IT'S an interesting phenomenon that while the industry is concerned about the profitability of Chinese banks' credit card business, bankers shrugged off the concerns and are more focused on taking a bigger bite of the market although most of them are still not making money in the sector.
Wu Huitao, deputy general manager of the China Construction Bank's credit card center, is confident about the prospects of the Chinese mainland's credit card market although the bank hasn't broken even on the business yet.
"It is estimated that China will have 250 million credit cards in circulation in five years," said Wu. "The market potential is huge and in the long run, profitability will come."
China has more than 104.73 million credit cards in circulation at the end of March, up 92.9 percent from a year ago, according to the People's Bank of China, China's central bank.
Credit cards will be the most important consumer credit product after mortgages, with profit forecast to reach US$1.6 billion by 2013, accounting for 22 percent of total consumer credit profits, said New York-based McKinsey & Co.
Elusive card profit
However, there are less than a handful of banks in China making a profit in the business now. China Merchants Bank, one of the leading banks in the market with a one-third market share and with more than 21 million credit cards issued, claimed its card business is profitable.
Li Weiping, president of Industrial and Commercial Bank of China's card center, was more blunt saying that at the moment the issue of profitability is not a big factor.
"It is a complex issue - profitability depends on whether you include the cost of the headquarters, the branch counters , besides the cost for direct-sales and the card center," Li said.
"There is no universal criteria in the industry now, so I don't think it necessary to discuss more on profitability now," he pointed out.
Li said ICBC targets a higher contribution to its individual credit revenue by adding 2 to 3 percentage points each year from last year's 10 percent.
Wu from CCB said 10 million active credit card users, or people who frequently use the card rather than leave them at home, can help CCB turn the business into a profitable one and the bank is just one step away from that.
"We expect to break even and make a profit next year based on our current card user numbers," Wu told Shanghai Daily.
CCB targets card numbers at 20 million at the end of this year, from 16 million at the moment.
Bank of Communications had planned to break even within three years when it launched its co-branded credit card with HSBC in 2005. But gaining market share takes priority now.
"If we stop promoting products and sit on the current card circulation scale, we are already making money," said a BoCom credit card manager. "We'd rather grow market share and boost the number of active card clients."
It seems obvious that most banks prefer to target economies of scale for their credit card business before profitability.
Guo Tianyong, a Central Univerity of Finance and Economics professor, said expanding card scale is one solution for banks to try to make profit in the sector and banks should diversify into other areas from the traditional channels.
He mentioned that banks should tap the growing power of the Internet such as online payments when promoting their credit cards.
A recent survey by qq.com showed that 33 percent of its users use credit cards, with white-collar workers among the most active users. This group has a monthly card-based consumption of 1,743 yuan (US$255), the survey found.
Amount rolled over
Banks make money from interest levied on cardholders who don't pay in full the outstanding amount, commission from merchants and annual fee.
CCB's Wu said clients aged between 30 and 45 years old with an annual salary of 100,000 yuan to 150,000 yuan are the main profit contributors to the bank. This group is willing to roll over the outstanding amount and pay interest on it.
Card users can just pay 10 percent of the bill before the due date. The bank will charge interest of 0.05 percent daily on the remaining 90 percent of the amount that is rolled over to the next due date.
When the stock market is booming, more card holders are likely to pay the minimum amount due so that they will have more cash to play in the stock market.
If card holders do not pay the minimum amount by the due date, banks will also charge a 10-percent penalty on the unpaid bill, besides the 0.05 percent daily interest.
But the issue of rollover debt triggered the question of risk control for the banks which can access the central bank's nationwide credit database on individuals, which was set up in January 2006.
The database covers 600 million individuals and more than 100 million of them have bank loan records at the end of 2007.
Top 10 Reasons For Not Using Credit Card
1. Prefer Cash
2. Never thought of it
3. Debit card is enough
4. Don't want to owe banks
5. Fear of over-consumption
6. Credit card is not safe
7. Credit card will lead to fees
8. Interest is too high
9. Application is too complicated
10. Fear of not being qualified when applying
Source: CTR market research
Credit Card By Numbers
China has more than 104.73 million credit cards in circulation at the end of March, up 92.9 percent from a year ago, according to the People's Bank of China.
China Construction Bank said its clients aged between 30 and 45 years old with an annual salary of 100,000 yuan to 150,000 yuan are the main profit contributors to the bank.
Credit Card In China
About half of China's credit card users use the plastic at least once a week to pay for purchases and services, a survey said.
Nearly 47.3 percent of respondents said they use credit cards more than once weekly, said the survey conducted by CTR market research.
The survey was done on 4,515 residents in 12 cities including Beijing, Shanghai, Guangzhou, Shenzhen, Xi'an, Wuhan and Shenyang, CTR said.
Almost 51.6 percent of respondents in first-tier cities said they use credit cards more than once a week - about 10 percentage points higher than the respondents in second or third-tier cities.
Department stores and supermarkets are the main places for credit card use.
About 73 percent of respondents used the cards in department stores, while 59 percent of them used the plastic in supermarkets.