay the company the remaining balance without interest.

The company is instead paid a commission by retailers who do not have to wait for payments over a month, which puts a strain on their cashflow.

This has since caused several consumers to ditch their credit cards and transact interest-free.

In Namibia, a lay-by is mainly allowed over a period of three months, and puts pressure on retailers over those months, leading to increased storage costs.

According to the Namibian financial sector stability review by the Bank of Namibia and the Namibia Financial Institutions Supervisory Authority, many Namibians are highly indebted.

Recent data as published by the two regulators shows that household debt-to-disposable income increased from 83,8% in 2019 to 89,1% in 2020.

This means Namibian households on average only have about 11% to spend after settling their debts.

At the end of April this year, at least N$62 million worth of credit-card debt was overdue, with at least N$42 million unserviced in the last 12 months.

This data suggests that indeed credit cards have become a potential burden for some Namibians, which the regulators have pinned on very low economic activity.

In Namibia, very few credit-card issuers remain other than the banks, and a market possibly exists for non-conventional financial technology companies to enter and thrive in.

Late last year, the International Monetary Fund recognised the wave of financial technology companies has risen, targetting especially the under-served by commercial banks.

The fund stated that fintech’s potential to reach out to over a billion unbanked people around the world, and the changes in the financial system structure that this can induce, can be revolutionary.

Email: lazarus@namibain.com.na Twitter: @Lasarus_A

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