Apr 20, 2006

China card market highly commoditized, no differentiation other than price

Shanghai Daily reports that Chinese banks are dropping annual fees for credit cards, offering high credit limits and giving away free gifts in order to grab as large a slice as possible of the country's rapidly growing credit market. It will be hard to generate profits, since most Chinese cardholders use the cards for convenience, not long-term credit, and pay off their full balance every month. Sounds a lot like other markets where credit cards have been around for a long time, doesn’t it?

If banks are no longer charging customers for the convenience of using a credit card, and if cardholders are paying off their balance every month, who is financing the system? The few customers that revolve?

There is no mention of the role that merchants play in the payment card ecosystem in China. Are merchants encouraging card usage, or do they prefer cash like lots of other places? Do Chinese merchants add a credit card surcharge? What are banks doing to get merchants more excited about card acceptance?

If cardholders enjoy using cards for convenience, but are not paying fees or taking out loans, shouldn’t banks be focusing more on satisfying merchants and justifying interchange and other fees charged to merchants?

Unfortunately, the article is completely silent on this whole subject.

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