Latest Stories

East to West

Credit cards, a hammer or a sickle?


Antonio C. Moncupa, Jr.

We have received some requests to discuss credit cards. We are not surprised as these plastics have become ubiquitous to a growing segment of our people. There have been around 7 million cards issued, with roughly 1.5 or so cards per person.  We could not resist the pun and put up the title above.  We could force an analogy in the sense that just like any kind of debt, a credit card could be a hammer to build or it could be a sickle to cut and deconstruct.

High interest charges

All over the world, credit cards carry high interest charges. If one is not careful, he could find himself sinking fast in a financial quicksand of debts.  At first, it would seem harmless. Let’s take the case of Juan.  He partially paid his card bill and revolved around P10,000.  Juan is charged P350 in interest and he did not even notice. Then he spent another P10,000 and got charged P700 in interest.  The amount does not really feel like a lot of money to Juan who is earning more than P20,000 monthly.  In the meantime, Juan is very happy with his new smart phone and now struts around in his new pair of rubber shoes with the name of his favorite NBA player on it.

He continued to revolve or just pay near the minimum required in his bill.  He was in a mall when he saw the watch he had been dreaming about. He told himself, it would be the last expense he will incur with his card and spent just a bit more than P20,000 to buy it.  Juan now has P40,000 in debts and was paying interest charges of P1,400.  It’s starting to hurt, but it is still ok.  He still had P20,000 in unused limit when he saw an ad for a heavily discounted laptop. It is really a bargain and it is very nice. After that purchase, he found himself with a P60,000 debt and needed to pay his bank at least P3,000 as minimum payment required.  One day, he was with friends and had so much fun that he did not notice that his check had reached P5,000.  He reached for the plastic in his wallet.  He had spent over his limit. The following week, a close relative came to him with some emergency.  Juan immediately borrowed from a friend.  Come pay day, he quickly paid his friend but found himself short of money for his other usual needs.  There was just not enough money to pay the card. The card bill came and Juan was slapped an over-limit fee, late payment charges and more interest. His world starts to fall apart. A variation of this story plays out everyday.

Not an easy business

There are reasons why card companies charge high interest rates.  Juan’s behavior above is one of the primary reasons.  Credit cards have no collaterals.  All card-issuing companies experience high level of defaults, ranging from 5 percent to 8 percent or even higher, on its receivables.  The credit losses are even higher than interest rates charged on some loans. The problem is, while card issuers expect these losses, they would not know exactly who are those who will not pay.  To compensate, they charge relatively high interest to cover for those losses.  The alternative is to tighten screening but this would result in financial exclusion and deny many access to credit. And there is still no assurance since a person could lose his job, have an emergency, get sick or experience other problems which might prevent even the well meaning from paying up.  Card issuers also have to deploy a huge army of collectors that jack up the costs of doing business. If only everybody pays, interest rates could be reduced very substantially.

Credit cards are not an easy business.  It is manpower intensive and needs a high level of automation. It is a business that has high start-up costs and needs a big scale to make sense and return some profits.  There is also a high level of expertise required to run the business. Notice that even if we have 34 commercial banks and a good number of thrift banks, there are only about a dozen or so card issuers.  Some of them are not necessarily making enough money even in these good times.

Card companies also face economic risks.  If the economy slows down, defaults will increase as we have seen in the past in countries like Korea and the US. When this happens, card issuers could really lose a lot of money.  And the economy, at some point, will slow down. Interest charges are also designed to cover for future losses.

Good spending

On the other hand, there are also happy stories. Sometimes, we find ourselves in situations when we have to spend—medical needs, bridging our cash flows for some important expenses like tuition, books, or a really cheap bargain of an item we really need.  Maybe we have an emergency and we need quick access to cash.  In all of these our credit card becomes handy and very helpful.  Some people also benefited from shifting their loans from more expensive sources like the neighborhood loan shark, from pawnshops or from helping relatives get out of lending arrangements.  The latter charges more than 60 percent interest as the borrower is required to return a cavan of rice, worth between P800 to P900, for every P500 of debt.  And for the transactors or those who fully pay their card bills, there is the convenience of not carrying cash and spending at no interest costs. In a broad economic sense, credit cards, like all types of loans, when used properly, oil the economic engine that creates value for all.

The point is, whether our plastic becomes a hammer to build or a sickle to cut and hurt us, is entirely our choice and a matter of our attitude and our sense of responsibility.


Tony Moncupa, Jr. is the President and CEO of East West Banking Corp.  Please e-mail your questions, comments, suggestions to easttowest.inquirer@gmail.com.

Follow Us

Follow us on Facebook Follow on Twitter Follow on Twitter

Other Stories:

No related posts found!

Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

Tags: Antonio C. Moncupa Jr. , credit cards , East West Bank , Financial Advisor

  • walang pakundangan

    this is an intelligent article….

  • Pinsan_ni_Mang_Kanor

    Nice idol Tony.

  • pfckulapu_parin

    Dapat bawasan ang yabang!!! Feeling rich kasi kong may credit card….

    • WeAry_Bat

      I feel poor when I have to take out my credit card, because the line behind me has cash paying people.

      But my groceries per week ranges between (secret, big amount), an amount which will hurt my posterior from the bulging wallet. A few times, the ATM machine becomes sadistic by giving Php100 denominations.

      So every two to three years, I have to call for replacement of credit card at added cost. Before, it was the ATM card which used to be worn out ahead of the credit card.

Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94
  1. Are your favorite malls open this Holy Week break?
  2. ‘Labahita a la bacalao’
  3. This is not just a farm
  4. Why is the lifestyle set now afraid to wear jewelry–before Kim Henares?
  5. Clams and garlic, softshell crab risotto–not your usual seafood fare for Holy Week
  6. Are your favorite malls open this Holy Week?
  7. Sarah Geronimo and Matteo Giudicelli sing ‘All of Me’–and we all swoon
  8. 12 other things you can do at Pico de Loro Cove
  9. Moist, extra-tender blueberry muffins
  10. The truffled mac ‘n’ cheese, eggs benedict, chicken leg confit are excellent
  1. Dominique–Gretchen and Tonyboy Cojuangco’s daughter–now an endorser
  2. Why is the lifestyle set now afraid to wear jewelry–before Kim Henares?
  3. Marcos grandson to wed beautiful Rocha scion
  4. Sarah Geronimo and Matteo Giudicelli sing ‘All of Me’–and we all swoon
  5. Are your favorite malls open this Holy Week break?
  6. How Vitamin B can be a remedy for ‘manhid’ and neuropathy
  7. France makes work beyond 6 p.m. illegal
  8. Ever heard of HydroBob?
  9. 90 percent of Filipino households don’t practice proper toilet hygiene, sanitation
  10. Boots Anson-Roa to wed in Eddie Baddeo
  1. Mary Jean Lastimosa is new Miss Universe Philippines
  2. Did Angara ruin Pia Wurtzbach’s chances at Bb. Pilipinas?
  3. Dominique–Gretchen and Tonyboy Cojuangco’s daughter–now an endorser
  4. Manila in shock over model Helena Belmonte’s death
  5. Vinegar test helpful vs cervical cancer
  6. From Jeannie to mom of suicide victim
  7. San Vicente beaches hidden but not for long
  8. Borgy and Georgina are back; others are off–again
  9. Sen. Angara: I thought Pia Wurtzbach gave a good answer
  10. Why is the lifestyle set now afraid to wear jewelry–before Kim Henares?


  • Anti-gay demo in Ethiopia cancelled
  • Obama launches measures to support solar energy in US
  • Nebraska toddler gets stuck inside claw machine
  • Philippine eagle rescued by Army turned over to DENR
  • Gunmen attack Iraq military base, kill 10 soldiers
  • Sports

  • Vietnam says it will not host Asian Games
  • Nadal passes clay landmark with 300th victory
  • Wawrinka waltzes through with Monte Carlo walkover
  • Power Pinays smash India in Asian Women’s Club volleyball opener
  • PH youth boxers off to stumbling start in AIBA World tilt
  • Lifestyle

  • Ford Mustang turns 50 atop Empire State Building
  • Pro visual artists, lensmen to judge Pagcor’s photo contest
  • ‘Labahita a la bacalao’
  • This is not just a farm
  • Clams and garlic, softshell crab risotto–not your usual seafood fare for Holy Week
  • Entertainment

  • Cannes film festival launches race for 2014 Palme d’Or
  • Jones, Godard, Cronenberg in competition at Cannes
  • Will Arnett files for divorce from Amy Poehler
  • American rapper cuts own penis, jumps off building
  • Jay Z to bring Made in America music fest to LA
  • Business

  • Total says makes ‘very promising’ oil find off Ivory Coast
  • ‘Chinese Twitter’ firm Weibo to go public in US
  • World stocks subdued, Nikkei flat on profit taking
  • Asia stocks fail to match Wall Street gains
  • Fired Yahoo exec gets $58M for 15 months of work
  • Technology

  • Netizens seethe over Aquino’s ‘sacrifice’ message
  • Filipinos #PrayForSouthKorea
  • Taylor Swift tries video blogging, crashes into fan’s bridal shower
  • DOF: Tagaytay, QC best at handling funds
  • Smart phone apps and sites perfect for the Holy Week
  • Opinion

  • Editorial cartoon, April 17, 2014
  • A humbler Church
  • Deepest darkness
  • ‘Agnihotra’ for Earth’s health
  • It’s the Holy Week, time to think of others
  • Global Nation

  • Malaysia quarantines 64 villagers over MERS virus
  • DFA: 2 Filipinos survive Korean ferry disaster
  • PH asks airline passengers to check for MERS
  • Syria most dangerous country for journalists, PH 3rd—watchdog
  • Japan says visa-free entry still a plan