Time to go plastic - are we ready? Business Page Stabroek News January 30, 2000 Introduction In the aftermath of the robbery of approximately $13M from the National Insurance Scheme's Head Office in Brickdam a few weeks ago, the question of 'going plastic' was put on the agenda, if only very briefly. The idea was first raised by Dr Roger Luncheon, Head of the Presidential Secretariat and Chairman of the Board of the NIS. And in invited comments by the press the call was cautiously supported by the Private Sector Commission as well as the banking community. Coincidentally, the spokesperson for the PSC is also head of the Employers' Association, the Consultative Association of Guyanese Industries (CAGI). Going plastic is the term used to describe the commonplace practice in the modern world of using plastic cards to make payment, obtain cash or obtain credit. Going plastic is not a destination but a journey littered with a confusing range of products all passing under the generic name of plastic. Some of these are the credit card, charge card, cash card, cheque guarantee card, cheque encashment card and the international card. The first card The practice has been around for almost a century, the first credit card having been introduced by General Petroleum Corporation of California in 1914 when it issued cards to employees and selected customers. One year later coins or tokens were issued by a number of small hotels and stores and telegraph companies which in effect provided the customer with a monthly credit account. At that stage there was no provision for extended credit. Diners' Club, one of the larger entertainment card companies was not established until the year 1950 when two business associates found that they did not have cash to pay for their meal. No limit was placed on the amount that could be taken by way of credit during the month except that the full amount taken by way of credit on the card during the month had to be paid off in full at the end of the month. Karl Marx The financial system in any country is determined by its social structures and reflects prevailing attitudes. In one of his more ambiguous statements Karl Marx said "To begin with, the credit system appears furtively, as it were... in the end it manifests itself as a giant social mechanism." Just coming out of a long period of socialist experimentation it is perhaps not surprising that we in Guyana have only now embarked on the journey and we have to ensure that the structures and attitudes are there to spawn a financial system of plastic money. There have been two major criticisms of hire-purchase and other forms of consumer credit: that it encourages spending beyond one's and society's capacity and is inflationary. Both these criticisms have been proven to be without any real substance and are in any case more than compensated for by the benefits to society and the economy as a whole. Initiatives in Guyana Sadly but not surprisingly, neither our government nor the local private sector has done much to encourage the transition from cash to plastic. Indeed, several Government departments refuse to accept personal cheques and continue to pay their employees in cash. Many of our businesses demand nothing but cash which coincidentally is harder for the taxman to trace. GT&T has introduced the phone card and Courts the Gold Card which practically exempts the holder from any formality in obtaining credit. Some of the commercial banks have had their debit cards linked to their ATM's and commercial houses but these have obvious limitations. Two leading employers in gold and bauxite no longer pay their employees by cash with no adverse repercussions on industrial relations. This is clearly the direction in which Government and our local private sector need to go, and Dr Luncheon and Mr Yankana should use their respective influence to move in the direction of plastic. They are ideally placed to influence those who are critical to the whole process including the lawmakers since a prerequisite of a plastic based economy is a legislative framework designed to prevent abuses. Credit cards are also good business and perhaps explain why almost all major retailers, including the petrol chains set up their own credit card/financing companies. In particular, Dr Luncheon may wish to have his Government revitalise the Post Office through which pensioners' benefits can be paid and which itself may wish to go plastic. This is not an issue restricted to any single sector of our society or to the banking community. Sadly, but not surprisingly, neither our government nor the local private sector has done much to encourage the transition from cash to plastic Regulatory framework A cash-based economy imposes a number of costs including security which could be substantially reduced with the movement to bank deposits, cheques and plastic. Unfortunately our trade unionists are no more enlightened than our businesses and have been very reluctant to support the change from the cash system. Given that there are savings to be obtained, employers should consider sharing this with the employees and may even consider a one-time payment as an inducement. The changing structure will require several new items of legislation and amendments to and enforcement of others. Business Page has for several years been calling for a law to prevent the rejection of cheques as a form of payment and the strict enforcement of the law relating to the issue of bounced cheques. As this Page is being written one reads of the sixty-two year old who is before the court for tendering a forged cheque. Legislation also needs to be introduced requiring card companies to disclose their annual effective interest rates, charges and other terms and conditions. The question of secrecy is also relevant since lenders generally collect a substantial amount of information on their borrowers. There should be laws specifying the procedures for the application for a card and how and to whom they are issued. Fraudulent use of cards and any contributory negligence are all matters which will have to be considered if the system is to earn trust and confidence. The infrastructure No single factor has influenced the rapid development of the credit card as the modernisation in technology. Whilst the rest of the world does its shopping online from the virtual dot.com companies our telephone company and its regulator appear to have major differences and telephone density has slowed to a trickle. A reliable power supply is another must whilst the technical support for powerful computer systems has to be in place. Conclusion Dr Luncheon is right in calling for changes in the way we do our business. Perhaps without realising it he has raised expectations while unwittingly maybe accepting responsibility for action. Working with the private sector, the other arms of the Government and the trade union movement he could help us to take that leap into the plastic age. There is much to be done and some of the steps in the journey cannot be short-circuited. The United States alone has more credit cards than the rest of the world reflecting how that society structures and operates its business. We need to set ourselves some modest targets like the greater use of bank deposits, cheque guarantee cards and ATM's that accept a range of cards. This will free up an enormous amount of resources which this country so badly needs.