The rapid development of China’s
credit card market has fostered a growing need on the part of the
country’s banks to update and overhaul their back-office
operations, processing capabilities and service functions. A new
report from payment consultancy Celent highlights the emerging IT
trends, as Victoria Conroy


A new report from US payment consultancy
Celent, Credit Card Systems in China: Technology and Vendor
, charts the development of the Chinese credit card
industry to date, and how rapid growth in a short space of time has
driven the need for banks in the country to increase their
processing capabilities to handle the growing volume of card

A look at the volume of cards issued
illustrates why Chinese banks are now placing more emphasis on
ramping up their processing power. At the end of 2008, the number
of cards issued reached 142 million, and
the number of cardholders exceeded 30 million.

China’s credit card industry began to take off
in 2003 and over the past five years, the credit card market has
been rapidly developing. In terms of system construction, the big
banks typically run systems in house, while the small and
medium-sized banks have been adopting the outsourcing model,
especially in outsourcing to China UnionPay (CUP).

Emerging technology

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The increasingly IT-driven needs of
the Chinese bank card market have produced several emerging
technology trends, according to Celent. These include:

• Integration of credit cards with online
banking, such as online payments, integration with online malls,
and so on.

• Non-core businesses will further be
outsourced. Many small banks rely on professional services firms to
manage their non-core businesses, which effectively reduces the
banks’ operating costs. Some network service providers also
establish their own customer credit evaluation systems and data
processing systems by tracking online consumer behaviour.

• Managing the issuance of credit cards using
customer relationship management (CRM) systems. Through the use of
the CRM system, banks are able to collect, track, and analyse
customer data and design credit card products based on customers’

• Integrated chip-based smart cards will play
an important role. Smart cards have a high level of security and
can effectively implement identity authentication, digital
signatures, online payments, and database authorisation, as well as
recording loyalty points. They can also effectively reduce the
risks of transmission, transaction, and fraud.

• Contactless credit cards: Contactless cards
have a unique advantage for payments of small amounts.

Structure of credit card systems

Celent draws several conclusions in the report, including the
following major trends based on the number of cards issued:

• Until the end of 2008, the total number of
cards issued was nearly 142 million. In the past three years, the
annual growth rate reached 54 percent. In the next four years, it
will retain an average annual growth rate of more than 30

• After foreign banks were allowed to issue
debit cards, they also started to gradually issue credit cards. In
December 2008, the Bank of East Asia started to issue credit cards
in China.

• Celent estimates that over the next four
years, there will be eight banks with more than 10 million cards
issued credit cards, and 30 banks with more than 1 million cards.
This also means that many banks will need to upgrade their systems
to support a bigger scale of operations.

Regarding the choice of credit card systems of

• Large banks generally choose to purchase
software packages from external sources and then develop them

• Small and medium-sized banks often choose to
outsource. Outsourcing can reduce the risks of issuing cards borne
by the banks, shorten the period needed to issue cards and reduce
the costs from issuing cards. At present, only one-third of the
credit cards use the outsourcing model, mainly due to the
relatively late entrance of small and medium-sized banks and
foreign banks to the Chinese credit card market. However, it is
expected that more credit cards will be operated by way of
outsourcing in the future.

Conclusions and future

Looking to the future, Celent
predicts that there will be major market opportunities for foreign
vendors of credit card systems. At present, China’s credit systems
are basically foreign systems. As compared to other systems, the
banks in China accept foreign credit card systems more readily.
China’s credit card market is not yet saturated and will continue
to maintain rapid growth. This will not only bring new market
opportunities, but also opportunities for more upgrades of the
current credit card systems as some banks will likely face a system
capacity issue.

In the future, many city banks (third tier
banks) and foreign banks will be permitted to issue cards, and they
will need to outsource or run a credit card system in house. With
the continued development of the credit card industry,
profitability will gradually rise. Some banks may set up
independent credit card departments and even independent companies.
Hence, these companies may need to rebuild their own systems.

With the advancement of technology, more and
more credit card systems need to link with CRM and network systems,
so as to better practice a customer-centric approach to

The challenges for foreign systems suppliers

• The processes of the banking industry in
China are not very compatible with foreign business systems.

• Large banks in China have high expectations
on the performance of the system, but foreign systems are not able
to meet these requirements entirely. In this context, large banks
usually construct their own system based on purchased software

• Small and medium-sized banks usually use the
outsourcing model, and China UnionPay Data is the market

• Support for localisation.

• Acquiring a reference client and successful
implementation in China.

• Capital cost: large and medium-sized banks
have more mature credit cards systems already. In the future, many
small banks are expected to start their own credit card systems,
but these small banks usually have limited budgets.