Cash, plastics and e-money, it’s the customers call

MANILA, Philippines—“Cash is king,” or so the saying goes.

Yes, during times of economic turmoil, when financial assets turn toxic, one really has no choice but to break open piggy banks and treat every peso like royalty.

But in this day and age, even in the Philippines—where the majority of the population still does not have access to formal banking services—the position of cash as the ruling monarch of consumer wallets is under threat.

“Plastic” is currently the emerging favorite to usurp the throne from the reigning king.

According to financial planner and veteran banker Randell Tiongson, having either a credit card or a debit card is now a must for the average Filipino consumer.

“In the last few years, more people have started to use credit cards because it’s really more convenient and safer than bringing cash,” he said in a recent interview.

Tiongson, who writes the weekly column “Money Matters” for the Inquirer, said that aside from being convenient, credit cards also offered additional benefits such as the accumulation of points, rebates and other perks that banks throw at consumers to encourage the use of plastic money.

Credit cards are now also more flexible than cash in some cases. He noted that most hotels require credit cards before allowing customers to make reservations. The same rule applies to airlines whenever passengers try to book flights.

Credit cards are also the most widely accepted mode of payment when making purchases online from reputable sites like Amazon.com.

“People are replacing cash and using credit cards now for a lot of reasons. They use it to buy groceries, gasoline and others,” Tiongson said.

Buying habits

According to Chinkee Tan, author of the books “Till Debt Do Us Part: Practical Steps to Financial Freedom,” “For Richer and for Poorer” and “Rich God Poor God,” credit cards have helped stimulate economic growth in the Philippines over the past three to four years.

“There are two things driving our economy: remittances from OFWs and credit cards,” Tan said in a recent interview. He said more consumers were now able to buy big-ticket items such as appliances and gadgets due to credit cards that allow deferred, interest-free payments.

“As long as you are able to pay for your bills on time, you should be OK,” he said.

But keeping one’s spending within budget is easier said than done, Tan said, especially when using credit cards.

“The problem is credit cards make people buy things they can’t really afford,” Tan said. “You really have to be careful,” he added.

For his part, Tiongson said studies show that consumers tend to spend an average of between 20 and 30 percent more every day when using credit cards.

“Parting away with cash still feels painful. But when you’re using credit cards, you don’t really feel it because you know you have a month before you have to pay,” Tiongson said.

Regularly spending more than what their salaries and other sources of income causes cardholders to get buried in debt—a problem that can take years to dig them out of. He said credit card interest rates average 3.5 percent a month, or 42 percent a year.

Tiongson said a person’s main motivation for getting a credit card was safety and convenience. He said bringing large amounts of cash when going out exposed people to the risk of being robbed.

If a person drops his wallet full of cash, that’s money lost forever. If someone loses his or her credit card, all that person needs to do is call the issuing bank and no lasting damage will be done.

“Credit cards should not be used to finance large expenses that a person can barely afford. Whenever you use your credit card, you have to know that you have the money to pay for the bill at the end of the month,” Tiongson said.

“Using a credit card is the easiest way to borrow money from a bank. But if you aren’t able to pay on time, it’s also one of the hardest debts to get rid of,” he said. “A credit card should never be used to finance your deficit.”

In the meantime, Tan said credit cards should make a person’s life easier, not harder.

“If it’s making your life more difficult, then maybe you’re using the card the wrong way,” he said. “You may be able to make your payments, but is the stress of having a monthly bill worth it?” he asked.

Tiongson said the best way to get out of debt was to “stop the bleeding.” “Bite the bullet and start using cash,” he said. He said customers facing a mountain of debt should also renegotiate payment terms with their respective banks.

“All credit card companies really want is to get paid. It can be tedious, and companies can seem like they won’t budge, but usually, banks will give easier payment schemes if you ask,” he said.

“Some people don’t have the character to go through tedious negotiations.  Sometimes, that’s the problem,” he added.

Cash

If you don’t feel like bowing down to credit, don’t despair. Tan said while credit cards are more convenient for consumers, cash remains as the preferred mode of payment for most businesses.

This is especially true for bargain hunters who frequent shopping centers like Greenhills or Binondo’s 168 Mall. “There are good deals to be had when using cash,” Tan said. “Even if you’re buying big items like gadgets; a store may sell a mobile phone on instalment at zero-percent interest. But these same stores will give you big discounts if you pay in cash.”

Likewise, Tiongson said using cash can help consumers; while cumbersome and dangerous in some cases, it helps consumers stay within budget.

And while most stores already accept plastic money, there’s still no denying that some, very important ones, do not. As mentioned above, stores in some shopping centers do not accept credit cards. These are the same stores that rarely issue official receipts, but allow customers to haggle for prices.

He said small purchases should always be done using cash. In any case, most establishments that take credit cards have a P100 minimum rule.

Tiongson also gave a tip that most people could do well to keep in mind: some Chinese restaurants in Manila’s Chinatown give discounts to customers who pay cash.

Debit and others

Now, is there one mode of payment that takes the best parts of credit and combines them with the best parts of cash? The answer is the debit card.

Put in terms Filipinos will understand, Tiongson said a debit card was essentially a prepaid credit card.

A debit card does not allow clients to borrow money for big purchases, but it’s more convenient than cash, and is more controllable than credit.  The drawback to debit cards, Tiongson said, was its ubiquity.

Some merchants still do not have the equipment that will allow them to take payments via debit, he said. “Some establishments don’t understand debit cards so they don’t accept them, even if the stores have the capability.”

Apart from debit cards, Tiongson said new technologies have started to emerge with the potential to make credit and debit cards, and cash obsolete.

Particularly, he said applications like G-Cash and Smart Money, offered by the country’s top telecommunications firms, could eventually become the preferred mode of payment for customers and establishments alike.

Today, these e-money services are used in the Philippines mostly for sending and receiving remittances from other parts of the country or from overseas. Tiongson said these applications were cheaper to use than credit cards, which charge annual membership fees from consumers.

Tiongson believes there is no hard and fast rule on how consumers use credit, debit or cash. It’s what makes a person comfortable that should determine how he or she pays.

In the end, the customer is the true king.