Even the phrases "Charge it!" and "Put it on the card" have not yet been translated into Chinese. But according to many banking officials and local businessmen, this part of the local financial market is in the midst of rapid change, as are so many other areas of the economy. Taiwan is taking the first steps toward becoming a more credit-based society, which is an indication of the island's growing status and responsibilities as an integral part of the international business community.
Taiwan has in fact had a domestic card system for several years. In 1982, even though international credit cards were greatly restricted because of tight foreign exchange policies, the Ministry of Finance established the National Credit Card Center (NCCC) of the ROC. The center's main goal at that time was to create a network to support a local card system. At the same time, however, government officials feared that inflation and a bulging money supply might be unleashed in a free, unregulated market. The result: a "debit card" system. Local bank customers were allowed to apply for a special debit card that permitted them to charge an amount only up to the total balance of their accounts.
Still an uncommon request locally—"Charge it" is heard primarily in international hotels and restaurants.
To guard against too much floating money, customers also had to pay in full at the end of each month, or else face late-payment fees at an annual rate of 19 percent. Local residents, totally unfamiliar with this sort of system, were (and remain) particularly unhappy with this aspect of the process, for the fees are considered exceptionally stiff. The debit card system has therefore not caught on with the public.
According to Chu Chan-shaun, vice-general manager of the NCCC, most people dislike the cards because of the inflexible monthly payment schedules and the penalties assessed for late payments. There is also a NT$300 (about US$11) annual fee for the cards. Even obtaining a card requires meeting various requirements concerning income, property holdings, and references. People consider these excessively complicated and too strict. Even using a debit card can be frustrating. Shoppers find that a debit card tends to slow things down, since their balances must be checked by phone calls to bank computers before a sale can be concluded.
Perhaps a more fundamental explanation for the unpopularity of debit cards is simply habit. The use of cards is a new concept in Taiwan, and it will take time to learn both the advantages and disadvantages of the "magic plastic." Clearly, the idea of credit is still considered by many people as an uncomfortable and even unsafe means of doing business.
According to Jacob F.H. Chao, vice president and general manager of Travel Related Services for American Express in Taiwan, it is not a mailer of mistrust, but of pu hsikuan; people are simply "unaccustomed" to the situation because Taiwan has always been a cash-oriented society. There are other reasons as well. For example, one local resident who shuns cards explains that she "doesn't like to owe money—if you buy something, you want to pay for it on the spot, or else it seems incomplete. "
Nor has the debit system offered many distinct advantages to merchants. Most store owners obviously prefer the feel of hard cash to suspicious plastic, making debit cards coolly received. To date, few stores in Taiwan even accept them, especially since the logic seems to run as follows: "Since nobody else uses these cards, why should I honor them?" No one is eager to be the first on their block to juggle a new approach to finances.
To complicate mailers further, debit card rules governing merchant usage dictate that a business must pay merchant fees within five days of any transaction (considered a rushed imposition), yet must wait up to three weeks for payment. Merchants are not at all pleased with these prospects. Finally, according to a banking official who declined to be identified, businesses have been wary of these cards for tax documentation reasons. With so many contingencies and restrictions it is no wonder, some local citizens say, that the debit cards have been impractical.
Shoppers bearing the "magic plastic" are already becoming a more common phenomenon in Taiwan's high-rise department stores.
But there is a change in the winds of local finance. Many businessmen have been urging a restructuring of the system—a call to start from scratch. Because of the island's ever stronger and more stable economy, no longer is there as much concern over runaway inflation. And while Taiwan residents have essentially rejected debit cards, more of them have become exposed to, and intrigued by, the Western system of charge cards. With Taiwan's economic prosperity has come a major increase in disposable income, affording local people greater opportunities to shop and travel. As a result, people across the economic spectrum are becoming more interested in exploring, if not mastering, the possibilities of credit card use.
Similar attitudes have been voiced in policymaking chambers. In July 1987, the government launched landmark economic reforms, not only to acknowledge public pressures for change, but also to complement earlier political liberalization measures. Chief among the reforms were the relaxation of foreign exchange controls and the loosening of cash currency limits brought into or out of the country. Significant for businessmen and tourists alike, these measures automatically facilitated increased usage of international credit cards. Chao of American Express says, "Before the relaxing of foreign exchange controls here, Taiwan for us was primarily a destination market, meaning the American Express Card was used mainly by incoming cardmembers. But now that foreign exchange controls have been relaxed, we are able to promote our card to all residents of Taiwan, as well as encourage them to use it both locally and internationally. "
The governmental policies have generated considerable speculation and excitement concerning future changes in Taiwan's economy. That the island is becoming an even more vital global center of commerce (amidst predictions that the 21st Century will be an "Asian Century") would seem to ensure that more money will be transacted with the assistance of credit cards. But for many people, especially those who cannot afford expensive hotels, restaurants, or department stores, the reality is that Taiwan remains a predominantly cash society. As one American college student complained: "It's really inconvenient that I have to keep on changing money, instead of charging to my parents. "
Credit restructuring is still in its nascent stages: the July 1987 policy changes signalled but the first crucial step of transition. Chen See-ming, director of Monetary Affairs at the Ministry of Finance, states that gradual change is necessary to ensure a stable, viable market. Likewise, Chu of the NCCC has urged patience and "time to let every body get used to it." The NCCC itself is preparing for an expanded, more pivotal role, which Chu says is "an exciting process," but also "a deliberate one."
For support, these officials have solicited help from independent financial giants. Chao mentions that American Express has always been the market leader in Taiwan, both "among international card operators and in assisting with the development of the local card market." For example, the company has long assisted the Council of Economic Planning and Development with feasibility studies on credit cards.
The ROC's "debit card" will soon be replaced with credit cards.
VISA, also active in converting Taiwan's market, convened an international conference in Taipei during October last year to promote card usage and offer advice. VISA officials have already promised to assist the 12 member banks of the NCCC with upcoming projects and problem-solving.
The transition should be further accelerated by another expected series of reforms early this year. January will see the end of debit card use, Chu predicts. And for those who hold debit cards, all they will need to do is go to their banks and change them into credit cards. The process will also be made easier for first timers to obtain the new credit cards. As another incentive, the NCCC will provide complete coverage if the cards are lost or stolen.
The success of the updated system obviously hinges on public acceptance. "We need all the encouragement we can get," acknowledges Sam Chen of the NCCC. Since most people do not know how credit cards work, an aggressive education and promotion campaign is needed to facilitate the transition. While the NCCC plans to publicize those merchants who will accept the cards, credit card companies and financial institutions will aim their advertisements and information brochures at the general public.
But implementation requires concomitant changes in all aspects of the credit chain, from customer to merchant to bank. Chao warns that if the NCCC's infrastructure is not improved, then the new system will be greatly restricted.
Popular acceptance of credit cards in lieu of cash is hindered further by the fact that personal checks are rarely used to pay bills in Taiwan. Both merchants and customers alike have been greatly inconvenienced by the lack of an effective personal checking system. There are strict regulations governing check usage, no interest bearing on accounts, and a history of frequent abuse within the whole system. Improvements in personal checking-including the introduction of better bookkeeping practices, more rational regulations, and further computerization—would likely bring smoother acceptance of a credit card system.
Despite the need for substantial reforms in the domestic financial sytem, those people closely involved with Taiwan's credit situation remain optimistic about the future. Says Chu of the NCCC: "If more people buy things at stores with credit cards, then more stores will begin to accept them."
How soon "Charge it!" will become a commonly heard phrase is difficult to determine, but the increased use in urban areas of financial withdrawal (ATM) cards and telecommunication credit cards for phone calls indicate that at least some residents are becoming less suspicious of the "magic plastic." In the future, Chen suggests, there could even be a single card for debit, credit, and ATM purposes. This would be a pioneering step for all countries, including the U.S. and Japan. Certainly the potential is great, even though many bankers and businessmen still consider Taiwan "a primitive financial market" with many modernizing steps yet to be taken. Nevertheless, as reforms continue to be implemented, a new Chinese character for "charge" will no doubt be added to the lexicon—with a money radical, of course.