Credit cards vs eWallets: Why should you use eWallets?
Both eWallets and credit cards sound similar in nature. They both enable you to live life without carrying a bulky wallet, but they both come with distinctly different features and functions. So, why should you download an eWallet if you already have a credit card?
Let’s establish the common differences between a credit card and an eWallet. A credit card allows you to borrow money from the bank while an eWallet is only usable when you transfer existing funds from your bank account into your eWallet. A credit card comes with a monthly bill that reflects each transaction you made (this includes money you’ve borrowed from the bank) while an eWallet only reflects the transactions you made from the money you store inside the digital wallet itself. A credit card’s typical features are credit limit, credit card fees, rewards, grace period (the timeline given to an individual to make a full payment), buyer protections and the annual percentage rate (APR), which is the interest rate applied to any balance that is carried past a grace period. The typical features of an eWallet are instant eWallet to eWallet (business or personal) fund transfers, buyer protections, loyalty programmes, rewards, top ups on prepaid mobiles and the ability to make payments via QR codes, in-app payments and online payments on selected merchants.
The background of credit cards
The usage of credit cards between 2015 and 2020 has increased by 26% as there are currently about 9.1 million credit card owners in Malaysia. Maybank data shows that credit cards cover 31% market share for billings and OCBC data shows credit card usage has increased by 10% as it has been commonly used to cover insurance, shopping, F&B and supermarket purchases.
Advantages of having a credit card:
Time saver: Devices that process credit card payments are now able to omit the practise of keying in a PIN, swiping or providing a signature before securing payments as most merchants utilise a wireless technology known as Near Field Communication (NFC) that give consumers the option to use paywave, a contactless transaction method. Consumers just have to tap their cards on a device that comes with a secure reader that will allow people to check out in a snap of a finger. The paywave system allows people to spend up to whatever limit they’ve set for their credit cards. This speedy process eliminates long ques and makes shopping easy. Also, some credit cards incentivise the usage of contactless payments by offering rewards such as 5% cashback for paywave transactions.
Cash advances: When times are tough, credit cards allow people to borrow money from the bank. This will help people secure house rentals, electricity bills and car loans.
Shopping benefits: Most credit cards come with an array of discounts or cashbacks on certain purchases. Examples of this would be HSBC credit card users are entitled to 8x rewards from oversea purchases, CIMB credit card users are entitled to 5% cash rebate on online purchases and Citibank credit card users are entitled to travel accident insurance.
A good credit score: A credit score is a numerical reflection of a person’s creditworthiness. In other words, if you have a good record of paying back what you’ve borrowed from the bank via credit cards, you’ll have a good credit score. A good credit score leads to lower interest rates on big purchases, better terms for product purchases and insurance discounts.
Disadvantages of having a credit card
Overspending + debt: It’s easy to accumulate heavy debts with high interest rates when shopping with a credit card. Even when a person initially purchases a product with a low interest rate, it can fluctuate at any time. In other words, all cash advances will cost more than the original price of a product. High interest rates paired with the annual fees of owning a credit card may outweigh the discounts and cashbacks people receive with credit cards.
It makes online shopping hard: Shopping online with a credit card can be tedious as it requires people to manually key in a long list of personal information. People often do not get what they desire during Black Friday Sales because the lengthy checkout process does not allow their items to stay in their carts for long. Research has also shown that online shopping sites that offer an e-wallet payment option such as PayPal increases sales by 88%.
Bad credit score: People can easily form a bad credit score when there’s an accumulation of delayed payments and ongoing debt. This can negatively influence their chances of getting future loans, good deals and discounted products.
Fraud schemes: Scammers target credit card owners as there’s a range of fraud schemes present in today’s market. Credit card owners faced with fraud can be legally compensated but it is a time consuming process that is extremely tedious.
The key takeaway of this comparison is that individuals must be tremendously responsible when they own a credit card to avoid all the listed disadvantages. However, situations such as a global pandemic may cause even the best of us to fumble.
How do eWallets combat the disadvantages of credit cards?
There's a myriad of reasons for the fast development of eWallets in Malaysia. It was strongly influenced by the government’s efforts to increase the usage of eWallets through the e-Tunai Rakyat initiative in January. Let’s explore how the functions of an eWallet can serve credit card owners.
Hassle-free shopping + rewards: eWallets allow online shoppers to complete their purchase without keying in their card number, expiration date and security codes. This helps both virtual consumers and businesses to have a smooth transaction. Boost allows shoppers to not only enjoy a speedy shopping experience but the app rewards shoppers with a wide range of rewards, cashbacks and special offers. Boost users can take part in the Boost loyalty programme to seal all kinds of special deals.
No overspending: Most eWallets come with a spending limit to ensure users do not overspend. TnG eWallet helps people stay on track with spending limits that are applicable to small and big sized TnG eWallets. Small sized TnG eWallets come with a monthly spending limit of RM4,999.99 and an annual spending limit of 59,999.99. Big sized TnG eWallets come with a monthly spending limit of RM5,000 and an annual spending limit of RM60,000. This virtual pocketbook also comes with a user-friendly transaction history that will help users easily track and manage their funds.
Protected funds: eWallets have a lower rate of fraud compared to credit cards. Grabpay has an award winning security as the app safeguards users’ money by keeping it in separate accounts with global banking partners. It is also regulated by Bank Negara paired with 24 hours fraud monitoring systems.
Avoid bad credit scores: If people are concerned about getting a bad credit score, an eWallet is a good alternative as it allows people to spend money that they currently have through debit cards or bank transfers, which reduces the chances of getting into debt or getting tangled up with products that has high interest rates.
This does not imply credit card users are doomed. Let’s remember that it is the irresponsible use of credit cards that is chaotic, not credit cards itself. A strategic utilization of a credit card paired with the benefits of owning an e-wallet results in an abundance of rewards, points, vouchers, cashbacks, savings and potential prizes.
For instance, Boost e-wallets that are linked to Citibank credit cards are entitled to RM30 cashback when a purchase of RM300 is made.
It is best to use multiple e-wallets to reap the most benefits as each e-wallet comes with its own unique qualities and strength. Find out which digital pocketbooks are most fitting to your current financial goals, shopping desires and spending habits.