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June 28, 2012

Analysis: card market dynamics in Asia-Pacific

Asia-Pacific markets remain some of the most robust in demand and availability of credit. But which are the most attractive for credit card issuers William Cain looks at growth markets like India and the Philippines, as well as mature markets including Australia, Hong Kong and Singapore

By Verdict Staff

Asia-Pacific markets remain some of the most robust in demand and availability of credit. But which are the most attractive for credit card issuers? William Cain looks at growth markets like India and the Philippines, as well as mature markets including Australia, Hong Kong and Singapore

 

Separate research produced by HSBC and Hewlett Packard offers new insights into the consumer spending patterns, preferences and characteristics of credit cardholders in the main markets of the Asia-Pacific region.

The HSBC Credit Card Monitor focuses on a number of key Asia-Pacific markets, providing information on penetration rates, monthly spending volumes and a breakdown of the types of card products held by consumers. HP’s research, the HP-RFI Australian Payments Research – Consumer Trends and Behaviour gives a more in-depth view of the Australian market, showing how credit cards fit into the wider payment environment in one of the most credit-hungry markets in the world.

Using data from both pieces of research, it is possible to draw up a simple framework of the different market dynamics across the region and what they may mean for credit card issuance strategies.

HSBC’s research covers Hong Kong, Singapore, Taiwan, Malaysia, India, Australia, Indonesia and the Philippines, with full coverage of the Hong Kong and Singapore and coverage of the main metropolitan areas in the remainder. The survey, the HSBC Credit Card Monitor, interviews HSBC cardholders and those of other banks through telephone, face-to-face and online interviews to gain a perspective on consumer preferences towards credit cards. It interviews around 600 cardholders in each market.

Card penetration

The most penetrated market, according to HSBC’s research, was Hong Kong, at 77% of those surveyed, followed by Taiwan at 55%, Singapore at 52%, Malaysia at 27%, Philippines at 23% and India at 21%. The figure for India does not represent total credit card penetration across the country because of the limited geographical scope and the socio-economic groupings chosen for interview in that country. It is based only on mass-affluent individuals in India.

Total credit card penetration across India is far lower because of the large number of unbanked individuals in these urban centres and in more rural areas. Rough estimates put India’s unbanked population at 600m, compared with a banked population of about 200m, indicating significant underpenetration in India compared to the more developed Asia-Pacific markets.

There were no figures available for the Australian market, which is covered in more detail in the HP research later in this article.

Credit card penetration in the markets HSBC sampled showed small and statistically insignificant increases in Hong Kong, Singapore and Malaysia. There were declines in Taiwan, India and the Philippines, again at a statistically insignificant level. The small number of people interviewed for the survey means it is hard to draw meaningful conclusions from these figures. 

However, up-to-date, economy-wide figures seem to bear out the findings. For example, in Singapore, according to central bank figures, there was a 10.8% increase in the number of credit cards in issue, up from 7.52m in 2010 to 8.33m in 2011. In Hong Kong, the number of credit cards increased from 15.45m to 16.49m over the same period, an increase of 6.7%. The growth rates are both well in excess of the two countries population growth rates (0.82% in Singapore and 0.45% in Hong Kong, according CIA World Fact Book figures), indicating an increasing penetration and/or number of cards per consumer in both markets over 2011.

Average number of cards held per consumer was highest in Singapore, according to the HSBC survey, with an average of 3.3 per cardholder in 2011. This figure declined from 3.9% the previous year, with around 72% of all cardholders with more than one card. In Hong Kong, the figure is slightly lower, with 2.7 cards per cardholder. The proportion of multicard holders increased in Hong Kong from 70% to 76%.

Singapore set for growth

Combining the figures on card penetration, card spending and the number of cards per holder, it could be argued that credit card issuance in Singapore is likely to continue growing more strongly than in Hong Kong. With a lower overall penetration rate, faster growing card issuance and falling numbers of cards per cardholder in Singapore, the figures seem to suggest that consumers who have not previously held credit cards are driving a substantial part of the growth and may be a more attractive target for card issuers.

Figures on card penetration by type of product back up this argument. Most cardholders who have a card in Singapore own both a classic card and a platinum card, according to the HSBC survey results. Sixty-seven percent of cardholders surveyed owned a classic card and 71% owned a platinum card, indicating that most new issuance is likely to come from customers who did not previously have a card, rather than issuing more cards to existing customers.

In Hong Kong, a high penetration rate, coupled with an increasing proportion of multiple card holders suggests credit card issuance efforts in that market are best focused on existing cardholders, for example premium products like gold/platinum cards and loyalty programmes. The research points to a clear cross-selling opportunities for banks or other issuers with existing customer/cardholder relationships.

Of the other markets surveyed, the Taiwan market looks similar to Singapore with regard to both the level of penetration (slightly higher, at 55%) and the set of card products held by existing cardholders (around 60% of cardholders have a classic card and 56% have a platinum card). Similar strategies may be effective in both markets.

Malaysia, India, Indonesia and the Philippines have low penetration rates compared to the other markets, indicating the opportunity to acquire new cardholders. However, they also have lower levels of platinum card penetration, indicating there is the opportunity to both grow penetration and up-sell premium products to existing customers. This marks them out as arguably the most attractive for growth.

HSBC’s research shows Australia is a significantly larger market than those discussed earlier, with average card spending per cardholder around $1,320 per month, compared to Singapore at $1,020 and Hong Kong at $730.

Categorising the Australian market in a similar way to those above is more difficult. It requires mixing and matching the HSBC and HP research because of gaps in the HSBC coverage. Figures from the HP research may not be directly comparable with HSBC’s because of differences in data collection methods.

According to HP figures, Australia is less penetrated than Hong Kong, at 63% of all consumers. Combining the HP penetration rate figure (not covered in the HSBC survey) and data from the HSBC study which shows the types of cards held by Australian consumers makes it possible to draw similar conclusions to the ones made for the Asia-Pacific markets above.

The data places Australia closest to the Hong Kong market both in terms of card penetration levels and the types of cards currently held by consumers. Around 76% of cardholders hold a classic credit card, with only 8% with a platinum card. Again, this indicates card issuing strategies which focus on cross-selling and up-selling card products to existing customers are likely to be most successful.

One of three buckets

This simple analysis of the Asia-Pacific and Australian markets suggests there are broadly speaking three buckets which they can be divided into it. In the first, or ‘Growth’, bucket are markets including India, Indonesia, Malaysia and the Philippines. The second ‘Transition’ bucket features Singapore and Taiwan and the third ‘Mature’ bucket includes Hong Kong and Australia.

Future trends

HSBC’s research also includes data for consumer activity in the next 12 months, and these can be used to test the groupings made above for consistency.

For example, in the mature credit card markets of Australia and Hong Kong, we would expect  because of the high penetration rates that existing cardholders, rather than non-cardholders, will drive issuance growth in the next 12 months. Around 10% of individuals interviewed by HSBC in Hong Kong said they intended to apply for a new credit card in the next 12 months and half of these were existing cardholders. This seems to fit with the idea that in highly penetrated markets, cross-selling and up-selling is likely to be an important strategy to grow transaction volumes. There are no figures available for Australia, however in India, Indonesia, Malaysia and Philippines there is generally a larger proportion of new cardholders intending to apply for credit cards than existing cardholders, indicating the main driver for growth in these markets will be customer acquisition.

The one exception is Indonesia, where 26% of those interviewed by HSBC intended to apply for a new credit card but only a quarter of these were non-cardholders. This casts doubt on some of the strategy assumptions, although the figure could equally be an anomoly in the HSBC research. The figures show only a 5% credit card penetration rate in the country, but in the ‘intention to apply for a new credit card’ question it says 20% of all consumers interviewed said they had a card and intended to apply for another. One of these figures appears to be incorrect.

In the ‘Transition’ markets, Singapore and Taiwan, the HSBC research shows existing cardholders are actually likely to be a larger part of demand for credit cards in the next 12 months than those without cards. This contradicts the division of ‘Growth’ and ‘Transition’ buckets earlier and may indicate there is less difference between the Taiwanese and Singaporean markets and the Hong Kong and Australian markets than between these four markets and the four ‘Growth’ markets.

HSBC’s research also provides insights into the key product features which drive consumers usage of credit cards in different markets. These also highlight that the drivers in Hong Kong, Singapore and Taiwan are relatively similar, and focused on features generally associated with premium cards and cross-selling and up-selling.

In Hong Kong and Singapore, an attractive rewards programme was considered the most important feature for consumer credit card usage. In Taiwan, attractive usage benefits was the most important consideration. There are no figures available for Australia.

In the four ‘Growth’ markets, while rewards and usage benefits also scored highly, there was a much wider range of features considered important by consumers. These include having an existing account relationship with the issuing bank, annual fee waivers, flexible credit limits, convenience to settle card repayments, card acceptance (particularly in India), and habitual card usage.

A final, but important, consideration is the margin issuers are able to make from issuing credit card products. Typically, better margins are made from customers who use the revolving facility on credit cards, but eventually repay the entire balance in full. An important consideration, in addition to the potential growth of credit card issuance, is the profit margin on those cards, and this will tend to be higher in markets where there is a high tendency to revolve.

Most of the ‘Growth’ markets have a relatively higher tendency to revolve, other than India, indicating they are the most attractive markets for issuers. These include Indonesia, Malaysia and the Philippines. Australia appears the most attractive of the ‘Transition/Mature’ markets because of its high revolving rate relative to Hong Kong, Singapore and Taiwan.?

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