China’s credit boom continues, even as warnings of slow down and credit crisis become more of a media staple. Between 2008 and 2012 cards and credit grew at breakneck speed on the back of a push by the banks and government to maintain high growth. CI reports
During the review period (2008-2012), the Chinese card payments channel registered a CAGR of 18.42%, representing 3.9 Bn cards in circulation in 2012. The channel is expected to post a forecast-period (2013-2017) CAGR of 8.06% to reach 6.1 Bn cards in circulation by 2017. Changing lifestyle demographics, the popularity of online shopping and higher disposable incomes per capita supported the growth of the volume of cards in circulation.
The Chinese card payments channel presents positive growth potential
The Chinese card payments channel grew substantially both in volume and value terms during the review period. In terms of number of cards in circulation, the channel grew at a robust pace from 2.0 Bn cards in 2008 to 3.9 Bn cards in 2012, at a CAGR of 18.42%. Debit card category remained the largest category accounted for 82.3% of the category market share in 2012 and recorded a CAGR of 17.89% during the review period. Over the forecast period, total card volume is expected to grow at a CAGR of 8.06% to reach 6.1 Bn cards by the end of 2017. In terms of transactions value, the Chinese card payments channel grew CNY9.6 Tn (US$1.4 Tn) in 2008 to CNY36.9 Tn in 2012, at a CAGR of 40.15%. It is expected to grow at a CAGR of 13.96% over the forecast period from CNY46.0 Tn in 2013 to CNY77.5 Tn in 2017.
Central bank implemented practices to regulate money laundering and reduce non-performing loans
The People’s Bank of China (PBC) has implemented regulations to counter money laundering in the credit and prepaid cards categories. Allegedly, the prepaid gift card category is used for money laundering and tax evasion by corporate companies. To counter this, the central bank has introduced legislation regarding the validity of prepaid cards. Registration is compulsory if the holder purchases cards worth more than CNY10,000. Regulations to reduce the number of non-performing loans have also been implemented. The ‘credit worthiness’ of the card holder is monitored and revisions of credit limits are subject to closer supervision.
Value added services give domestic banks an edge over foreign competitors
Domestic banks partnered with domestic service providers to bundle debit and credit cards products with a range of value added services to target different consumer demographics. The restrictions placed on foreign competitors have limited the extent to which they can adopt similar marketing and promotional strategies.
Government initiatives support the use of debit and credit cards
During the review period, government efforts to increase card issuance supported card use. The government issued social security cards to beneficiaries as part of its 12th five-year plan in 2011. These cards can be used to withdraw and deposit cash, and make payments at point of sale (POS) terminals, thereby popularizing cards among the Chinese population. In another similar initiative, China Union Pay (CUP) attempted to increase its issuance of charge cards to businesses. Standard charge cards were issued in 31 provinces and municipalities to advocate budget management and transparency in business practices.
Urbanization and emerging middle class to generate greater demand for payment cards
China’s emerging middle class population has a growing appetite for better living standards and quality goods, which is expected to increase the market potential of card-based payments. Moreover, urbanization is expected to sensitize consumers to the convenience and advantages of card-based payments.
Online shopping platforms to increase the scope for card-based payments
China has an established online-commerce infrastructure. Domestic sites such as Taobao, tuan800 and 360 buy have outperformed international competitors such as ebay and Amazon. High internet penetration rates and the availability of online payment infrastructure have encouraged consumers to spend online.
Customized product offerings by rural banks to encourage card literacy in rural locations
Rural banks in China offer a range of products that are accompanied by customized value added services. Commercial and cooperative banks offer customized schemes for farmers, farming cooperatives, agricultural workers and labor union members. Shanghai Rural Commercial bank offers the Xing Nong (Agriculture) Card for farmers, which provides the statement management services, merchant promotions, specialized discounts and the cardholder’s balance via text message.
Corporate and retail demand for gift cards to increase the issuance of closed-loop prepaid cards
Corporate clients use gift cards as payment incentives for employees. Despite the tightening of central bank regulations, demand for gift cards is expected to grow over the forecast period.
Credit card category anticipates new competitors as China liberalizes licensing rules
The Chinese credit card category is expected to attract more foreign competitors over the forecast period. Foreign banks have not been permitted to issue their own credit card until 2012, and could only circulate co-branded cards in collaboration with a Chinese counterpart. However, Citibank has been granted the first stand-alone license to deal credit cards in the Chinese market. Foreign banks will have to apply to, and be approved by, the regulatory authorities if they wish to do the same.