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Legislation for its own sake

I feel for the retail credit customers, in particular credit cardholders, in Kazakhstan, who have to collect too many papers to apply for a credit card.

This is dictated by legislation, many papers have to be obtained from various governmental authorities - credit bureau, which could facilitate this process exists, but is not helping. Applying and getting a credit card in Kazakhstan takes anywhere between 1-2 months. That is if you are approved, as despite all the papers that they collect, most banks' scoring systems remain extremely risk averse.

It's no surprise then that in terms of credit cards number per capita we are far behind developed countries, and neighbors such as Russia; that the credit card market is stagnating - there are only a couple of airline co-brand cards, with portfolios which probably do not exceed 20k cards, only one bank has a decent loyalty program, there is only one bank offering cash-back card, etc.

I believe this has to do with more than just market and population size.

In Russia, in order to apply for a credit card, passport and 1-2 documents confirming address and/ or income are required. In Kazakhstan, one would need around 10 various documents. Why?

Recently Russia's Home Credit Bank announced that they would issue instant no name credit cards. To apply, one would need to provide a passport. If more documents are provided, APR and other fees are decreased, line of credit is increased, etc. It's obvious that HCB developed an effective risk management model for credit cards - straightforward and simple card approval, risks management by varying financial terms on the product.

Imagine if this was possible in Kazakhstan.

But then back to my question - why such a difference in document requirements? Customer fraud? Indeed, this is the reality, but it seems to me that this would be the case for mortgages and loans, rather than credit cards - size of the prize is small and credit is not a one off.

Our bank legislation is on par with developed countries and way ahead of Russia's? Common argument. But should not forward thinking bank legislation help banks develop their business? If you visit web site of Russian Standard Bank, one of leaders of the Russian credit card market, you will find a credit card range, which exceeds the depth of product lines of all Kazakhstan banks put together. I am afraid this defeats the argument that we are ahead in any way...

The most logical explanation is decreasing the 'bad loans' share in the retail banks' portfolios. But let's look at statistics.

10 minute Google search produces expert assessments of 'bad loans' in retail bank portfolios in Kazakhstan of 25% and above. In Russia, it's 4% based on the Central Bank's estimates and up to 10% based on expert assessments. Numbers may differ, but the global picture emerging from them seems to show that Russia's 'bad loans' share is no higher than Kazakhstan's, it may actually be lower. In which case, having a long list of documents required to apply for a credit card, does not lead to less 'bad loans'.

It does however lead to market stagnation, lack of good product offers and de-motivating bank customers from using payment cards as intended, i.e. in retail, which then leads to lack of transparency in the market and loss of competitiveness.

Which, in my opinion, is exactly why foreign banks in Kazakhstan are no more successful in retail than local players - credit card is one of the key retail banking products, however it's near impossible to sell it when a prospect needs to spend a month for just collecting the required papers, as well as prove official income in the market where the reality is that incomes aren't transparent.

Banking legislation should take this into account and consider needs of an average customer as well as banks. Let's hope that in Kazakhstan legislation for the sake of legislation in the retail banking will cease to exist and soon, while we haven't fallen behind developed countries completely.

Secret Marketer

17 2012 | View: 1 594 | Opinions | Printint version
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