Credit Cards
- China
HEADLINES
- Credit card transactions increases by 31% in current
value terms and 25% in volume terms in 2010
- After years of market development, banks slow down new
card application promotion and look to improve utilization and
profitability per card
- Average spend per transaction grows from RMB1,113 in
2009 to RMB1,164 in 2010
- Industrial & Commercial Bank of China Ltd leads in
credit card transactions (by issuer) with a value share of 20% in 2009
- Credit card transactions expected to post constant
value CAGR of 14% over the forecast period
TRENDS
- China Banking Regulatory Commission released ‘the
notice to further regulate the credit card market’ in 2009 to streamline
the industry structure and manage the risk. It clearly stated that issuing
credit cards to customers under 18 was forbidden, multiple applications
under one name were supervised and credit card promotion would be further
regulated.
- The topic of malicious cash out of credit card
transactions seen in recent years was brought up to the highest level in
2009. China Banking Regulatory Commission, People’s Bank of China,
Ministry of Public Security, and China UnionPay jointly launched a 10-month
campaign to regulate POS transactions, online purchases, and personal
credit systems to minimize malicious cash-out activities.
- The impact of economic downturn reminded the Chinese
government and the banks to make risk control a more important priority
than acquiring new customers. The growth of credit card circulation slowed
down from 30% in 2009 to 15% in 2010. Many banks are also re-evaluating
existing customers more frequently and controlling the credit limit they
extend to new customers.
- There is minimal difference in terms of transaction fee
structure between debit and credit cards. Banks and financial institutions
did not see significant cannibalization going on and on the contrary,
bearing personal debt by credit card payment is more popular in China,
especially amongst young consumers.
- Credit card transactions saw percentage spend on food,
beverages and tobacco, clothing and footwear, and leisure and recreation
slightly increase in value in 2010. Banks offered all kinds of promotion
like points, discounts and lucky draws to stimulate spending and purchase.
- Credit card payment instalment increasingly evolved in
2010. Banks offered interest-free instalment and charged a lower fee to
allow clients to split the bill. Other than paying interest for the credit
card debt, customers were more willing to pay fees to avoid higher
interest, late payment charges and potential default. Shenzhen Development
Bank Co Ltd reported that the credit service fee doubled towards the end
of the review period, largely due to the instalment payment service.
- Commercial credit cards still fall behind personal
credit cards in terms of number of cards in circulation in China. However,
commercial credit cards saw stronger growth in terms of transaction value
and number of cards in circulation than personal credit cards in 2010.This
is mainly driven by banks started to develop commercial credit cards.
Several banks launched a commercial credit cards promotion program,
targeting small and medium-sized enterprises (SMEs) as the alternative to
small and medium-sized value business revolving loans. China Communication
Bank did several site promotions of SME commercial credit cards in
Zhejiang Province, where SMEs cluster.
- Online credit card payments grew with the boost of B2C
e-commerce and third party payment business, which mainly focused on
online payment. The credit card was the largest funding source for online
payment accounts in 2010. The biggest online payment company, Alipay, had
established a credit card funding network with 65 banks in China.
- Banks launched a variety of products to focus on credit
card segmentation and activate sleeping cards. Cross marketing was heavily
used to acquire new customers, especially high-end customers from mortgage
customers. Some banks centralized the credit points to offset mortgage
interest as part of the customer loyalty program.
- Bill payment further diversified in different channels.
Other than going to ATMs or making automatic payments, online payments and
convenience stores became the popular way to pay back credit card bills.
Over 4,000 convenience stores in Shanghai and 3,000 stores in Beijing were
equipped with financial card payment terminals in 2010.
COMPETITIVE LANDSCAPE
- Industrial & Commercial Bank of China Ltd retained
its leading position as an issuer in terms of credit function cards
issued. At the end of 2009, it had 48 million credit function cards in
circulation, accounting for 26% share. China Construction Bank Corp was
the second largest issuer of credit function cards, with a total number of
25 million credit cards in circulation and 13% share in 2009.
- China UnionPay Co Ltd continued in a leading position
as credit card operator, holding 69 million cards in circulation in 2009,
taking 38% share. Visa Inc still positioned second largest operator,
taking 33% share, followed by MasterCard International Inc with a 28%
share.
- Besides one-time gifts and points bonuses, function
differentiation was the key way of attracting customers. Auto Card
introduced by China Commercial Banks was hugely successful in acquiring
auto users. The card contained features like discount insurance quotes,
free road service auto clubs, etc.
- According to the updated regulation rules from China
Banking Regulatory Commission, a ‘sleeping card’ that has not been
activated will not be charged an annual service fee. In 2010, banks worked
with China UnionPay Co Ltd to launch a new online platform – OURPASS.com –
to activate sleeping cards and stimulate spending. The platform mainly
leveraged its huge customer base as the bargaining power to get better
deals and more discounts for card holders.
- The Annual Percentage Rate (APR) was determined by the
China Banking Regulatory Commission, which was stabilized at 18% and banks
were not authorized to change the APR. Gifts, points bonuses, annual fee
waivers, customized logos and co-branding promotions were the battleground
where banks were competing.
- Issuers just started cooperation with mobile phone
carriers to launch mobile payments in 2010. China Mobile launched the RFID
SIM card, which is able to contain banking information and consumers are
capable of making credit card payments by cell phones in seconds.
Industrial & Commercial Bank of China, the leading credit card player,
launched the first mobile pay credit card in 2009 and acquired over 10,000
customers within the first three months.
- Other than the existing market entry barrier for
international operators, the competition between domestic operators and
international operators is getting more intense. The leading domestic
operator – China UnionPay Co Ltd – was in a dispute with the international
operator Visa Inc. China UnionPay Co Ltd expanded its global reach with
acceptance in 90 countries during the review period and Visa Inc brought
up the dispute to the Obama Administration, arguing that shutting out Visa
transactions in China violates trade rules.
PROSPECTS
- By 2015, credit card function cards are expected to
grow in terms of number of cards in circulation and transaction value. The
main driver behind the credit card growth is due to a consumption
behaviour shift. Chinese people will get used to carrying a fair amount of
debt gradually in the forecast period.
- The regulation on debt collection services will be
standardized. During the review period, the debt collection companies that
got outsourced business from banks were fairly under regulated. Complaints
about improper collections have been increasing and this has alerted the
China Banking Regulatory Commission to tighten the regulation over the
forecast period.
- Even though the banks will not have authority to
determine the Annual Percentage Rate (APR) in China in the forecast
period, banks are expected to have launched instalment promotion programs
and bonus acceleration plans to lower the cost of bearing credit card debt
and increase the profitability.
- The competition between domestic operators and
international operators will continue to intensify over the forecast
period. China UnionPay holds the leading position in terms of number of
cards in circulation in China but international operators like Visa have
started to squeeze China UnionPay’s international territory in order to
make Chinese government further open the China market. The competition
will go on over the forecast period, from acquiring new customers to
cross-border transactions.
- The cooperation between mobile payment and credit card
services is expected to boom in the forecast period. Considering the huge
customer base from both mobile phone carriers and commercial banks, this
new product will become a flashy growth point.
Contact Mahasagar Publications by
posting your query to mahasagarpublications@gmail.com
for dissertation writing help.