The meteoric growth of credit cards in China has not come without teething problems. With China cited as one of the most promising credit card markets in the world, banks have rushed to sign up new cardholders by offering an ever-increasing array of products.
But in their haste, some banks have neglected to make sure that their customer service functions were up to speed, and on top of that, a lack of formalised credit card approval procedures and credit bureau infrastructure has led to a rapid rise in overdue credit card debt.
Complaints about credit cards rose in the third quarter of 2009 to become the largest source of complaints about banking services, according to the Shanghai branch of the China Banking Regulatory Commission.
Credit card complaints rose by 8.6 percent from the second quarter, accounting for 28.2 percent of all banking complaints.
However, the number of complaints relating to credit cards – 367 in Shanghai – is miniscule compared to the 150 million credit cardholders in China.
Overall, the regulator received 1,271 banking complaints in the third quarter in Shanghai, up 9.4 percent from the previous quarter.
The most common credit card-related complaints relate to ‘misleading’ marketing campaigns, charges on overdrafts and late payment penalties if minimum payments are not made on time, and the way that lenders approach the settlement of unpaid bills, according to the banking watchdog.
“Poor credit card services are still the biggest headache for banking services in Shanghai,” the regulator said.
Several of China’s smaller and medium-sized banks have set up instant approval sales points, where an applicant merely shows ID and fills out a form to obtain a credit card, without their credit histories being checked.
In July this year, banks were told by the China Banking Regulatory Commission not to offer gifts to new credit cardholders, to set quotas for their sales staff, or to issue cards to those under 18.
In September, the watchdog stated that banks would no longer be allowed to outsource the signing up of new cardholders, and has also warned banks against offering incentives that reward sales forces on the basis of how many new cardholders they recruit.
Credit card debt on the rise
China was not immune from the global economic turbulence that has blighted the banking industry worldwide over the last two years, and issuance growth rates have slowed considerably in recent months as banks overhaul their lending practices in response to economic pressures and regulatory scrutiny. But this has not stopped overdue credit card debt rising steeply in recent months.
Figures from the People’s Bank of China show that credit card debt older than six months for the first half of 2009 more than doubled from 2008, and the risk is getting larger.
Total credit card debt overdue for six months or more reached CNY5.7 billion ($845.2 million), up 1.3 percent from the same period in 2008.
This is an increase of CNY0.8 billion, up 16.2 percent over the first quarter of 2009.
Debts overdue six months or more accounted for 3.1 percent of the total outstanding credit card debt at the end of June, an increase of 0.1 percent from the first quarter, or 0.7 of a percentage point more than the same period last year.
According to Asia-Pacific market research company RNCOS, China’s rate of card issuance is still going strong – with over 40 million credit cards issued in 2008 alone, a growth rate of 58 percent compared to 2007, bringing the total number of credit cards in China to over 150 million as of the end of 2008.
“Our future industry analysis indicates that factors such as low credit card penetration levels and an anticipated improvement in consumer confidence by the end of 2009 will help the credit card market to overcome the impact of recession in the long term. The industry is projected to grow at a CAGR of 26 percent during 2010-2013,” the firm stated.
But RNCOS is predicting that there will be a further deceleration in the credit card issuance growth rate, which is likely to almost halve this year.
“As the impact of global economic recession caught hold of China, consumer spending has been slowing down when compared to previous years. This has led to increase in the credit card delinquency rate in the country, which has risen by one to two percentage points by mid-2009 as compared to a mere 1 percent or 2 percent in previous years,” the firm said.