Thursday, September 07, 2006
Chinese banks to offer U.S. credit cards
American Express Co. and China's largest state-run commercial bank, Industrial & Commercial Bank of China, launched standard and gold versions of the American Express card aimed at a burgeoning market of affluent Chinese consumers.
Bank of China, another major state-run bank, also said it is launching a co-branded Visa card to mark Beijing's hosting of the Olympic Games in 2008.
The bank also said it had been approved to open its own bank card center, allowing it to better coordinate the revolving credit mechanism that is at the heart of the credit-card system.
American Express chairman and chief executive Kenneth Chenault said the co-branded ICBC-American Express card would provide a vehicle to further extend the 3 percent penetration of credit cards into the China market.
That penetration rate makes a paltry contribution to the $3 trillion in credit card transactions that occur annually out of a total $20 trillion in worldwide consumer purchases.
American Express expects China will eventually have a penetration rate similar to Hong Kong's 20 percent of consumer transactions as the country continues to develop its economy and standard of living.
"Clearly, I think there is strong potential over the next several years for a dramatic expansion," Chenault said.
He said the new cards would initially target the affluent and the aspiring-to-be-affluent consumers in China.
The dual foreign currency and yuan credit cards to be marketed by ICBC allow users to tap the American Express travel services and rewards programs, he told reporters.
While China-based customers traveling overseas can use the many merchants signed up to the American Express network, within China they will be able to use the card at the 400,000 merchants using the China Union Pay network, which ICBC is a member.
Chenault said ICBC would bear all the risk as card issuer while American Express, the New York-based financial services giant, would provide training and technology to improve the bank's credit-risk assessment systems.
That is a big issue in a country where loan defaults are high and banks struggle with double-digit nonperforming loan ratios.
ICBC already has experience managing credit through its own Peony- branded card, which in the past three years has clocked up 31 percent annual growth rates in card spending.
Initially, the American Express cards will be available only to residents of Beijing, Shanghai, Guangzhou and Shenzhen. Even then, applicants will have to have a minimum income of 20,000 yuan a year - - or about $2,400 -- which is about 2.5 times the average annual wage in China.
"This is a market that is in its infancy," Chenault said. "But we think there are tremendous opportunities for growth going forward."
American Express Global Network Services president Peter Godfrey said in a country of 1.3 billion people, even if the high end of the market is just 1 percent of the population, it still delivers 13 million new credit card customers.
ICBC rival Bank of China is also making inroads into the China market for credit-cards through its partnership with Visa International.
Bank of China managing director Hua Qingshan said China's banking regulator has approved its plan to establish a professional bank card branch office.
"Right now, we are setting up the relevant internal policies, selecting sites, putting into place a computer system and training staff," Hua said at a news conference. "We expect the center to be officially launched in 2005."
Hua said the center would combine both the supervision and operation functions of its bank card business.
"Previously, our bank card center focused mainly on supervision while paying less attention to operation," he said. "The new bank card center will combine the two functions together to manage and operate the full product line of Bank of China's bank cards, including debit cards and credit cards, both domestically and overseas."
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